Mikkelsen v Li
[2022] VSCA 126
•29 June 2022
| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2022 0022 |
| ZOEY MIKKELSEN AND JAN MIKKELSEN | Applicants |
| v | |
| ZHIREN LI AND BAOTONG LIU | Respondents |
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| JUDGES: | KYROU and WALKER JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 17 June 2022 |
| DATE OF JUDGMENT: | 29 June 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 126 |
| JUDGMENT APPEALED FROM: | [2021] VCC 2027 (Judge Burchell) |
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PRACTICE AND PROCEDURE – Application for security for costs – Applicable principles – Meaning of ‘impecuniosity’ – Relevance of cross-appeal – Whether judgment debt subject to appeal should be taken into account in assessing applicants’ financial position – Order for security for costs made – Supreme Court (General Civil Procedure) Rules 2015, r 64.38(4).
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| Counsel | |||
| Applicants: | Mr D Connors | ||
| Respondents: | Mr PH Caillard | ||
Solicitors | |||
| Applicants: | VMC Legal | ||
| Respondents: | Accuro Maxwell | ||
KYROU JA
WALKER JA:
Introduction and summary
On 8 September 2016, the respondents, Zhiren Li and Baotong Liu, purchased shares in Forever Exotic Pty Ltd (‘company’) from the first applicant, Zoey Mikkelsen. On 14 December 2021, a judge of the County Court held that Ms Mikkelsen and the second applicant, Jan Mikkelsen, had engaged in misleading and deceptive conduct and made negligent misstatements in relation to the sale of the shares and ordered them to pay damages to the respondents.[1] The amount of the damages was reduced by 15 per cent to give effect to the judge’s finding that the respondents’ own negligence contributed to their loss.
[1]Li v Mikkelsen [2021] VCC 2027. See [42] below.
The applicants have sought leave to appeal against the judge’s award of damages. The respondents have sought leave to cross-appeal against the judge’s finding of contributory negligence.
The respondents have also applied for an order for security for costs in the amount of $67,774. These reasons deal with that application.
The only substantive issue in dispute in relation to that application was whether the financial position of the applicants was such that there was an unacceptable risk that they would not be able to meet any costs order that might be made against them if their application for leave to appeal, or any appeal consequent upon the granting of leave, was unsuccessful.
The applicants did not seek to challenge the quantum of the security sought by the respondents.
For the reasons that follow, we will order the applicants to provide security for costs in the amount of $67,774.
Applicable legal principles
The Court has power under r 64.38(4) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) to make an order that security be given for the costs of an application or appeal on such terms as the Court thinks fit. The power to order security for costs involves an exercise of discretion.[2]
[2]Wu v Bi [2022] VSCA 22, [11] (‘Wu’). The principles set out in Wu were drawn from Djordjevich v Rohrt [2021] VSCA 279, [7]–[15].
For ease of reference, we will consider the principles that the Court is to apply in deciding whether to grant an application for security for costs in the context of an appeal. The same principles apply in the context of an application for leave to appeal.
The general principle is that, ordinarily, the discretion to order security for costs will be exercised in favour of a respondent who applies for such an order if:
(a)there is an unacceptable risk that the appellant would not be able to meet a costs order in favour of the respondent made consequent upon the appeal being unsuccessful;[3] and
(b)there are no discretionary or other considerations which require that security for costs not be ordered.
[3]Wu [2022] VSCA 22, [10].
The onus lies on the respondent to persuade the Court that it should exercise its discretion to order security for costs. If the appellant contends that there are circumstances peculiar to his or her case that militate against the making of such an order, he or she has an evidentiary onus to identify them and to draw the Court’s attention to any evidence that supports them.
The factors that inform the exercise of the Court’s discretion whether to order security for costs include the following:[4]
[4]The factors that are listed are adapted from Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 299–300 (‘Sydmar’); KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, 196–8; Maher v Commonwealth Bank of Australia [2008] VSCA 122, [78]–[81]; Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154, [46]–[50] (‘Bakers’); Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [No 3] [2016] VSCA 185, [19]; Wu [2022] VSCA 22, [10]–[18]. Some of the older authorities refer to the need for a respondent to establish special circumstances warranting an order for security for costs. The current wording of r 64.38(4) of the Rules does not require that special circumstances be established.
(a)the prospects of success of the appeal;
(b)the magnitude of risk that a costs order would not be satisfied;
(c)whether the giving of security would be oppressive in that it would stifle a reasonably arguable claim;
(d)whether the conduct of the respondent that is the subject of the appeal has contributed to the risk that the appellant would not be able to satisfy a costs order;
(e)whether the appeal is defensive in nature;
(f)whether the respondent has cross-appealed;
(g)whether the respondent has delayed in applying for security for costs;
(h)whether there are aspects of the public interest which ought to be taken into consideration in deciding whether security should be provided; and
(i)whether there are particular discretionary matters that are relevant in the case.
Only factors (b) and (f) were contentious in the present case. They are discussed in detail below. The other factors were not contentious for the following reasons:
(a)The parties agreed with a suggestion from the Bench that the prospects of success of the proposed appeal be treated as a neutral consideration.
