Djordjevich v Rohrt
[2021] VSCA 279
•14 October 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0053
S EAPCI 2021 0071
| DAVID DJORDJEVICH | Applicant |
| v | |
| RICHARD TRYGVE ROHRT (in his capacity as liquidator of ACN 091 518 302 Pty Ltd (in liquidation) ACN 091 518 302) | Respondent |
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| JUDGES: | McLEISH JA and MACAULAY AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 5 October 2021 |
| DATE OF JUDGMENT: | 14 October 2021 |
| MEDIUM NEUTRAL CITATION: | [2021] VSCA 279 |
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PRACTICE AND PROCEDURE – Security for costs – Applications for leave to appeal – Whether risk that any costs order in respondent’s favour would go unsatisfied – Whether applicant impecunious – Whether open to infer applicant impecunious – Applicant declined requests to provide evidence as to financial position – Applicant yet to pay taxed costs order in related proceeding – Evidence that applicant has unencumbered interest in land – Party seeking security bears onus of establishing impecuniosity – Onus not discharged – Risk not established – Application dismissed – Supreme Court (General Civil Procedure) Rules 2015 r 64.38(2).
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Levine | Maciel Pizzorno & Co |
| For the Respondent | Ms C Gobbo | Mills Oakley |
McLEISH JA
MACAULAY AJA:
Introduction
The respondent, Mr Rohrt, is the liquidator of ACN 091 518 302 Pty Ltd, which it is convenient to describe as ‘the company’. The applicant, Mr Djordjevich, is aggrieved by the conduct of the liquidation.
Mr Djordjevich has filed two applications for leave to appeal decisions of a judge of the Trial Division. By the first, he seeks to challenge the judge’s dismissal of his application for an investigation of Mr Rohrt’s conduct of the liquidation of the company, pursuant to sch 2 of the Corporations Act 2001 (Cth).[1] By the second, he seeks to challenge the judge’s order that he pay Mr Rohrt’s costs of the dismissed application, in part upon an indemnity basis.
[1]Djordjevich v Rohrt [2021] VSC 178 (Delaney J).
Mr Rohrt now applies for an order that Mr Djordjevich provide security for his costs of the two applications for leave to appeal, in the amount of $108,474.15.[2]
[2]Supreme Court (General Civil Procedure) Rules 2015 r 64.38(2).
For the reasons that follow, the application will be dismissed.
Applicable principles
Rule 64.38(2) of the Supreme Court (General Civil Procedure) Rules 2015 provides:
A party may apply to the Court of Appeal for an order—
(a)that the applicant or appellant give security for the costs of the application or appeal, and for the manner, time and terms for giving the security;
(b)that the application or appeal be stayed until security is given; and
(c)that, if the applicant or appellant fails to comply with the order to provide security within the time specified in the order, the application or appeal be dismissed.
The principles which inform the exercise of this Court’s power to grant security for the costs of an application for leave to appeal are well established, and are not in dispute.
An order for security for costs of an application for leave to appeal is designed to ameliorate a risk — namely, that a successful respondent, put to the expense of defending a first instance decision in their favour, will be unable to recover costs against an unsuccessful applicant — which is unacceptable in all the circumstances.[3] Essential to any application for such an order is therefore the identification of the ‘nature and extent’ of that risk.[4] The party making the application for security bears the onus of establishing the matters which give rise to the risk.[5] Usually, the risk is said to arise because the applicant is impecunious.
[3]Australian Dream Homes Pty Ltd v Stojanovski [2016] VSCA 38, [40] (Santamaria and McLeish JJA) (‘Australian Dream Homes’); Botsman v Bolitho [2018] VSCA 111, [50] (Whelan and Niall JJA) (‘Botsman’).
[4]Australian Dream Homes [2016] VSCA 38, [40].
[5]Ibid [42].
Establishment of the necessary risk is not sufficient, of itself, to justify the making of an order for security. It must be shown as well that the risk is unacceptable in all the circumstances. In that regard, the power of the Court to order security for costs involves an exercise of discretion.[6] That discretion, while unconfined, is informed by the following familiar factors:[7]
[6]See He v Huang [2017] VSCA 102, [49] (Santamaria and Beach JJA and Keogh AJA) (‘He’); Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd[No 3] [2016] VSCA 185, [19] (McLeish JA); Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169, [11] (Tate and McLeish JJA).
[7]See Timbercorp Finance Pty Ltd (in liq) v Tomes [2015] VSCA 322, [16] (McLeish JA, Santamaria JA agreeing at [40]); Australian Dream Homes [2016] VSCA 38, [38] (Santamaria and McLeish JJA); Rozenblit v Vainer [2019] VSCA 164, [45] (McLeish and Niall JJA) (‘Rozenblit’).
