Brooke v Who Ya Gonna Call Bark Busters Pty Ltd

[2013] NSWCA 424

Court of Appeal

New South Wales

Case Title:

Brooke v Who Ya Gonna Call Bark Busters Pty Ltd

Medium Neutral Citation:

[2013] NSWCA 424

Hearing Date(s):

2 December 2013

Decision Date:

11 December 2013

Before:

Gleeson JA

Decision:

The respondent's notice of motion filed 11 November 2013 is dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

PROCEDURE - costs - security for costs - impecuniosity - where it is submitted that no satisfactory explanation of financial position and activity has been provided - whether special circumstances shown

Legislation Cited:

Bankruptcy Act 1966 (Cth)
Conveyancing Act 1919, s 37A
Uniform Civil Procedure Rules 2005, r 51.50

Cases Cited:

Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1
Hastings v Hastings [2009] NSWCA 294
J M Properties Pty Ltd v Strata Corporation No 13975 Inc [2006] SASC 227
Levy v Bablis [2011] NSWCA 411
Marks-Isaacs v Fowler & Ors [2005] NSWCA 37
Porter v Gordian Runoff Ltd [2004] NSWCA 171
Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247
P S Chellaram & Co Ltd v China Ocean Shipping [1991] HCA 36; 102 ALR 321
Shannon v Australia and New Zealand Banking Group Ltd (No 2) [1994] 2 Qd R 563
Swift v McLeary [2013] NSWCA 173
Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; 60 NSWLR 143

Category:

Interlocutory applications

Parties:

Andrew Brooke (Appellant)
Who Ya Gonna Call Bark Busters Pty Ltd (Respondent)

Representation

- Counsel:

Counsel:
D Barnett (Appellant)
D A Smallbone (Respondent)

- Solicitors:

Solicitors:
TressCox (Appellant)
Russell McLelland Brown (Respondent)

File Number(s):

2013/258764

Decision Under Appeal

- Court / Tribunal:

District Court

- Before:

Taylor SC DCJ

- Date of Decision: 

31 July 2013

- Citation:

Who Ya Gonna Call Bark Busters Pty Limited v Brooke (unreported)

- Court File Number(s):

2012/251003

JUDGMENT

1. GLEESON JA: This is an application by the respondent, Who Ya Gonna Call Bark Busters Pty Ltd (Bark Busters) that the appellant, Andrew Brooke, provide security for costs of the appeal filed on 26 August 2013. The amount of security sought in the notice of motion was $30,520.

2. The essential issue is whether Bark Busters has shown "special circumstances" which enliven the discretion to order security for costs under Uniform Civil Procedure Rules 2005 (UCPR) r 51.50.

3. Bark Busters sued Mr Brooke in the District Court for US$125,000 allegedly to be due under an agreement dated 11 January 2008. The parties to the agreement also included Dingo, Inc. The agreement provided that Mr Brooke would receive US$3,000,000 together with a Promissory Note for US$1,000,000 from Dingo, Inc. The terms of the agreement required Mr Brooke to pay to Bark Busters: (a) the sum of US$375,000 within 30 days of Brooke's receipt of the US$3,000,000 from Dingo, Inc; and (b) the sum of US$125,000 "within 30 days of Brooke's receipt of final payment under the Promissory Note".

4. Mr Brooke paid the first instalment of US$375,000 to Bark Busters. Subsequently, in March 2009, Mr Brooke agreed with Dingo, Inc to accept the issue of shares in Dingo, Inc in return for cancellation of the Promissory Note.

5. The primary judge found that the issue of shares in return for the cancellation of the Promissory Note constituted receipt of final payment under the Promissory Note. Judgment was given for Bark Busters in the sum $234,889.40. This amount had been converted from US dollars to Australian dollars at the date his Honour found the obligation to make payment had fallen due, together with interest at court rates.

6. The grounds of appeal raise issues as to (a) the proper construction of the agreement, and assuming those arguments are unsuccessful; (b) the correct time for conversion of the sum of US$125,000 to Australian dollars; and (c) the appropriate rate of pre-judgment interest - whether the rate applicable in the United States or under the court rates.

