Maas, Nicholas Christopher v Maas, Jill Elizabeth

[1998] FCA 918

FEDERAL COURT OF AUSTRALIA

Costs – security for costs – discretionary considerations in determining whether to make order for security for costs – whether case of appeal is an exception to general rule – whether Court should award complete or partial indemnity.

Federal Court of Australia Act 1976 – s 56

Brundza v Robbie & Co (No. 2) (1952) 88 CLR 171 - cited
Cowell v Taylor [1885] 31 Ch 34 - cited
Cummings v Lewis, Beaumont J, 4 December 1991, unreported - cited
J & M O'Brien Enterprises Pty Limited v The Shell Co. of Australia Limited (No.2) (1983) 70 FLR 261 - cited
P S Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 – appl.
Quad Consulting Pty Limited v David R. Bleakley and Associates Pty Limited, Burchett J, 28 June 1991, unreported - cited
Wiest v The Director of Public Prosecutions, Gummow J, 5 September 1988, unreported – cited

NICHOLAS CHRISTOPHER MAAS V JILL ELIZABETH MAAS AND RICHARD CAMPBELL BRIEN

NG 283  of   1998

JUDGE:         BEAUMONT J.
PLACE:         SYDNEY
DATE:           9 JUNE 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 283  of   1998

BETWEEN:

NICHOLAS CHRISTOPHER MAAS
APPLICANT

AND:

JILL ELIZABETH MAAS
FIRST RESPONDENT

RICHARD CAMPBELL BRIEN
SECOND RESPONDENT

JUDGE:

BEAUMONT J.

DATE OF ORDER:

9 JUNE 1998

WHERE MADE:

SYDNEY

ORDERS:

1. Appeal be dismissed unless, on or before 30 June 1998, the appellant provides security for the costs of the appeal of the first respondent in the sum of $6,000, such security to be in cash or in a bank guarantee of a kind satisfactory, in the opinion of the Registrar, or in such other form as may, in the opinion of the Registrar, be appropriate.

1. The appellant to pay the costs of the first respondent of the application for security.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 283 of 1998

BETWEEN:

NICHOLAS CHRISTOPHER MAAS
APPLICANT

AND:

JILL ELIZABETH MAAS
FIRST RESPONDENT

RICHARD CAMPBELL BRIEN
SECOND RESPONDENT

JUDGE:

BEAUMONT J.

DATE:

9 JUNE 1998

PLACE:

SYDNEY

REASONS FOR JUDGMENT

BEAUMONT J:

Before the Court is a notice of motion in the Court's appellate jurisdiction seeking an order that the appellant provide security for costs up to and including the hearing of the appeal in the sum of $7,600.  The application for security is strongly opposed.

The background to the application is as follows.  On 20 March 1997 the appellant, Nicholas Christopher Maas, presented a debtor’s petition in bankruptcy, which was accepted with the consequence that Mr Maas then became bankrupt.  On 17 April 1997 the first respondent to the appeal, Jill Elizabeth Maas, the wife of Mr Maas, filed an application in this Court for the annulment of the bankruptcy of Mr Maas on the grounds, inter alia, that the presentation of the debtor’s petition constituted an abuse of process having regard to proceedings which had been instituted in the Family Court by Mrs Maas for property orders.  Mrs Maas also sought an order that the annulment application be transferred to the Family Court.

On 16 March 1998, Mrs Maas filed an amended application seeking similar orders, but also an order that the bankruptcy be annulled on the additional ground that the debtors petition should not have been presented by Mr Maas since he was, at that time, able to pay his debts as they fell due.  At the time of filing of the amended application this Court had ordered that the proceedings be transferred to the Family Court. 

Judgment was given in the application for annulment by O'Ryan J in the Family Court on 23 March 1998. His Honour ordered that Mr Maas' bankruptcy be annulled pursuant to s 153B of the Bankruptcy Act 1966 (“the Act”). His Honour concluded that Mr Maas was not insolvent at the time of presentation of his petition under s 55 of the Act and further, was satisfied that Mr Maas did not believe that he was insolvent. O'Ryan J concluded, therefore, that the presentation of the petition was an abuse of process and that it was filed because Mr Maas wanted to frustrate or defeat the claim by Mrs Maas in the Family Court. In his reasons for judgment, O'Ryan J noted that in the opinion of the Trustee in Bankruptcy (the second respondent, Richard Campbell Brian), Mr Maas had assets of $186,855.70 and liabilities of $170,469.50, the principal creditor being the Australian Taxation Office which was owed the sum of $101,800.

