Dodds v Kennedy - [2010] WASCA 201

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: DODDS -v- KENNEDY [2010] WASCA 201

CORAM: NEWNES JA

HEARD: 1 OCTOBER 2010

DELIVERED : 21 OCTOBER 2010

FILE NO/S: CACV 89 of 2010

BETWEEN: SUZANNE DODDS
TIMOTHY DODDS
Appellants
AND
GILLIAN KENNEDY
DONNCHA KENNEDY
Respondents

ON APPEAL FROM:
Jurisdiction              :  DISTRICT COURT OF WESTERN AUSTRALIA
Coram  :BOWDEN DCJ
Citation  :KENNEDY & ANOR -v- DODDS & ORS [2010] WADC 122
File No  :CIV 249 of 2009

Catchwords:

Practice and procedure - Application for security for costs - Whether order for security for costs would stifle appeal - Appellants impecunious - Appellants' solicitors acting pro bono on appeal - Whether inference should be drawn they are doing so in endeavour to recover their unpaid costs of trial - Whether appellants' solicitors stand to benefit from appeal

Legislation:

Nil

Result:

Application for security for costs dismissed

Category: B

Representation:

Counsel:

Appellants: Mr D A Lenhoff
Respondents : Mr D H Solomon

Solicitors:

Appellants: Holborn Lenhoff Massey
Respondents : Solomon Brothers

Case(s) referred to in judgment(s):

Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1
Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105
Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75
Joseph v Joseph [2007] WASCA 27
Mann v Dabelstein [2006] WASCA 176
Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241
Turner v Leda Commercial Properties Pty Ltd [2002] ACTSC 5

NEWNES JA: This is an application by the respondents for security for costs of the appeal. The amount of the security sought is $18,000. The application is opposed by the appellants who say that because they are impecunious such an order would stifle the appeal.