7. Mr Brooke has not paid the amount due under the judgment. Bark Busters sought to enforce the judgment by issue of a writ for the levy of property at Mr Brooke's home at Wombarra. On 31 October 2013, Mr Brooke filed a notice of motion seeking a stay of execution of the judgment below, until determination of the appeal. That application was resolved by consent orders made on 11 November 2013. Mr Brooke gave undertakings through his counsel, to the Court and to Bark Busters, not to dispose of or otherwise encumber certain property of Mr Brooke until resolution of the appeal or without giving seven days notice to Bark Busters. The property the subject of the undertakings comprised:

   (1)Mr Brooke's one one-hundredth tenant in common interest in the property at Wombarra;

   (2)the moneys standing to the credit of certain United States bank accounts;

   (3)Mr Brooke's interest in certain residential properties located in the United States.

Legal principles

1. Special circumstances must be shown before an order for security for costs of an appeal can be made under UCPR r 51.50.

2. The considerations engaged by the concept of "special circumstances" were considered by this Court in Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; 60 NSWLR 143 (Beazley, Santow and Ipp JJA), and in Porter v Gordian Runoff Ltd [2004] NSWCA 171 (Bryson JA, Sheller and Giles JJA agreeing).

3. In Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18], Basten JA identified the following principles: (1) that no order for security should be made in the absence of "special circumstances"; (2) that consideration of what may constitute special circumstances should not be fettered by some general rule of practice; (3) that impecuniosity, without more, will usually be insufficient; (4) that an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature; (5) that where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made; and (6) the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal.

4. The last two factors, it was suggested by Basten JA, might better be seen as exercising the discretion rather than as potential special circumstances.

5. When weighing all the circumstances of the case in the exercise of the discretion to order security for costs, it is necessary to keep in mind that the weight to be given to any circumstance depends not only on its own intrinsic persuasiveness, but upon the impact of the other circumstances which have to be weighed (see P S Chellaram & Co Ltd v China Ocean Shipping [1991] HCA 36; 102 ALR 321 at 323 per McHugh J).

Special circumstances

1. The respondent submitted that the following special circumstances exist, justifying an order for security for costs of the appeal:

   (1)Mr Brooke had arranged his affairs in early 2008 so that he had little or no assets available to meet any claims against him by his creditors, including the respondent;

   (2)Mr Brooke had failed to provide a satisfactory explanation of his financial position both as to assets and income, and as to his position in relation to any trusts or closely held companies;

   (3)that other than a gift to his wife in March 2008 to enable her to purchase the Wombarra property for A$1,750,000, Mr Brooke had not explained the destination of the whole of the US$3,000,000 he received in January 2008 from Dingo, Inc;

   (4)that Mr Brooke had not satisfactorily explained his current occupation, income, income earning capacity and activity, through his occupation described in his affidavit as "investor/trader" nor explained how he could pay for his representation in the proceedings below and on the appeal;

   (5)that Mr Brooke had not paid the judgment or any part of it;

   (6)that in March 2009, Mr Brooke arranged with Dingo, Inc for the Promissory Note to be cancelled, without telling Bark Busters.

2. In opposing security, the appellant contended that no adverse inference should be drawn that the appellant arranged his affairs so as to defeat the interest of his creditors in early 2008 by reason of the gift of approximately US$2,000,000 to his wife. It was argued that there was no suggestion that the appellant was insolvent at the time, or that the gift to his wife was liable to be impugned under the Bankruptcy Act 1966 (Cth) in the event that the appellant subsequently was made a bankrupt.

3. As to the merits of the appeal, it was contended that the appeal was genuine and a bona fide pursuit of the appellant's rights and that the appeal grounds were fairly arguable. In this regard, counsel for the respondent did not put in issue the bona fides of the appeal, nor submit that the grounds of appeal were hopeless.

4. As to the appellant's financial position, it was conceded that the appellant was impecunious and unable to satisfy any order that he provide security. The appellant submitted that such an order would stultify the appeal.

5. The appellant also pointed to the fact that he had already given an undertaking to the Court and to the respondent not to dispose of certain assets, which were said to constitute all of his assets other than his interest in two Australian bank accounts which were required to meet day to day living expenses of his family.