The tax liability arose, it appears, from the sale by Mr Maas of certain stock options which he had held in his capacity as the managing director of the Australian operations of an international pharmaceutical company until December 1995.  It appears that in December 1995, Mr Maas sold the options for $208,397.27 which he claims he used to invest in the purchase of shares in a company resident in Western Samoa.  It appears that the Trustee in Bankruptcy and the Australian Taxation Office both opposed the annulment of the bankruptcy on the ground that a bankruptcy should not be annulled where it is not clear that payment of creditors will occur.  In this connection, however, his Honour referred to the circumstances that there were some assets not included in the total figure of $186,855.70 previously mentioned.

His Honour said:

“The above list does not include the funds in Western Samoa.  The amount owed by the company associated with the de facto wife of the bankrupt is $83,000 not $71,000.  The Volvo motor vehicle is not included.  I am satisfied there are aspects of the bankrupt's affairs which will have to be investigated such as the $20,000 gambling loss and the nature and extent of his financial relationship with his de facto wife.”

Mr Maas then applied to another Judge of the Family Court, Cohen J, for a stay of the final hearing of the property proceedings. On 6 April 1988 Cohen J refused that application for reasons published by his Honour on 8 April 1988.

In those reasons his Honour recited the previous history of the matter including the circumstance that Mr Maas proposed to appeal from the orders made by O'Ryan J.  Cohen J again analysed the financial position of Mr Maas in some detail including the dealings between Mr Maas and the Western Samoan company but, as has been said, refused the stay.  Cohen J said at paragraph 32:

“Because to grant a stay will certainly permit the husband to succeed to some extent in his attempt to deprive the wife of her s 79 entitlements and succeed in part by an abuse of process, it is overwhelmingly in the interest of justice to refuse the husband's application for a stay, not merely because the balance of convenience favours doing so but because it is in the interests of justice to exercise my discretion to do so.”

In his notice of appeal filed in this Court on 6 April 1998, Mr Maas now appeals from the whole of the judgment of O'Ryan J. 

The first four grounds of appeal seek to challenge findings of fact made by the primary Judge.  The final ground of appeal was that his Honour erred in law in exercising his discretion to annul the bankruptcy by:  (a) his Honour's treatment of the superannuation entitlements;  (2) the circumstance that his Honour took into consideration the amount owed by K D Sales Force Specialists Pty Limited when, Mr Maas contends, the debt was not repayable on demand;  and (3) that his Honour failed to give sufficient weight to the fact that the Trustee had advised the Court that there were matters requiring further investigation.  It is also contended in the final ground of appeal that, in the event that his Honour was correct in holding that the Western Samoan investment was not lost, O'Ryan J was in error in inferring that the funds would become available to creditors upon annulment.  It is also said on behalf of the appellant that O'Ryan J failed to have sufficient regard for the interests of the creditors in an annulment not being granted. 

On behalf of Mrs Maas and in support of her present application for security, two affidavits sworn by her solicitor, Richard Henry Farmer, were read.  In the first affidavit, sworn on 21 May 1998, Mr Farmer provides evidence to justify his client's claim that the sum of $7,600 is a reasonable estimate for her costs of the appeal.  I should say, at this stage, that that is not seriously challenged as an estimate.  Reference is then made by Mr Farmer in this affidavit to a financial statement filed by Mr Maas in the Family Court dated 3 April 1998 showing that the appellant has no income, is unemployed and that his liability substantially exceeds his assets.  In his second affidavit, sworn 2 June 1998, Mr Farmer refers to the debt of $74,000 said to be owed by Mr Maas to K D Sales Force Specialists Pty Limited, a company apparently controlled by Mr Maas’ de facto wife, Krishna Devi Bassi.  Mr Farmer there states that the original amount of the loan was $126,000 and that K D Sales Force Specialists Pty Limited has previously voluntarily made payments to Mr Maas in reduction of the loan.

Mr Farmer also refers to orders made by the Family Court, in particular, an order made on 31 March 1998 which has the effect, until further order, of restraining Mr Maas from disposing of his assets except in defined circumstances.  Mr Farmer states that Mrs Maas is willing to consent to the variation of certain of the orders made by the Family Court to allow Mr Maas to obtain payment of the sum of $7,600 from K D Sales Force Specialists Pty Limited so that this could be used to provide the security for costs now sought. 

On behalf of Mr Maas an affidavit is sworn by his solicitor, Mark James Webeck, on 4 June 1998.  Although it has at all times been made clear to me that Mr Maas opposes any order for security now being made, in Mr Webeck's affidavit there is evidence that the appellant is willing, presumably if so ordered, to provide security for Mrs Maas' costs in the appeal by way of a charge over his interest in the matrimonial property or, alternatively, he is willing to transfer his interest in a 1979 motor vehicle to Mrs Maas.  That vehicle appears to have a value of about $6,500.  In Mr Webeck's affidavit there is also evidence that Mr Maas is prepared to assign his interests in furniture, furnishings and household effects at the matrimonial property estimated to have a value of $10,000.

