Ling, Noel v Enrobook Pty Ltd

[1997] FCA 109

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No. NG 15 of 1997
GENERAL DIVISION                 )

BETWEEN:          NOEL LING
  Appellant

AND:              ENROBOOK PTY LTD
  Respondent

CORAM:    BRANSON J
PLACE:    SYDNEY
DATE:        13 FEBRUARY 1997

REASONS FOR JUDGMENT (EX TEMPORE)

HER HONOUR:  The respondent has by notice of motion dated 6 February 1997 sought an order that the appellant provide security for costs of the appeal in the sum of $20,000 or such other amount as the Court may order. 

The application for an order for security for costs was argued before me yesterday afternoon, Wednesday 12 February 1997.  The appeal itself is listed for hearing at 10.15 am on Tuesday 18 February 1997.  The explanation offered for the late bringing of the application is that it was only on 5 February 1997 that the respondent first saw the appellant's statement of affairs which was delivered to the office of the Official Receiver on 29 January 1997. 
The applicant's statement of affairs discloses, amongst other things, that the appellant has assets of the order of $10,000 and liabilities of the order of $10.5 million.  It further discloses that the appellant is or was the appointor under ten trusts, the beneficiaries of which are the appellant and his related issue as defined by the respective trust instruments.  In addition the statement of affairs discloses that whilst the appellant does not hold a beneficial interest in any land, he is a registered proprietor of various estates in land as a trustee of various of the ten trusts already referred to.  There is some inconsistency between the various schedules to the statement of affairs as to the identity of the trustee of certain of the trusts referred to in the statement of affairs.  However, despite this, it appears that land of a value of more than $6 million is held by trustees pursuant to trusts of which the beneficiaries are the appellant or his related issue as defined by the relevant trust deeds.  The appellant himself appears to be the registered proprietor or the registered first mortgagee of a significant proportion of this property.

The schedule of unsecured creditors contained in the appellant's statement of affairs discloses that the appellant is indebted to four companies, which respectively are trustees of certain of the trusts above referred to, in the total sum of $343,000 for "legal and professional costs".  Senior counsel has been retained on behalf of the appellant to argue the appeal in this case and it appears that the appellant has not experienced difficulty in instructing legal representatives in respect of the bankruptcy proceedings in which he has been involved and in respect of other litigation concerning the Commonwealth of Australia in which is involved.

The respondent also places weight on a letter sent on behalf of the appellant to the office of the Official Receivers in which it is asserted that the Office of Public Trustee in the State of Queensland currently holds a sum of $850,000 together with interest accrued thereon.  The letter goes on to state, as I understand it, that the appellant is unaware of the name of the account in which that money is held but that the appellant has instructed that the money is subject to a first registered mortgage over certain property in Queensland, the beneficial owner of which is one of the trusts that I have already referred to.

In support of its argument that there should be an order for security for costs, the respondent placed reliance on O52 r20 of the Federal Court Rules which provides -

"Unless the Court or a Judge otherwise directs no security for costs of an appeal to the Court shall be required".

Order 1 r11 of the Federal Court Rules provides that such rules do not apply to proceedings under the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"). No argument was addressed to me on whether the appeal in this case is a proceeding under the Bankruptcy Act, or a proceeding under s 24 of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court of Australia Act") or possibly both.

I do not consider that there is any reason for me to reach the concluded view on this issue. The jurisdiction of the Court to order security for costs in this case, in my view, is to be found in s56 of the Federal Court of Australia Act. Section 56 so far as is here relevant provides as follows:

"56  (1)  The Court or a Judge may order ... an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him.

(2)The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs."

The discretion given to the Court by s56 of the Federal Court of Australia Act is a wide one but it must be exercised judicially. If O52 r20 of the Federal Court Rules has an application in this case, it may be a consequence that there is an onus on the respondent who seeks the order that the appellant provides security for costs (see Paton v Campbell Capital Limited, unreported, Burchett J, 1 July 1993).  In this case I do not consider that anything turns on the question of a possible onus. 
In Equity Access Limited v Westpac Banking Corporation & Ors (1989) ATPR 40-972, Hill J at 50,635 identified a number of matters appropriate for consideration in the exercise of the power conferred by s56 of the Federal Court of Australia Act. Those matters included:

• the chances of success of the applicant; whether the applicant's claim is bona fide or a sham; 

• the quantum of risk that the applicant cannot satisfy a cost order;

...