Conduct of the appellant

1. It is convenient to deal with the first and third matters referred to above together, being the substantial gift of money by the appellant to his wife in early 2008, and the asserted unexplained destination of the balance of the US$3,000,000 which the appellant received from Dingo, Inc in January 2008.

2. As to the gift to his wife, the unchallenged affidavit evidence of the appellant was that he made a gift of approximately US$2,000,000 to his wife in early 2008 at the time of purchase of the Wombarra property for A$1,750,000. Stamp duty on the contract of sale as noted on the cover sheet of the contract was $81,740. Nothing really turns on the difference between the purchase price and the amount of the gift. It is the fact of the gift that is relied upon. At the time of the gift, the appellant's evidence is that he had approximately US$2,625,000, of the US$3,000,000, which he had received from Dingo, Inc in January 2008, having already paid the respondent US$375,000. Thus after the gift to his wife, the appellant had approximately US$625,000, ignoring his financial position in relation to other investments at that time.

3. Contrary to the respondent's submissions, the gift by the appellant to his wife did not leave him with insufficient moneys to meet his future obligations under the agreement to pay a further US$125,000 to the respondent, if the condition as to payment was satisfied. The gift was made over a year before the cancellation of the Promissory Note in return for the issue of shares in Dingo, Inc to the appellant. There was no evidence which suggested, or from which it might be inferred, that the gift was made by the appellant with a view to disabling himself from meeting his future obligations to the respondent under the agreement, let alone made with the intent to defraud his creditors: see s 37A of the Conveyancing Act 1919.

4. The evidence does not support the inference contended for by the respondent, that the making of the US$2,000,000 gift by the appellant to his wife in early 2008 was part of an arrangement to defeat the interests of his creditors, including the respondent. Nor is it to be inferred that the appellant has sought to arrange his affairs so as to minimise his exposure to an order for costs. There is no evidence that the appellant had in contemplation in early 2008, the dispute with the respondent which subsequently arose in March 2009.

5. Insofar as the respondent asserts that the destination of the balance of the US$3,000,000 is unexplained, and by implication, the appellant dissipated this amount, the evidence is to the contrary. The appellant gave unchallenged affidavit evidence of various investments in business and property undertaken by him covering the period after receipt of the US$3,000,000 in January 2008. A number of such business investments failed, and some US residential property investments were the subject of foreclosures by lenders, consequent upon the impact of the global financial crisis. The appellant also gave evidence in relation to significant amounts of expenditure on general living expenses, renovations to the Wombarra property, contributions to his superannuation fund and payment of interest on mortgages, credit cards and other loans over the past five or six years.

6. Dissipation of assets by an appellant, which affects the ability of a successful respondent to recover costs, may amount to special circumstances for the purposes of UCPR r 51.50: see Swift v McLeary [2013] NSWCA 173 at [44]-[45]; J M Properties Pty Ltd v Strata Corporation No 13975 Inc [2006] SASC 227; Shannon v Australia and New Zealand Banking Group Ltd (No 2) [1994] 2 Qd R 563.

7. However, on the evidence of this application, I would not regard the making of a substantial gift to the appellant's wife, at a time when the appellant still held significant other funds, and well over a year before the disputed events giving rise to the claim below had arisen, is properly characterised as "special circumstances" within UCPR 51.50. The present case is not one where the unsuccessful party engaged in dissipation of assets either during the course of proceedings or post-judgment.

8. Nor does the expenditure of funds available to the appellant on various investments and property acquisitions, some of which were subsequently unsuccessful, constitute special circumstances.

Explanation of financial position

1. The respondent contended that Mr Brooke had failed to provide a satisfactory explanation of his financial position. Reference was made to observations of Handley JA in Marks-Isaacs v Fowler &Ors [2005] NSWCA 37 at [24] and [43], where the failure of the appellant in that case to fully disclose his financial position and his failure to pledge his oath to the account that had been given (on his behalf) was a matter considered, taken together with others, capable of constituting special circumstances. However, the facts of each case must be considered in context.

2. In Marks-Isaacs v Fowler, the appellant had not sworn an affidavit as to his financial position but relied upon affidavits sworn by his solicitor, who was also cross-examined. Various discrepancies in the financial information provided were identified, and Handley JA found that the evidence of the appellant's financial position left many questions unanswered: at [12]. In addition, his Honour considered that the appeal had little prospects of success: at [42]. Together with a number of other factors noted by his Honour, it is unsurprising that special circumstances were found in that case.

