Jones v Thomson (No. 2)
[2016] FCCA 931
•27 April 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JONES v THOMSON & ANOR (No. 2) | [2016] FCCA 931 |
| Catchwords: PRACTICE & PROCEDURE – Security for costs – matters to be considered – slender prospects of success – financial capacity of applicant – application for security dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.139ZQ, 139ZS, 178(1) |
| Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Elshanawany v Greater Murray Area Health Service [2004] FCA 1272 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972; [1989] FCA 361 Kiefel v State of Victoria [2014] FCA 604 Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 Sheather v Staples Waste Removals Pty Ltd [2012] FCA 998 Waters v Commonwealth of Australia (Australian Taxation Office) [2014] FCA 1107 Woodhouse v McPhee (1997) 80 FCR 529 |
| Applicant: | RICHARD JONES |
| First Respondents: | JASON PORTER PAUL GERARD WESTON |
| Second Respondent: | FRASER THOMSON |
| File Number: | SYG 2492 of 2014 |
| Judgment of: | Judge Smith |
| Hearing date: | 3 March 2016 |
| Date of Last Submission: | 3 March 2016 |
| Delivered at: | Sydney |
| Delivered on: | 27 April 2016 |
REPRESENTATION
| The Applicant appeared in person |
| Solicitors for the Respondents: | Mr J. Bamford, Bamford Lawyers |
ORDERS
The application in a case filed by the first respondents on 28 October 2014 be dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2492 of 2014
| RICHARD JONES |
Applicant
And
| JASON PORTER PAUL GERARD WESTON |
First Respondent
| FRASER THOMSON |
Second Respondent
REASONS FOR JUDGMENT
Mr Jones is a recently discharged bankrupt although his bankrupt estate has only partially been administered. He has brought proceedings seeking, amongst other things, an order setting aside a notice given by the Official Receiver under s.139ZQ of the Bankruptcy Act 1966 (Cth). The Official Receiver has filed a submitting appearance. The other respondents are Mr Weston and Mr Porter (“first respondents”) who were both the trustees of Mr Jones’ bankrupt estate. Mr Porter is now the only trustee. The first respondents seek an order that Mr Jones pay security for their costs.
The Court has discretion under s.80 of the Federal Circuit Court of Australia Act 1999 (Cth) to order an applicant to give security for the payment of costs that may be awarded against him or her. It is broad and unfettered and must be exercised according to the merits of each case without any particular predisposition: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3; Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 511; Woodhouse v McPhee (1997) 80 FCR 529 at 533; Madgwick v Kelly (2013) 212 FCR 1; [2013] FCAFC 61 at 4 [6]; Waters v Commonwealth of Australia (Australian Taxation Office) [2014] FCA 1107 (“Waters”) at [36] (affirmed on appeal: [2015] FCAFC 46).
The following six matters are relevant for consideration in deciding whether security for costs are to be awarded, although relevant matters are not restricted to these (Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972; [1989] FCA 361):
a)the prospects of success;
b)the quantum of risk that a costs order will not be satisfied;
c)whether the making of an order would be oppressive in that it would stifle a reasonably arguable claim;
d)whether any impecuniosity arises out of the conduct complained of;
e)whether there are aspects of public interest which weigh in the balance against such an order; and
f)whether there are particular discretionary matters which are peculiar to the circumstances of the case.
Further considerations are relevant where a litigant is, as here, a natural person. The general approach in that respect is that a natural person who has commenced litigation will not be required to provide security for costs merely because he or she is impecunious: Elshanawany v Greater Murray Area Health Service [2004] FCA 1272 at [11]; Kiefel v State of Victoria [2014] FCA 604 (“Kiefel”) at [51]. In Kiefel, Mortimer J noted, at [34], that an individual impecunious litigant would rarely be ordered to provide security. In Sheather v Staples Waste Removals Pty Ltd [2012] FCA 998, Nicholas J noted at [18] that, as a general rule, there is a very strong disinclination to make an order requiring individuals to provide security for costs. However, as noted by Griffiths J in Waters at [43], each case necessarily turns on its own particular facts and circumstances and the fact that a litigant is a natural person does nothing to circumscribe the breadth of the Court’s discretion.
Background
Although the parties filed over 1000 pages of evidence in this application, the relevant facts fall within short compass.