(a) the prospects of success of the application for leave to appeal;[8]
[8]Any consideration of the prospects is necessarily provisional and ‘broad brush’: ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122, [26] (Kaye and McLeish JJA); Rozenblit [2019] VSCA 164, [46].
(b) the degree of risk that a costs order might not be satisfied because of the impecuniosity of the applicant;
(c) whether the giving of security would be oppressive in that it would stifle a reasonably arguable claim;
(d) whether any impecuniosity of the applicant arises out of the conduct complained of by the applicant;
(e) whether there are aspects of the public interest which militate against the giving of security; and
(f) whether there are particular discretionary matters peculiar to the circumstances of the case.
In determining whether an applicant is impecunious, as is alleged in the present case, the following six principles are relevant.
First, the onus remains on the respondent to establish the applicant’s impecuniosity,[9] even where proof of an applicant’s ability to satisfy a costs order lies in their own hands.[10]
[9]Botsman [2018] VSCA 111, [37], [50] (Whelan and Niall JJA).
[10]Australian Dream Homes [2016] VSCA 38, [42] (Santamaria and McLeish JJA).
Secondly, sometimes (but not always) an inference that the applicant is impecunious may be at least partially founded on an applicant’s refusal to provide to the respondent requested evidence as to their financial position and ability to meet an adverse costs order.[11] But the fact that the applicant declines such a request does not mean that the inference must be drawn.[12] The inference may be more readily drawn where other evidence suggests the applicant’s refusal to disclose is motivated by a wish to hide an insufficiency of assets. But it will be less readily drawn if there is a benign alternative explanation for the refusal to disclose, or if there is other evidence inconsistent with impecuniosity.[13]
[11]Ibid.
[12]Ibid; Botsman [2018] VSCA 111, [52] (Whelan and Niall JJA).
[13]Botsman [2018] VSCA 111, [52].
Thirdly, an inference that an applicant is impecunious may also be supported by their failure to satisfy final costs orders.[14] But again, such a failure does not mean that the inference must be drawn. It will be less readily drawn if there is other evidence suggesting that impecuniosity was not the cause of the failure to pay — for example, evidence that the applicant has assets sufficient to meet their costs liability.[15]
[14]Maher v Commonwealth Bank of Australia [2008] VSCA 122, [109] (Dodds-Streeton JA, Redlich JA agreeing at [1]); Koshani v Gao [2019] VSCA 141, [28] (Kyrou and T Forrest JJA) (‘Koshani’).
[15]See, eg, Davey v Herbst [No 2] [2012] ACTCA 19, [43]–[46] (Refshauge J); Frigger v Kitay [No 9] [2016] WASC 92, [30] (Allanson J).
Fourthly, it will typically be difficult to establish an applicant’s impecuniosity where evidence discloses that the applicant owns unencumbered real property the value of which might reasonably be supposed (even absent valuation evidence) to exceed the amount of a prospective adverse costs order.[16]
[16]See, eg, Botsman [2018] VSCA 111, [51] (Whelan and Niall JJA). The position is different if the property is encumbered: see Bria v Wilson [2020] VSCA 338, [9]–[12] (Emerton and Sifris JJA); Koshani [2019] VSCA 141, [28] (Kyrou and T Forrest JJA).
Fifthly, if impecuniosity has been established, it will be a significant, but not decisive, factor in an application for security of the costs of an application for leave to appeal.[17] This recognises that, in contrast to the position at trial, there has already been a determination of rights adverse to the impecunious applicant, and the respondent has already incurred trial costs. In those circumstances, a respondent should not be put to additional cost without meaningful prospects of recovery.[18]
[17]Love v Roads Corporation [2012] VSCA 269, [13] (Redlich JA and Davies AJA); Kenyon v Akeroyd [2007] VSCA 50, [13]–[14] (Redlich JA, Maxwell P agreeing at [16]). See, eg, AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 43, [30] (Osborn JA); Rozenblit [2019] VSCA 164, [61] (McLeish and Niall JJA); He [2017] VSCA 102, [64] (Santamaria and Beach JJA and Keogh AJA).
[18]Rozenblit [2019] VSCA 164, [57] (McLeish and Niall JJA); Jafari v 23 Developments Pty Ltd [2019] VSCA 16, [7] (Whelan and Hargrave JJA).
Finally, as noted above, if impecuniosity has not been established, that will ordinarily mean that the requisite unacceptable risk cannot be established.[19]
[19]See [8] above.
Impecuniosity
It is convenient first to address the question of the applicant’s alleged impecuniosity.