3. By contrast, in the present case, Mr Brooke has sworn affidavits deposing to his financial position and assets and liabilities, and that evidence has not been challenged. Although Mr Brooke resisted providing an explanation of his financial position for some time, and the explanation now provided in some respects is in fairly general terms, the picture revealed by his evidence is tolerably clear. He is relatively impecunious; the rental income on his investment properties in the United States is used to service interest on mortgages over those properties; and he has given undertakings not to dispose of or otherwise encumber certain assets in which he has an interest.

4. On the evidence, the value of his interest in the assets which are the subject of the undertakings is approximately $10,000 in respect of his one one-hundredth interest in the Wombarra property (assuming a value of approximately $2,000,000, taking into account the purchase price of $1,750,000 in March 2008 together with the $200,000 spent on renovations since that date, less the debt owing on the mortgage subsequently given over that property in an amount of $1,080,000), plus an interest in US dollar bank accounts of approximately US$2,300, plus estimated equity in US residential properties of approximately US$80,000.

5. Although Mr Brooke described his occupation as investor/trader, his unchallenged evidence is that he is not presently in employment and is reliant upon his wife, who has returned to work, to provide the source of income to meet the living expenses of Mr Brooke, his wife and their two children.

6. In appropriate circumstances, the failure to provide a satisfactory explanation of one's financial position may constitute special circumstances. The present case however is, in my view, distinguishable from Marks-Isaacs v Fowler. Mr Brooke has gone on oath; and he has not been challenged by cross-examination.

Impecuniosity

1. It may be accepted that the appellant is impecunious. However, it is not apparent on the evidence that the appeal would be stultified if security were ordered.

2. Although the appellant gave evidence relating to his own financial position, which was consistent with him being unable to provide security, the possibility remains that there are others, such as family or associates, who may step in to assist him. The authorities make clear that stultification does not necessarily follow from a finding of impecuniosity: Hastings v Hastings [2009] NSWCA 294 at [14]; Levy v Bablis [2011] NSWCA 411 at [10].

3. The most likely source of assistance would be the appellant's wife, who has a substantial equity in the Wombarra property. Neither the appellant nor his wife gave evidence that she was not prepared to provide security on his behalf if security was ordered. In these circumstances, I do not accept the submission that an order for security would stultify the appeal: Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 4. This is does not mean, however, that the respondent is entitled to security. The respondent must establish special circumstances to enliven the discretion conferred by UCPR r 51.50.

Other matters

1. Insofar as the respondent relied upon the conduct of Mr Brooke in March 2009 in arranging with Dingo, Inc for the Promissory Note to be cancelled, without telling the respondent, the evidence does not enable me to draw any conclusion as to the circumstances in which the conversion of the Promissory Note into equity in Dingo, Inc occurred. In particular, it is not apparent whether this was in consequence of Dingo, Inc's financial position at the time (that is, whether Dingo, Inc was unable to pay the amount of the Promissory Note), nor whether the appellant's omission to inform the respondent in advance was inadvertent or otherwise.

2. Although the appellant has not paid the judgement, it is relevant that a stay of execution is in place following the giving of undertakings by the appellant to the Court and to the respondent not to dispose of or otherwise encumber certain assets, which he does hold, without giving seven days notice to the respondent.

3. The appeal is fixed for hearing on 1 April 2014, and the appellant filed and served his submissions on 10 October 2013. There is no issue as to the bona fides of the appeal, and I consider the appeal grounds are fairly arguable. It is unnecessary to say anything further concerning the prospects of the appeal.

Conclusion

1. In my view, special circumstances have not been shown which enliven the discretion to order security for costs. The appellant's mere impecuniosity does not of itself justify an order for security for costs. Although I do not accept the appellant's contention that the appeal would be stultified if security were ordered, the additional matters relied upon by the respondent are not, in my view, in combination, sufficient to amount to special circumstances.

2. The orders of the Court will be:

   (1)The respondent's notice of motion filed 11 November 2013 is dismissed with costs.

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