In 2007 Mr Jones brought proceedings in the District Court of New South Wales alleging defects in a motor vehicle bought by him in 2004. Judgment was given against Mr Jones on 24 February 2010 after an 8 day hearing and Mr Jones was ultimately ordered to pay the defendants’ costs in excess of $250,000. On 15 December 2011 the District Court extended freezing orders in respect of certain property that belong to or had once belonged to Mr Jones. Mr Jones was either unable or unwilling to pay the costs order and, on 5 October 2012, a sequestration order was made in respect of him on the application of the costs creditor.
In his statement of affairs Mr Jones disclosed that in September 2010 he had transferred a property to a Ms Hombsch. Ms Hombsch had been in a de facto relationship with Mr Jones for about 10 years until 2000 or 2001. Mr Jones described the transfer as a property settlement but indicated that he did not receive anything on the transfer. The relevant property is situated at Dorrigo in the state of New South Wales.
The statement of affairs also revealed that Mr Jones had transferred a property to “SMSF” in 2010. That transfer was of a property in Armidale to Crest Australia Pty Ltd which, it seems, is the trustee of Mr Jones’ self-managed superannuation fund. Mr Jones was at the time the sole director and shareholder of Crest.
Mr Jones also owned a property at Leichardt, New South Wales. He sold that property and used the proceeds of sale to repay the loans secured against it.
The trustees in bankruptcy procured the issue by the Australian Financial Security Authority of notices under s.139ZQ of the Bankruptcy Act in relation to both the Dorrigo property and the Armidale property.
Mr Jones seeks the following final orders:
1.Set aside the 139ZQ Notice – Waterfall Way, Dorrigo…
2.That the Trustee breached the Privacy Act
3.That the Trustee has a conflict of interest and should not be using Bamford Lawyers
4.That the Trustee acted unlawfully and oppressively
5.That the Trustee acted unlawfully in breach of section 170(2) of the Bankruptcy Act;
6.That the Official Receiver acted unlawfully in failing to provide to the plaintiff (Applicant) a copy of the 139ZQ Notice
Consideration
The first question to consider is the prospects of success of the application.
Mr Jones has not identified the source of jurisdiction in respect of the second, third, fourth and fifth grounds. However, it is clear enough that such jurisdiction exists under s.178(1) of the Bankruptcy Act. The difficulty for Mr Jones is that an application under that section must be made not later than 60 days after the day on which the person became aware of the trustee’s act, omission or decision. There was no issue in this case that the proceedings were brought well outside the 60 day period. For that reason alone, prima facie, each of those grounds has little prospect of succeeding.
Ground six relies upon s.139ZQ(5) which provides that if the Official Receiver gives a notice under the section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee. In my view, it is unnecessary to consider this ground for present purposes because it is the Trustees and not the Official Receiver who are bringing the application for security for costs.
That leaves the application to set aside the s.139ZQ notice. Section 139ZQ provides:
(1)If a person has received any money or property as a result of a transaction that is void against the trustee of a bankrupt under Division 3, the Official Receiver:
…
may require the person, by written notice given to the person, to pay to the trustee an amount equal to whichever of the following is applicable:
…
(2)The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.
…
(7)If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.
Section 139ZS(1) provides:
If the Court, on application by a person to whom a notice has been given under section 139ZQ or by any other interested person, is satisfied that this Subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the notice, the Court may make an order setting aside the notice.
Division 3 of the Act includes s.121 which provides:
121 Transfers to defeat creditors
Transfers that are void
(1)A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a)the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and
(b)the transferor’s main purpose in making the transfer was:
(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or
(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.
Showing the transferor’s main purpose in making a transfer
(2)The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor’s main purpose in making a transfer
(3)Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4)Despite subsection (1), a transfer of property is not void against the trustee if:
(a)the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b)the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c)the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Rebuttable presumption of insolvency
(4A)For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:
(a)had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or
(b)having kept such books, accounts and records, has not preserved them.
Refund of consideration
(5)The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.
What is not consideration
(6)For the purposes of subsections (4) and (5), the following have no value as consideration:
(a)the fact that the transferee is related to the transferor;
(b)if the transferee is the spouse or de facto partner of the transferor - the transferee making a deed in favour of the transferor;
(c)the transferee’s promise to marry, or to become the de facto partner of, the transferor;
(d)the transferee’s love or affection for the transferor;
(e)if the transferee is the spouse, or a former spouse, of the transferor - the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975;
(f)if the transferee is a former de facto partner of the transferor - the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975.
Exemption of transfers of property under debt agreements
(7) This section does not apply to a transfer of property under a debt agreement.
Protection of successors in title
(8)This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.