Evidence
Both parties filed affidavit evidence. Mr Rohrt relied on an affidavit affirmed by his solicitor, Ariel Borland, on 26 July 2021. That affidavit relevantly deposed to the following matters:
(g) Mr Djordjevich is presently the subject of three costs orders in favour of different parties, being:
(i) an order in a related earlier proceeding (‘the 2018 proceeding’) in favour of Michael Gaylard. This order was taxed by a costs registrar earlier this year in the amount of $107,750;
(ii) an order in the same proceeding in favour of Westpac Banking Corporation, which has not yet been taxed. In correspondence, although not in the affidavit, Ms Borland suggested that the amount of costs in favour of Westpac would be at least as great as those in favour of Mr Gaylard;[20]
[20]The order requires Mr Djordjevich to pay Westpac’s costs of the proceeding, but Westpac to pay Mr Djordjevich’s costs of an interlocutory application brought by Mr Djordjevich for inspection of a produced document.
(iii) an order in the present proceeding in favour of Mr Rohrt, which has also not been taxed. Ms Borland deposed to the amount of Mr Rohrt’s actual costs of the primary proceeding being $152,979.30, excluding GST;
(h) Mr Djordjevich has not paid Mr Gaylard’s taxed costs, despite demands for payment;
(i) earlier this year, Ms Borland wrote to Mr Djordjevich’s lawyers, requesting evidence of Mr Djordjevich’s capacity to meet any costs order made in Mr Rohrt’s favour by this Court. That request was declined; and
(j) subsequently, Ms Borland wrote to Mr Djordjevich’s lawyers, proposing that Mr Djordjevich consent to an order that he provide security for Mr Rohrt’s costs of the applications for leave to appeal in the sum of $70,000. There was no response to that proposal.
Mr Rohrt also relied on an affidavit affirmed by a costs lawyer, Jennifer Young. Ms Young exhibited a report in which she estimated that Mr Rohrt’s costs to the conclusion of the present applications would be $108,474.15. Relevantly for present purposes, the report identified that Mr Rohrt had already incurred itemised fees and costs associated with conducting real property searches in respect of Mr Djordjevich. No evidence of the results of any such searches was advanced on behalf of Mr Rohrt.
In response, Mr Djordjevich relied on a short affidavit he swore on 25 August 2021. In that affidavit he asserted, without any explanation, that he was ‘not impecunious’. The affidavit exhibited property title searches which were said to show that Mr Djordjevich:
(k) is the registered proprietor, as to a 50 per cent share, of a property located at Main Road West, St Albans, which is unencumbered; and
(l) is the registered proprietor, as to a 50 per cent share, of properties on five titles located at 44A to 44F Patterson Avenue, Keilor.
In fact, the exhibited title searches identified that Mr Djordjevich:
(m) is the joint proprietor of a property located at Main Road West, St Albans, which is encumbered by a mortgage in an unspecified amount registered in favour of Australia and New Zealand Banking Group Ltd; and
(n) is the sole proprietor of a half-share of properties on four titles located at 44A and 44F Patterson Avenue, Keilor, as to which no encumbrance is recorded.
Mr Djordjevich also relied on an affidavit sworn by a legal practitioner deposing to reasons why he considered the estimate of costs prepared by Ms Young to be excessive and based on erroneous considerations.
Submissions
Counsel for Mr Rohrt invited the Court to infer that Mr Djordjevich was impecunious. It was said that the inference could be founded on:
(o) Mr Djordjevich’s refusal to disclose, following two requests, his financial position and to confirm his ability to meet any further costs orders;
(p) Mr Djordjevich’s failure to pay, on demand, the taxed costs of Mr Gaylard in the 2018 proceeding;
(q) Mr Djordjevich’s failure to explain, in his affidavit, his failure to pay Mr Gaylard’s costs, or to identify arrangements he has put in place to satisfy existing or anticipated costs liabilities;
(r) the likelihood that Mr Djordjevich’s existing costs liabilities in the 2018 proceeding and the present proceeding already exceeded $300,000; and
(s) the uncertain value of Mr Djordjevich’s equity in the properties he owns.
Counsel for Mr Djordjevich submitted that the inference contended for was unavailable. To the contrary, even leaving aside the encumbered St Albans property, he submitted that it was open to the Court to infer that Mr Djordjevich’s equity in the two unencumbered Keilor properties would be sufficient to satisfy any adverse costs order in this proceeding. He submitted that the costs order in favour of Westpac in the 2018 proceeding was irrelevant as it had not yet been taxed, let alone any sum demanded. While the non-payment of Mr Gaylard’s taxed costs in that proceeding was conceivably relevant, it was said that Mr Rohrt had not discharged his onus of establishing that the non-payment was the result of impecuniosity. Given the evidence as to Mr Djordjevich’s ownership of valuable real property, it was said that onus could not be discharged.