• whether impecuniosity arises out of the Act [sic] in respect to which relief is sought;

• whether there are aspects of public interest which weigh in the balance against the making of an order;

• whether there are any particular discretionary matters peculiar to the circumstances of the case."

These matters are equally applicable, in my view, where an order for security for costs is sought against an appellant rather than an applicant. 

It is conceded here by the respondent that the appeal has a reasonable prospect of success in the sense that it cannot be said to be without merit or vexatious.  It is not disputed by the appellant that he will not be able to satisfy a costs order made against him on the appeal.  It is not suggested that the appellant's impecuniosity arises out of any act in respect of which relief is sought against the respondent. 

On behalf of the appellant, it was suggested that the public interest in impecunious appellants not being shut out from having a proper appeal heard weighed against the making of the order sought.  Subject to the issue of timing, to which I will turn shortly, I am far from satisfied that the appellant will be shut out from prosecuting his appeal by an order for security for costs in a reasonable sum.  Indeed, the appellant did not seek to place evidence before the Court to this effect.  It is more likely than not, in my view, that if an order were made requiring the appellant to provide security for the costs of the appeal with appropriate time to make the necessary arrangements, the appellant would be able to borrow further funds "for legal and professional costs". 

On behalf of the respondent, it is contended that if the appeal is unsuccessful, the respondent can expect an order for costs in its favour but an order which will not enjoy any priority in the appellant's bankruptcy.  In such circumstances the respondent will be left to prove those costs as an unsecured creditor in a bankruptcy where assets of approximately $10,000 are, after trustees' fees and expenses and priority creditors, to be divided amongst unsecured creditors totalling approximately $10.5 million.  Such circumstances are characterized by the respondent as -

"manifestly unjust and precisely a circumstance where the Court should exercise its jurisdiction to order security for the Respondent's costs".

It was not suggested on behalf of the respondent that the assets of the trusts to which I have referred are in reality assets of the appellant from which he has technically distanced himself.  I am not able to be satisfied on the evidence before me that the assets of any of those trusts are in reality the appellants to "command" (see Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 at 47). Nevertheless, it appears that the respective trustees of certain of those trusts have in the past lent money to the appellant to enable him to fund litigation apparently including this litigation to which he is a party. I can see no reason to conclude that one or other or more of them would not do so again. However, there is no material before me upon which I could conclude that the appeal is being prosecuted for the benefit of such trustees, whether in their capacities as trustees or in their personal capacities.

An important discretionary factor in this case is that of the lateness of the application.  I say this without intending any criticism of the respondent or its legal representatives.  It appears that they promptly sought access to the appellant's statement of affairs and filed and served a notice of motion the day after being provided with a copy of it.  Nonetheless there are now less than three business days before the hearing of the appeal.  This is a very short time in which to require the appellant to provide any significant sum as security for costs. 
Moreover, the appellant, and indeed the respondent, are likely already to have become liable for the greater of the costs of the appeal.  Although this is not a factor upon which I place great weight, I point out also that a significant portion of these costs are likely to have been incurred so far as the appellant is concerned without his being on notice of a security for costs application. 

I have sought in this case to weigh up the competing interests of the parties, having regard to the particular facts and circumstances of this case.  Having done so, I have, perhaps with some regret, come to the conclusion that at a time so close to the hearing of the appeal, which understandably neither party suggested should be delayed, it would not accord with the balance of justice to make an order for security for costs as sought by the respondent.

I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment of the Honourable Justice Branson.

Associate:

Date:

Counsel for the appellant:           Mr M.R. Aldridge

Solicitors for the appellant:             J.M. Smith & Emmerton

Counsel for the respondent:          Mr V.R.W. Gray

Solicitors for the respondent:            Sally Nash & Co.

Hearing dates:  12, 13 February 1997