Meaning of transfer of property and market value
(9)For the purposes of this section:
(a)transfer of property includes a payment of money; and
(b)a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c)the market value of property transferred is its market value at the time of the transfer.
I accept on the evidence before me that it could reasonably be inferred that Mr Jones transferred the Dorrigo property to Ms Hombsch for the main purpose of either preventing the transferred property from becoming divisible among Mr Jones’ creditors or hindering or delaying the process of making property available for division among Mr Jones’ creditors. It is hard to accept at face value the proposition that a property settlement made 10 years after the end of the relationship is made bona fide, particularly when Mr Jones was on the verge of being subject to a large costs order and appears not to have had any property other than the three properties referred to above. Further, lawyers acting for Ms Hombsch wrote to the Trustees in May 2013 indicating that she had made only a $10,000 contribution towards the Leichhardt property and that, while Mr Jones had originally promised to leave that property to her, he changed that when the Leichhardt property was sold and so transferred the Dorrigo property to Ms Hombsch instead. That seems like a flimsy reason for the transfer.
The solicitor for the Trustee also relied on the previous litigious history of Mr Jones. Mr Jones has brought a number of unsuccessful applications against the Trustees and has been the subject of further costs orders. It appears that he did so in order to strengthen the argument that the transfer was made in order to hinder the administration of his bankrupt estate. I do not give much weight to that evidence. Conduct in unsuccessful litigation pursued well after the relevant transfers has little, if any, bearing on the purpose of those transfers. Similarly, that litigation has little bearing on the question whether security for costs ought to be ordered. While this is a little out of order, I note at this point the submission that, if security is not ordered, these proceedings will expand beyond recognition. That submission was based, it seems, on past experience. That may or may not be the case; however, there has been no order preventing Mr Jones from commencing proceedings and there are always means by which a Court might curtail the abuse of its process.
Mr Jones has not put on all of his evidence yet and may establish that there was a stronger basis for the transfer. For that reason, while I consider that the Trustees have a strong case on the material before me, I do not consider that Mr Jones will inevitably lose.
The Trustees also argued that Mr Jones had no interest in the Dorrigo property, particularly since Ms Hombsch had delivered a signed transfer of the property to the Trustees. An application to set aside a notice under s.139ZQ may be brought by the transferee or “any other interested person”. There are a number of bases on which Mr Jones is arguably an interested person. First, there is evidence that he lives, at least occasionally, in a caravan on the Dorrigo property. If that property were sold, he would be required to leave. Secondly, if the transfer of the Dorrigo property to Ms Hombsch was ineffective, it is possible that Ms Hombsch has an outstanding right to a property settlement against Mr Jones.
Overall, I conclude that there is some, albeit currently slender, prospect that Mr Jones’ application under s.139ZS will succeed.
The next question is the quantum of the risk that a costs order will not be met. The Trustees ask for security for costs in the amount of $40,000. There are two issues here: first, what is the probable amount of costs that will be incurred by the Trustees; and secondly, how much money Mr Jones has available to him. There is little evidence in respect of either of those questions. However, it was not in dispute that Mr Jones has very little money. He is now a discharged bankrupt, is unemployed and receives a disability pension. I do not know how much that pension is however it is notorious that such pensions do not amount to very much. As to the amount of costs, when I asked the Trustees’ solicitor the basis for the amount of security sought, he said that it was a “conservative estimate, having regard to the nature of the matter and the complexity of the issues.” I do not find that submission helpful at all. In any event, even if the costs were to be $10,000 it is very unlikely that Mr Jones would be able to meet it given his circumstances. On that basis, I conclude that there is a great risk that Mr Jones would not be able to meet any costs order.
The critical question in my view, however, is the next one: whether the making of an order would be oppressive in that it would stifle a reasonably arguable claim. While I would not go so far as to say that Mr Jones has a reasonably arguable claim, I am not satisfied that it is hopeless. On the other hand, there is little doubt that an order for security will bring an end to these proceedings. At this point the fact that Mr Jones is an individual becomes important to the issue. There is, as I have noted above, a considerable reluctance in the courts to order security against an individual. In my view, that fact overcomes the weaknesses in Mr Jones’ case at this stage in the proceedings and the fact that he is unlikely to be able to meet an order for costs.
Conclusion
On balance, I consider that it is not in the interests of justice to make an order for security for costs. I therefore order that the application in a case filed by the first respondents on 28 October 2014 be dismissed.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Smith
Date: 27 April 2016
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