Houlahan v Trentham Investment Management Pty Ltd (No 2)
[2016] VSC 445
•28 July 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S CI 2015 04937
| MARK ANTHONY HOULAHAN & Ors (according to the attached schedule) | Plaintiffs |
| v | |
| TRENTHAM INVESTMENT MANAGEMENT PTY LTD | First Defendant |
| -and- | |
| SAXON HERSCHEL NICHOLLS | Second Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 July 2016 |
DATE OF JUDGMENT: | 28 July 2016 |
CASE MAY BE CITED AS: | Houlahan & Ors v Trentham Investment Management Pty Ltd & Anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 445 |
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PRACTICE AND PROCEDURE — Stay of enforcement or execution of judgment pending appeal — Whether special circumstances justifying a stay — Whether appeal would be rendered nugatory — Successful party entitled to benefit of the judgment in its favour — Supreme Court (General Civil Procedure) Rules 2015, r 77.06.6 — Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653
PRACTICE AND PROCEDURE — Security for costs of appeal — Inherent jurisdiction to order security — Appellant impecunious — Whether principles for ordering of security differ at appellate level as at first instance — Tait v Bindal People [2002] FCA 322 (20 March 2002)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J W Kewley | BSA Legal |
| For the First Defendant | No appearance | — |
| For the Second Defendant | In person | — |
HER HONOUR:
Background
On 24 March 2016, the plaintiffs obtained judgment in default of defence against the second defendant (‘Mr Nicholls’) for $200,000 being an unpaid deposit under a contract of sale, plus interest of $14,279.65 and costs of $3,420.
Mr Nicholls applied to set aside the judgment. His application was heard by Mukhtar AsJ on 19 April and 6 May 2016. On 19 April 2016, orders were made by Mukhtar AsJ that Mr Nicholls pay indemnity costs in an amount of $8,800.
On 12 May 2016, Mukhtar AsJ delivered his judgment.[1] He found that the defences suggested by Mr Nicholls were bound to fail and refused to set aside the judgment. Mr Nicholls' application to set aside the judgment was dismissed and he was ordered to pay the plaintiffs' costs on an indemnity basis.
[1]Houlahan & Ors v Trentham Investment Management & Anor [2016] VSC 240 (12 May 2016).
On 27 May 2016, Mr Nicholls filed a notice of appeal against the decision of Mukhtar AsJ.
Mr Nicholls’ application for a stay of execution of the judgment
By summons filed 25 July 2016, Mr Nicholls seeks a stay of enforcement or execution of the judgment pending determination of the hearing of his appeal on 3 August 2016.
Applicable principles – stay of execution
Rule 77.06.6 of the Supreme Court (General Civil Procedure) Rules 2015 provides that, unless the Court orders otherwise, an appeal referred to in r 77.06 shall not operate as a stay of execution, or of proceedings, under the judgment or order.
The authorities provide that special circumstances must exist to justify a stay of execution of a judgment. Special circumstances justifying a stay will exist where the stay is necessary to prevent the appeal, if successful, from being rendered nugatory or where there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed.[2] The prospect that an appeal may be rendered nugatory must be balanced against the principle that, prima facie, a successful party is entitled to the benefit of the judgment obtained and is entitled to commence with the presumption that the judgment is correct; that is, weight must be given to the fact that the judgment below has been in favour of the other party.[3] The threat of bankruptcy in itself is no justification to grant a stay of judgment pending appeal as appeal rights may be enforced by the trustee in bankruptcy for the benefit of the bankrupt’s estate.[4]
Mr Nicholls’ evidence
[2]Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653, 657 (Young CJ); Ozden v Commonwealth Bank of Australia [2013] VSCA 195 (2 August 2013) [83]-[84] (Robson AJA); Ozden v Commonwealth Bank of Australia [2013] VSCA 340 (22 November 2013) [15] (Osborn JA).
[3]Re Middle Harbour Investments Ltd (in liq) (unreported, New South Wales Court of Appeal, Mahoney JA, 15 December 1976); Maher v Commonwealth Bank of Australia [2008] VSCA 122 (26 June 2008) [27] (Dodds-Streeton JA).
[4]Starborne Holdings Pty Ltd v Radferry Pty Ltd [1998] FCA 548 (21 May 1998).
In his affidavit filed 25 July 2016, Mr Nicholls deposed that on 19 July 2016, he was served with a creditors’ petition by the plaintiffs, who rely on the default judgment. The creditors’ petition was due to be heard this morning.
He also deposed as to the reasons that support his application for a stay as follows: the failure to grant a stay may render the appeal nugatory; the petition is an abuse of process; the plaintiffs waited until 19 July to serve the petition on him when they could have done so from 16 June onwards; he is a litigant in person; it is causing him significant anxiety and stress; he is recovering from significant health issues; the plaintiffs are using the petition to attempt to avoid the proper scrutiny of the Court and to subvert the appellate process; the plaintiffs are in breach of their overarching obligations under the Civil Procedure Act 2010; the real issues in dispute have not been ventilated before the Court; it would be manifestly unjust for him to be bankrupt prior to the appeal being heard; he will not pay the judgment amount because he believes that he does not have to pay it and he has a good counterclaim that he is in the process of preparing.