Analysis
Counsel for Mr Rohrt invited us to infer from the evidence that Mr Djordjevich is impecunious. The only direct evidence as to his current financial position is that he has an outstanding debt to Mr Gaylard in the sum of $107,750 and that he holds interests in certain real estate, both encumbered and unencumbered. Mr Rohrt did not advance any evidence, even from an estate agent, as to the value of those interests; he did not even put the existence of the real estate before the Court. There is also evidence that Mr Djordjevich has prospective debts for costs which will bring his total indebtedness to an amount of at least $300,000.
The evidence put forward by Mr Djordjevich was properly open to criticism. His bald statement that he was ‘not impecunious’ was conclusory and unsupported by any explanation, and we can attach no weight to it. His description of his real property interests was inaccurate in key respects when compared to the certificates of title. However, those certificates revealed that he holds half shares in four parcels of unencumbered land in Keilor.
We acknowledge that the evidence also shows the existence of a mortgage of the St Albans property, and therefore we infer a loan, to ANZ. However, there is no reason to think that the amount of the loan exceeds the value of the property. In the overall assessment of the evidence, the St Albans property and the related loan are best treated as neutral considerations.
This leaves evidence of a single current debt, with prospective debts for costs also to Westpac and Mr Rohrt. As we have said, counsel for Mr Rohrt submitted that the total costs indebtedness was at least $300,000. We are prepared to proceed on that assumption. The difficulty for Mr Rohrt’s application is that there is no evidence that liabilities of that order could not be met by realising the four parcels of unencumbered real estate in Keilor, in which Mr Djordjevich owns a half interest. As we have also noted, Mr Rohrt chose not to lead any evidence as to the value of the Keilor properties.
Counsel for Mr Rohrt sought to make the case for impecuniosity by pointing to the fact that the debt to Mr Gaylard was unpaid, despite demands having been made, and to the refusal of Mr Djordjevich to provide any evidence that he could meet an adverse costs order. We do not accept that either of those matters affords a proper basis for inferring that Mr Djordjevich could not meet an adverse costs order.
First, the fact that a debt of $107,750 which is due and payable remains unpaid is open to many possible explanations. One is that the debtor cannot pay the debt. Another is that the debtor can pay the debt but first requires access to funds, including by realising assets or taking a loan. Another is that the debtor intends to contest or negotiate the debt.[21] If Mr Djordjevich owned no real estate, it might well have been open to infer that the debt was unpaid because he was impecunious. But it would be mere speculation to draw that inference in the circumstances of this case. The evidence as to Mr Djordjevich’s overall financial position is, again, neutral.
[21]In this regard, Mr Djordjevich deposed merely that he was not represented at the time that Mr Gaylard’s costs were taxed, and did not then know how to object to the taxed amount.
Secondly, it might be said that Mr Djordjevich did advance evidence that he could meet an adverse costs order, by showing that he owned unencumbered real estate, even without directly deposing to his ability to pay costs. But in any event, the onus was on Mr Rohrt to establish that Mr Djordjevich is impecunious, such that there is a risk that he would not be able to pay an adverse costs order in the proposed applications. That risk is not shown merely by his refusal to disclose his financial position. Something more is needed for it to be open to warrant inferring that such a refusal is explained by impecuniosity — such as, for example, evidence that known liabilities exceed known assets. Here, for the reasons given, the other evidence provides no foundation for any such inference.
In summary, Mr Djordjevich’s identified debts are not of such magnitude that we could infer that resort to his real property would be inadequate for him to pay those debts. In those circumstances, the evidence as a whole does not establish that Mr Djordjevich’s known debts exceed his known assets. Nor does it permit the conclusion that there is any risk that he would not be able to pay an adverse costs order.
Conclusion
For that reason, the application for security for costs must be refused.
We should mention that the parties directed significant argument to the merits of the proposed applications for leave to appeal. Mr Rohrt sought to establish that the applications had no prospect of success. Necessarily, the matter was not the subject of full argument. Even if, in that situation, it had been possible to conclude that the applications had no prospects of success, we would not have ordered security for costs in the absence of any demonstrated risk that Mr Djordjevich could not pay an adverse costs order. As we explained at the outset of these reasons, that is a necessary condition to be met before an order for security for costs is made. We therefore prefer to say nothing about the merits of the applications for leave to appeal.
We will order that the application for security for costs be dismissed. We will give directions for the making of any written submissions as to the costs of the application, failing agreement between the parties, and costs will then be decided on the papers.
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