As I have said, however, the matter of the grant of security is strenuously opposed. It is submitted on behalf of Mr Maas that no security in any amount or of any kind should be ordered. It is clear from the provisions of s 56(1) of the Federal Court of Australia Act 1976 that I have the power, in the exercise of a judicial discretion, to order security for the payment of costs against an appellant in an appeal to the Full Court. The nature of the discretion, where an impecunious plaintiff may be prevented from pursuing litigation and where the lack of funds arose from the transaction the subject of the litigation, is well-established. But there is equally well-established an exception to the rule in the case of an appeal. (See Cowell v Taylor [1885] 31 Ch 34 at 38; J & M O'Brien Enterprises Pty Limited v The Shell Co. of Australia Limited (No.2) (1983) 70 FLR 261 per Bowen CJ at 264. See also, Wiest v The Director of Public Prosecutions, Gummow J, 5 September 1988, unreported;  Cummings v Lewis, Beaumont J, 4 December 1991, unreported.)

The nature of the present discretion was described by McHugh J in P S Chellaram & Co v China Ocean Shipping Co (1991) 65 ALJR 642 at 643 as follows:

“To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment.  That means that the court exercising the discretion must weigh all the circumstances of the case.  The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed.”

Applying those general words to the present case, it seems to me that it is appropriate that an order for security in a proper sum should now be made.  I take into account, in favour of Mrs Maas, the following circumstances:  firstly, that she has a successful decision in her favour at first instance;  secondly, that another Judge of the Family Court, Cohen J, has refused to order a stay of proceedings in another application in circumstances somewhat analogous to the present;  thirdly, that the amount of the security for costs now sought is not so substantial as to be, on its face, likely to destroy any prospect of the appeal proceeding;  fourthly, the nature of the grounds of appeal being essentially factual;  and fifthly, the circumstances mentioned both by O'Ryan J and Cohen J that the history of the financial dealings between Mr Maas and the other persons, including the Western Samoan company, indicate that there is room for financial capacity to be found to fund the order for security that I propose now to make.  I have, therefore, concluded that in principle, I should make an order. 

I come next to the amount of that security.  It is well established that in ordering security for costs, the Court does not set out to give a complete and certain indemnity to the other party.  (See Brundza v Robbie & Co (No. 2) (1952) 88 CLR 171, per Fullagar J at 175. See also, Quad Consulting Pty Limited v David R. Bleakley and Associates Pty Limited, Burchett J, 28 June 1991, unreported, and my own judgment in Cummings v Lewis, above.)  Whilst I accept that the claim for an amount of $7,600 is by no means an overstatement of the costs that may be incurred on behalf of Mrs Maas in defending the appeal, I think that I should conform with the existing principles and practice that I have mentioned and not seek to give a complete and certain indemnity to a respondent.  In the circumstances, I am of the view that $6,000 is a proper amount to allow for this purpose. 

I have also given consideration to the form of the order that should be made. Usually the order that would be made in an application for security for costs is conditional in the sense that, if an order is made, it is an order for dismissal of the proceedings or the appeal as the case may be, unless security is provided by a certain time. In other words, an order is not made for the provision of security as such, but the substance is the same whatever the form of the order. I have given exiguous weight in this case to the form of the order. At one point of the argument I was rather of the view that I should merely order security and then, if necessary, revisit the matter pursuant to an application which would undoubtedly be made pursuant to s 56(4) of the Federal Court of Australia Act.  That is certainly an option in the present case.  However, the matter has now been before the Court on two occasions.  The amount in contest, on what is, on any view, a purely and merely collateral application, is not significant.  It is regrettable that collateral litigation of this kind should be pursued to the ultimate as has occurred in this case and that no ground for compromise could have been found.

ORDERS

In the circumstances, therefore, I propose to make the usual order as follows:

1. I order that the appeal be dismissed unless on or before 30 June 1998, the appellant provides security for the costs of the appeal of the first respondent in the sum of $6,000, such security to be in cash or in a bank guarantee of a kind satisfactory, in the opinion of the Registrar, or in such other form as may, in the opinion of the Registrar, be appropriate.

1. I order that the appellant pay the costs of the first respondent of the application for security.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont

Associate:

Dated:             9 June 1998

Counsel for the Appellant:	D J Durston
Solicitor for the Appellant:	Michell Sillar
Counsel for the First Respondent:	G J McVay
Solicitor for the First Respondent:	Farmer Campbell Edmunds
Solicitor for the Second Respondent:	Koffels
Date of Hearing:	9 June 1998
Date of Judgment:	9 June 1998