Plaintiffs’ application for security for costs
In response to the application for a stay, the plaintiffs sought orders for security for costs from Mr Nicholls pursuant to a summons dated 26 July 2016. The plaintiffs sought that the appeal be stayed pending payment of the sum ordered and, failing payment of that sum by midday on 2 August 2016, the appeal be dismissed.
Applicable principles – security for costs
The Court has an inherent jurisdiction to order security for costs as part of its power to regulate its own procedure.[5] The principles in relation to the ordering of security for costs in a first instance matter and at the appellant level differ. Whilst the general rule at the first instance level provides that poverty is no bar to a litigant and that a plaintiff’s impecuniosity will not on its own justify an order for security for costs,[6] there is a difference at the appellate level. This is because there has already been a determination adverse to the person against whom security for costs is sought and, if it be shown that there is a substantial risk that even if successful the respondent to the application for leave to appeal or to an appeal will be deprived of his costs, such an outcome would clearly be unjust.[7]
[5]Lines v Tana Pty Ltd [1987] VR 641, 642 (Crockett, O’Bryan and Tadgell JJ).
[6]Knight v Beyond Properties Pty Ltd [2005] FCA 764 (10 June 2005) [32]-[33] (Lindgren J).
[7]Tait v Bindal People [2002] FCA 322 (20 March 2002) [3] (Spender J); Lawrance v Commonwealth [2008] FCA 417 (4 April 2008) [41]-[48] (Flick J); Ribbera v Eagle Fuels Pty Ltd [2014] VSCA 173 (7 August 2014).
The justification behind the cases where security for costs is ordered is that an injustice to a successful litigant may be caused if he or she is compelled to contest the matter for a second time without a probability of obtaining his costs, if ultimately successful.[8]
Plaintiffs’ evidence for security for costs
[8]Tait v Bindal People [2002] FCA 322 (20 March 2002) [4] (Spender J), referring to Bethune v Porteous (1892) 18 VLR 493, 494 (Hood J).
In his affidavit sworn 27 July 2016, Mr Burdon‑Smith, the solicitor for the plaintiffs, deposed that the estimate of costs for the appeal running for one day would be $42,900 and $9,400 per day thereafter.
In an affidavit sworn 26 July 2016, Mr Burdon‑Smith deposed that on or about 24 May 2016, Mr Nicholls applied to the Supreme Court for an order that he pay the judgment debt of $217,709.65 by monthly instalments over two years. For this application, Mr Nicholls provided a statement of financial situation, giving his occupation as investor. His statement disclosed nil income and assets, but also stated that he is funded by borrowings by way of loan accounts. His personal expenses were $1,250 per week and his current debts were an estimated $10.5 million. An earlier financial statement dated 11 November 2014, included with the application to pay in monthly instalments, records nil assets and liabilities of $8.31 million.
Mr Nicholls’ position on the security for costs application
Mr Nicholls opposes the application for security on the basis that it is oppressive and has the effect of the appeal not being heard.
Before this Court, Mr Nicholls stated that he has the ability to pay, that he is currently solvent, he has liabilities that significantly exceed his assets, that he does not fear insolvency and he has the ability to borrow between $10,000 and $40,000 per month.
In his submissions, Mr Nicholls relies on a number of factors, including that he is a professional investor and responsible for settling $18.9 million in transactions over a five‑day period, that his affairs have been structured in the same way since at least 2004 and that he has the practice of drawing on loan accounts. He refers to his application to pay the judgment debt by instalments and says that the application was designed to obtain a stay under s 6(8)(b) of the Judgment Debt Recovery Act 1984. He says that the plaintiffs do not currently enjoy security for their costs. He says that a Family Court application is required before he is able to pay any money to others and that the child support payable by him is a receivable owned by a third party. He feels that his appeal should go ahead without payment of any security for the plaintiffs’ costs and that the default judgment was only obtained as a consequence of his extended stay in hospital.
He refers to the fact that the real issues in the case have not been tried and that his prospects of success are good. He says that he has the ability to pay and there is no credible evidence to establish that he would be unable to pay the plaintiffs’ costs and refers to his demonstrated capability of settling $18.9 million of transactions in one week. He says that he is utterly genuine about this proceeding and he feels terribly wronged and hurt by what has happened in the matter.
He considers that the application for security for costs is a stultification of his appeal, that the plaintiffs have delayed in seeking security for costs and that he is overwhelmed at the prospect of the appeal already and the plaintiffs are making it harder for him with their creditors’ petition in the Federal Circuit Court, as well as this application. He says that the application for security for costs has not been brought promptly and that the delay by the plaintiffs is prejudicial to him.
He feels that he has no choice but to pursue his appeal. The matters are of public importance and he wishes to argue that default judgments are discriminatory as defined in the Charter of Human Rights and Responsibilities Act 2006.
He is also a party to complex secured financing arrangements and that, in practice, to grant security to a third party, depending on the security arrangements, he would probably need financier consent and it is not realistic to expect a financier to consent on or before 2 August. He says that the application for security is another attempt to prevent him from being heard and making his arguments.