(b)It was common ground that:
(i)the making of an order for security for costs would not be oppressive in the sense that it would stifle a reasonably arguable claim;
(ii)no conduct of the respondents has contributed to the risk that the applicants would not be able to satisfy a costs order;
(iii)there are no aspects of the public interest which ought to be weighed in the balance; and
(iv)there are no particular discretionary factors that are relevant.[5]
(c)No submissions were made about any delay by the respondents or that the proposed appeal was defensive in nature.
[5]In the applicants’ written case and in communications between the parties, the applicants contended that an order for security for costs would require them to sell their family home. However, as set out at [66] below, in oral submissions, the applicants disavowed reliance upon that contention.
Two issues arose in relation to the scope of factor (b) in [11] above, namely, the magnitude of risk that a costs order would not be satisfied. The first issue was whether the Court must first determine whether an appellant is impecunious and then apply that determination in assessing the risk of non-payment of a costs order. The second issue was whether the judgment debt the subject of an appeal should be included as a liability in determining an appellant’s financial position.
Meaning of ‘impecuniosity’ and whether a finding of impecuniosity is required
In relation to the first issue, the applicants submitted that an assessment of the risk of non-payment must be preceded by a determination of whether an appellant is impecunious. The respondents submitted that a finding of impecuniosity is not necessarily required and that the sole question to be determined by the Court is the magnitude of the risk of non‑payment of a costs order, which is to be assessed on the basis of the financial and other evidence before the Court. The respondents submitted that, if the Court were required to first determine whether an appellant was impecunious, an appellant could defeat a respondent’s application for security for costs by simply refusing to disclose information about his or her financial position and thus make it impossible for the respondent to establish impecuniosity.
In Wu, this Court made observations which, at first glance, appear to support the applicants’ submission. Those observations include:
(a)‘the onus remains on the respondent to establish the applicant’s impecuniosity’;[6]
(b)‘if impecuniosity has been established, it will be a significant, but not decisive, factor in an application for security of the costs of an application for leave to appeal’;[7] and
(c)‘if impecuniosity has not been established, that will ordinarily mean that the requisite unacceptable risk cannot be established’.[8]
[6]Wu [2022] VSCA 22, [13].
[7]Wu [2022] VSCA 22, [17].
[8]Wu [2022] VSCA 22, [18].
The Court in Wu also described one of the factors that informed the exercise of the discretion whether to order security for costs as ‘the degree of risk that a costs order might not be satisfied because of the impecuniosity of the [appellant]’.[9]
[9]Wu [2022] VSCA 22, [11(b)].
On the other hand, the Court in Wu made it clear that the key issue for consideration in an application for security for costs is whether there is risk that a successful respondent would not be able to recover costs against an unsuccessful appellant, which is unacceptable in all the circumstances.[10] The Court emphasised that the party making the application for security bears the onus of establishing the matters which give rise to the risk, and identified an appellant’s impecuniosity as one of the matters which usually gives rise to that risk.[11]
[10]Wu [2022] VSCA 22, [10].
[11]Wu [2022] VSCA 22, [10], [11].
Before considering further whether a finding of impecuniosity is a necessary requirement for the purpose of factor (b) in [11] above, we will first analyse the meaning of ‘impecuniosity’ in the context of an application for security for costs.
The Macquarie Dictionary defines ‘impecunious’ as ‘having no money; penniless; poor’.[12] Similarly, the Oxford English Dictionary defines ‘impecuniosity’ as ‘[t]he quality or condition of being impecunious; lack of money’[13] and ‘impecunious’ as ‘[h]aving no money, penniless; in want of money’.[14]
[12]Macquarie Dictionary (online at 29 June 2022) ‘impecunious’.
[13]Oxford English Dictionary (online at 29 June 2022) ‘impecuniosity’.
[14]Oxford English Dictionary (online at 29 June 2022) ‘impecunious’.
The concepts of ‘solvency’ and ‘insolvency’ are defined in the Corporations Act 2001 (Cth) and Bankruptcy Act 1966 (Cth) as follows:
A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
A person who is not solvent is insolvent.[15]
[15]Corporations Act, s 95A(1)–(2); Bankruptcy Act, s 5(2)–(3).
In Lovejoy v Carp, the expression ‘impecunious’ was used in the sense that the appellant in that case would not be able to pay the respondents’ costs if the appeal were unsuccessful.[16]
[16][1999] VSCA 167, [30].
In Penhalluriack v Farnell, this Court held that the appellant in that case was impecunious in circumstances where she had conceded that her financial situation was ‘poor’, she had previously been represented by lawyers on a pro bono basis and it was improbable that she could satisfy a costs order in the appeal, should one be made against her.[17]
[17][2008] VSCA 250, [20], [22].
In Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [No 3], McLeish JA accepted that the applicant in that case was impecunious because it did not have either the assets or the income to satisfy any adverse costs order that might be made in the proceeding.[18]
[18][2016] VSCA 185, [13], [20].
In Wu, this Court held that the respondents in that case had established ‘the requisite impecuniosity’ on the basis that the applicant had cash flow difficulties and his financial position was ‘perilous’.[19]
[19][2022] VSCA 22, [31].