Background

On 4 April 2008 the appellants entered into a standard REIWA Contract for the Sale of Land (September 2006 revision) by which they agreed to purchase the respondents' property in Hillarys for the sum of $672,500. The contract was expressed to be subject to finance. The lender nominated in the contract was the ANZ Bank and the latest date for finance approval was 21 April 2008.
On 11 April 2008, the appellants attended a meeting with a licensed finance broker, Mr Blackburne. Mr Blackburne carried on business as a mortgage broker and acted as an intermediary, taking applications for finance on behalf of clients and submitting them to financial institutions. He was not an agent of the ANZ Bank able to approve finance applications but he was an accredited mortgage broker with the ANZ Bank and was entitled to submit loan applications to the ANZ Bank on behalf of his clients. He submitted to the ANZ Bank approximately 50% of the applications he received for finance.
At the meeting, the appellants showed Mr Blackburne the contract of sale and provided him with certain financial and other information. That information was sufficient for Mr Blackburne to conclude that the appellants could not comply with the loan to value ratio required by the ANZ Bank and they would not be able to obtain finance. He advised the appellants that the transaction did not comply with the requirements of the ANZ Bank for such a loan. Mr Blackburne later made enquiries of other financial institutions to establish whether any would be prepared to lend the appellants the money required but was unsuccessful because the loan to value ratio was too high.
The appellants subsequently informed the respondents that they were unable to obtain finance and would not be able to complete the purchase of the property. They failed to settle and subsequently the respondents served a default notice, and later a notice of termination, under the contract. The respondents sold the property some months later for the sum of $615,000 and commenced proceedings against the appellants for damages for breach of contract.
The trial of the action took place in the District Court on 22 and 23 June 2010 before Bowden DCJ. The essential matter in issue was whether the contract had come to an end because finance approval had not been obtained by the appellants within the stipulated time. The respondents contended that it had not because, contrary to their obligations under the contract, the appellants had not made any application for finance approval. They had merely enquired of a mortgage broker whether finance would be available. The appellants, on the other hand, contended that they had complied with the relevant provisions of the contract by seeking finance through Mr Blackburne. They argued it was sufficient that they had been informed that the ANZ Bank would not approve a loan to them and they were not required to take the further step of making a futile application to the ANZ Bank for the loan.
Judgment was delivered on 23 August 2010. The primary judge found, in effect, that the relevant provisions of the contract required the appellants to make an application for finance approval to a lender which was actually capable of approving the application. It was not sufficient to make enquiries of a mortgage broker or other intermediary as to whether finance would be available from a lender. As the appellants had not made an application for finance approval to a lender, the contract had not come to an end by failure of the finance provision and the appellants were in breach in failing to settle on the due date. His Honour awarded damages and interest to the respondents in the total sum of $79,345.18 and ordered the appellants to pay the respondents' costs of the action to be taxed.
The appellants filed an appeal notice the same day, 23 August 2010. The appellants' case was filed eight days later, on 31 August 2010.
It is unnecessary to set out the grounds of appeal. In substance, the appellants say that the primary judge erred in finding that the purchaser under such a contract had to make an application for finance to a lender and it was not sufficient if made to an intermediary such as a mortgage broker. Accordingly, it is contended, his Honour erred in finding that the contract had not come to an end upon the appellants' notification to the respondents that the appellants were unable to obtain finance.
The respondents' application for security for costs was filed on 9 September 2010. The respondents say that the appellants do not have the capacity to meet any order for costs which may be made against them on the appeal. The appellants do not own any land in Western Australia and they have not paid any part of the judgment sum. The financial information provided by the appellants indicates that they are substantially in debt, including to their own solicitors for an amount in excess of $19,000 for the trial. The respondents contend that the appellants' prospects of success on the appeal are relatively low. They further submit that if, as contended by the appellants, the appeal raises an issue of public importance as to the proper construction of the REIWA contract, the matter was correctly determined by the primary judge and, in any event, the other factors weighing in favour of a grant of security for costs outweigh any issue of public importance that might arise. It is also submitted that the contract is regularly revised by REIWA, and it is a matter for REIWA whether the contract should be amended.
The respondents submit that this is not an instance of security for costs being sought simply on the ground that the appellants are impecunious. Rather, it is submitted, in this case the appeal has been instituted and is being maintained for the benefit of the appellants' solicitors. The respondents contend that the notice of appeal was filed and served so quickly after the judgment was delivered that there would not have been sufficient time for the appellants' solicitors to give advice to the appellants on the appeal, to confer with the appellants regarding that advice, and to take instructions from the appellants on an appeal. It was submitted that the court should infer that the 'extremely hasty' decision to appeal was primarily driven by the self‑interest of the appellants' solicitors and that those solicitors have a direct personal interest in the appeal, being the prospect that they will recover at least part of their outstanding fees for the trial by means of an order for costs against the respondents if the appeal is successful. The respondents say that as the solicitors are maintaining the appeal for their own benefit, it cannot be inferred that an order for security would stifle the appeal in circumstances where there is no evidence that the solicitors are unable to provide security for the respondents' costs of the appeal.
The appellants acknowledge that they are impecunious and say that if an order for security of costs is made it will have the effect of stifling the appeal. They contend, unsurprisingly, that they have reasonable prospects of success on the appeal. They also contend that the matter in issue raises a matter of public importance. It was submitted that one of the consequences of the finding of the primary judge is that under the REIWA standard form contract, where a mortgage broker advises a purchaser that they do not meet the loan requirements of a financial institution the purchaser must nevertheless go through the futile exercise of submitting an application for finance to the lending institution. It was submitted, in effect, that the REIWA contract is widely used in this State and potentially many unsuspecting purchasers of property will find themselves liable for damages to vendors in circumstances similar to those of the appellants in the present case. They deny that the appeal was instituted or is being maintained for the benefit of their solicitors.
The respondents seek security for costs in the sum of $18,000. That is based upon a draft bill of costs annexed to an affidavit of a solicitor employed by the respondents' solicitors in which the costs of the appeal have been calculated at $18,029 and disbursements (the costs of filing the current application) at $180.50.

Relevant principles

The applicable principles were not in contention on the application. The court has an unfettered discretion to order security for costs: Mann v Dabelstein [2006] WASCA 176 [16]; Joseph v Joseph [2007] WASCA 27 [6]. It is impossible to state exhaustively the factors which are relevant to the exercise of the discretion, but some of the relevant factors are:
(a)the appellant's prospects of success on the appeal;
(b)the appellant's capacity to pay any costs ordered against him or her, albeit that is not conclusive and the court will not order security against an individual appellant solely on the grounds of impecuniosity;
(c)whether an order for security would frustrate a possibly genuine appeal;
(d)whether some other person stands to benefit from the appeal if the appellant is successful, where that person has not offered to provide security or indemnify the appellant in respect of any costs for which the appellant may become liable to the respondent;
(e)whether there has been any delay by the respondent in bringing the application.
Where security for costs is ordered the amount of the security should be such as the court thinks just in all the circumstances. Where an appellant is impecunious, the security ordered should not be greater than is absolutely necessary: Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1, 3 ‑ 4; Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241 [9].