He also relies on the basic rule that a natural person who sues will not be ordered to give security for costs, however poor, and says that rule is ancient and well‑established and should be applied in his case.
Consideration
Mr Nicholls seeks a stay of enforcement or execution of the judgment pending determination of the hearing of the appeal, yet he refuses to pay any security for the costs of the appeal as sought by the plaintiffs.
In seeking the stay and refusing the pay the security for the costs of the appeal, he relies on some of the same reasons for his positions taken on both applications. Suffice to say that Mr Nicholls referred to many and varied reasons, many of them being of limited relevance to the applications.
If his appeal is successful, the judgment will not be rendered nugatory. He has not paid the judgment debt and refuses to do so. If he is made bankrupt, his rights may be enforced by his trustee in bankruptcy. In my view, consistent with the authorities, due weight must be given to the plaintiffs' position of having a judgment in their favour and the presumption that the judgment is correct. I am satisfied that Mr Nicholls has not established any special circumstance said to justify a stay of the judgment.
This conclusion is reinforced by Mr Nicholls' assertions as to his financial circumstances for the purposes of both the stay application and in refusing to pay any security of costs as the price to obtain a stay. He adopts varying and inconsistent positions regarding his financial circumstances, depending on what application is being made against him.
There is little clarity around his stance and submissions as to what he has asserted and his financial circumstances remain unclear. He says that he cannot pay the debt, then he says that he could pay it but he does not want to because he believes he has a good case and he should not be required to pay in those circumstances. After Mukhtar AsJ's judgment, he sought to pay the judgment debt by instalments on the basis that he had no assets and owed $10.5 million in debts. At yesterday's hearing, he asserted that he was a person of substantial means or the ability to access substantial funds and it was not a difficulty for him to do so as he is a professional investor, responsible for settling transactions worth many millions of dollars on a weekly basis.
In advocating for a stay, he maintains that he cannot pay the security and his appeal will be rendered nugatory as he will be made bankrupt. In resisting the application for security for costs, he maintains that he can pay the judgment debt because he controls a number of assets.
It is notable that Mr Nicholls applied to pay the judgment debt by instalments on 24 May for the primary purpose of obtaining a stay of enforcement of the judgment under the Judgement Debt Recovery Act 1984. That application was put by him on the basis that he was unable to pay the full amount of the judgment. He made no monthly payments and his application to pay by instalments was refused on 8 June by Daly AsJ, thereby lifting the statutory stay. Knowing that there was no stay, he has delayed until 25 July, when he makes this application seeking a stay without making any payments at all, including the order for indemnity costs made on 19 April 2016. On this application he says that he can pay the judgment debt but feels he should not do so and he says that he cannot pay any security for costs before 2 August 2016.
Knowing that he wanted a stay from at least 24 May 2016, he has had sufficient time to organise his finances to make a payment, as he now maintains that he can, yet he has taken no steps to do so and has not provided any adequate explanation as to why he has not done so.
In respect of the security for costs application, he asserts that there is no credible evidence to establish that he will be unable to pay the plaintiffs’ costs and refers to his demonstrated capability to settle $18.9 million transactions in one week. His material before the Court and his submissions shed no light on whether he has any assets or income. His position was that he has $10 million under his control although it was not clear exactly what he meant by this. This stated position contradicts his failure to pay the costs order of 19 April 2016 and his refusal to pay the security of $43,000 which would provide him with the stay that he now seeks in this Court. In another twist, he also submitted that the general rule that a natural person will not be ordered to give security, however poor, should be applied to this case. However, the rule is not applied in appellate cases.[9]
[9]Tait v Bindal People [2002] FCA 322 (20 March 2002) [3] (Spender J); Lawrance v Commonwealth [2008] FCA 417 (4 April 2008) [41]-[48] (Flick J).
Conclusions
Accordingly, in my view, Mr Nicholls' application for a stay should be dismissed. On the basis of these reasons, I consider it appropriate that security for the plaintiffs’ costs of the appeal be granted in the form of the order sought by the plaintiffs, that is to say, Mr Nicholls should provide security for costs in the sum of $43,000, that the appeal be stayed pending payment of the sum ordered and, failing payment of the security ordered by midday on 2 August 2016, the appeal be dismissed. The plaintiffs’ costs of Mr Nicholls’ application for a stay and the plaintiffs’ costs of their application for security for costs of the appeal be paid by Mr Nicholls on a standard basis to be taxed in default of agreement.
SCHEDULE OF PARTIES
| MARK ANTHONY HOULAHAN (as the legal personal representative of James Joseph Houlahan, deceased) | First Plaintiff |
| -and- | |
| FRANCES THERESE HOULAHAN (as the legal personal representative of James Joseph Houlahan, deceased) | Second Plaintiff |
| -and- | |
| PAULINE ELIZABETH D’ASTOLI (as the legal personal representative of James Joseph Houlahan, deceased) | Third Plaintiff |
| -and- | |
| TRENTHAM INVESTMENT MANAGEMENT PTY LTD (ACN 604 297 243) | First Defendant |
| -and- | |
| SAXON HERSCHEL NICHOLLS | Second Defendant |
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