Disposition of the application

I do not consider it is necessary to dwell on the question of the appellants' prospects of success on the appeal. The appeal raises a question of construction of the contract of sale and, for the purposes of this application, I consider the appeal to be arguable. The particular merits of the appeal are matters to be considered on the hearing of the appeal, for which this application should not become a rehearsal.
On the evidence, there is no doubt that the appellants do not have the financial capacity to meet an order for costs should one be made against them on the hearing of the appeal. The substantive issue on the hearing of the application was whether, as submitted by the appellants, an order for security would stifle the appeal.
As I have mentioned, the respondents say that such a conclusion cannot be drawn because the appeal is being run substantially for the benefit of the appellants' lawyers in an endeavour to recover their unpaid fees for the trial by means of an order for costs against the respondents on a successful appeal. I am asked to draw an inference to that effect from the facts to which I have referred above. I would not draw that inference.
What was described by counsel for the respondents as the 'extremely hasty' decision to appeal has been explained by Mr Lenhoff, the appellants' solicitor, in an affidavit sworn on 27 September 2010 in opposition to this application. In that affidavit, Mr Lenhoff says that he had arranged to meet his clients at his office at 10.00 am on 23 August 2010, after the delivery of judgment, to discuss the outcome. After the judgment had been delivered he attended that meeting and discussed the judgment with his clients, who instructed him to file an appeal notice. Mr Lenhoff says that on appeal notice is a 'fairly standard document' and he was able to prepare it, and arrange for it to be filed and served, within a few hours of receiving the judgment.
Mr Lenhoff goes on to say that he acted as quickly as possible to prosecute the appeal because, given the liability to which they were exposed, it was in his clients' interests that the appeal be disposed of as quickly as possible. To that end, he says, he prepared and filed the appellants' case on 8 August 2010, some eight days after judgment. (The Supreme Court (Court of Appeal) Rules 2005 (WA) allow 28 days.) Mr Lenhoff says that, as he has done in other cases in the past, he is acting on the appeal on a pro bono basis because he considers the appellants have been victims of an injustice.
I should say that even without the explanation offered by Mr Lenhoff I would not have drawn the inference sought by the respondents. It seems to me to require a degree of cynicism which has no support in the facts. It can hardly be a matter of surprise that individuals against whom a judgment of some $80,000 has been entered should wish to proceed quickly with an appeal. An appeal notice is not a complex or time‑consuming document to complete and as the appeal essentially involves the same construction issue as was argued below, the decision to appeal was unlikely to require extensive consideration. The fact that an appeal was brought so promptly provides no basis upon which an inference of the kind sought could be drawn.
It was further submitted by counsel for the respondents that, in any event, as the appellants' solicitors stood to recover their otherwise irrecoverable costs of the trial from a successful appeal, they were a party who stood to benefit from the appeal. There was no evidence that the appellants' solicitors were unable to provide security or indemnify the appellants in respect of any costs for which the appellants may become liable to the respondents. In those circumstances it could not be concluded that an order for security for costs would stifle the appeal.
It is accepted that generally a court will not refuse to order security for costs against an appellant company on the ground that such an order would stifle the litigation, unless it is established that the shareholders or creditors (or in the case of a trustee, the beneficiaries) who stand behind the company and stand to benefit from the litigation if it is successful are also without means: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, 4. That is based on the notion that those who seek to take the benefit of litigation should also bear the risks and burdens that the litigation involves.
Similarly, following the development of litigation funding, it has been said that a court should be readier to order security for costs where a party who stands to benefit from litigation is a party whose interest is solely to make a commercial profit from funding it; that the courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails: Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 [51]; Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd [2009] HCA 43; (2009) 239 CLR 75 [61] ‑ [64].
However, solicitors who are acting pro bono for altruistic reasons are a long way removed from those situations and I do not accept that the same or analogous considerations apply simply because, if the litigation is successful, the solicitors will recover fees for that work and any preceding legal work for which they might otherwise remain unpaid. No authority was cited by the respondents in support of their contention and my own research has revealed only one case where the question of pro bono representation has arisen in the context of an application for security for costs. That case does not assist the respondents. In Turner v Leda Commercial Properties Pty Ltd [2002] ACTSC 5, Master Connolly concluded that the fact the appellant had pro bono representation did not support the exercise of the discretion to order security for costs. The master considered that to find otherwise would be contrary to public policy as it would tend to stifle the development of pro bono schemes.

Conclusion

In the circumstances of this case, I do not consider that an order for security for costs is appropriate. I would dismiss the application.