It is readily apparent from the above cases that references to ‘impecuniosity’ in the context of an application for security for costs are not intended to reflect either the dictionary meaning of ‘having no money’ or the concept of insolvency in bankruptcy law.
There are three important reasons why impecuniosity in the context of an application for security for costs should not be regarded as synonymous with insolvency in bankruptcy law:
(a)First, if it had been intended to convey this special legal meaning, that meaning would have been conveyed directly by using ‘insolvent’ rather than indirectly by using ‘impecunious’.
(b)Secondly, if impecunious was intended to mean insolvent, a finding of insolvency would have obviated the need to assess the magnitude of the risk of non‑payment of costs ordered by the Court. That is because a finding that an appellant is unable ‘to pay all [his or her] debts, as and when they become due and payable’ would necessarily involve positive satisfaction that he or she could not meet a costs order.
(c)Thirdly, unlike a bankruptcy proceeding, in an application for security for costs, the Court will rarely have before it all the financial information necessary for a finding of insolvency.
In our opinion, cases dealing with applications for security for costs use the expression ‘impecuniosity’ as a simple and convenient label to indicate that an appellant’s financial position is problematic, rather than as indicating that the appellant is insolvent.
We now return to the issue of whether a finding of impecuniosity — with impecuniosity being understood in the sense discussed above — is a necessary requirement for the purpose of factor (b) in [11] above. In our opinion, whilst a finding that an appellant is currently impecunious will usually be the most reliable basis for assessing whether there is a risk that a costs order that may be made in the future would not be satisfied, and for assessing the magnitude of that risk, such a finding is not a precondition.
It must be remembered that the task of assessing the magnitude of the risk that a costs order would not be satisfied under factor (b) is undertaken for the purpose of the Court determining whether that risk is unacceptable in all the circumstances of the case. Whilst an appellant’s current impecuniosity will usually be the most important consideration in determining whether there is an unacceptable risk that a costs order would not be satisfied, it is not the only consideration. A Court may find that there is such an unacceptable risk even if an appellant is not presently impecunious. That is because the relevant time to which assessment of the risk relates is when a costs order is likely to be made in the future, rather than when an order for security for costs is made.
By way of example, the Court may make an order for security for costs where an appellant has significant assets but the unchallenged evidence establishes that he or she is systematically divesting those assets to avoid creditors. A further example is where the appellant has significant assets but those assets are located in a jurisdiction which does not provide for enforcement of Australian judgments and orders.
Conversely, the Court may find that there is no unacceptable risk that an appellant would not satisfy a costs order even if, at the time of the hearing of the application for an order for security for costs, the appellant is impecunious. By way of example, the Court may conclude that an appellant does not currently have sufficient assets to meet a costs order but will do so prior to any such order being made because the unchallenged evidence establishes that he or she is imminently due to receive a significant payment from a deceased estate.
The above examples illustrate that the question of whether there is a risk that an appellant would not be able to satisfy a costs order and, if so, the magnitude of that risk must be answered having regard to the circumstances of each case.
In some cases, the evidence relating to an appellant’s financial position may be incomplete or equivocal. In such cases, the Court may be required to consider whether it can draw any inferences from the evidence, such as it is. As explained in Wu, an inference that an appellant’s financial position is problematic and creates a risk of non‑satisfaction of a costs order may — but need not necessarily — be drawn where:
(a)an appellant has failed to provide to a respondent financial information that the respondent has requested in order to assess the appellant’s capacity to meet a costs order, particularly where there is evidence that suggests that the appellant’s failure to disclose the requested information is motivated by a wish to hide an insufficiency of assets;[20] and
(b)an appellant has failed to meet previous costs orders where the amounts due have been agreed by the parties or fixed or assessed by the relevant court.[21]
Whether impugned judgment debt should be included in assessment of impecuniosity
[20]Wu [2022] VSCA 22, [14].
[21]Wu [2022] VSCA 22, [15].
In relation to the second issue referred to at [13] above — namely, whether the judgment debt the subject of an appeal should be included as a liability in determining an appellant’s financial position — counsel for the applicants contended in oral submissions that an impugned judgment debt should not be included. That was said to be because inclusion of an impugned judgment debt would be tantamount to ‘hypothecating’, ‘securing’ or giving priority to the judgment debt. In response to questions from the Bench, counsel was not able to point to any authority in support of his contention.
In contrast, counsel for the respondents submitted that an impugned judgment debt should be taken into account in assessing an appellant’s financial position. That was said to be because the issue of an appellant’s ability to meet a costs order has to be determined as at the time such an order would fall to be made. It was said that, at that future time, the appeal would necessarily have failed and therefore the impugned judgment debt would remain an enforceable liability. Counsel was not able, in the course of oral argument, to identify any authority in support of his submission.
The Bench gave the parties leave to file written submissions on any applicable case law on this issue. The applicants did not file any submissions. The respondents provided a short submission that the judgment debts in the present case[22] should be taken into account in determining the applicants’ financial position. The respondents relied upon a number of cases, including Villella v Telstra Corporation Ltd,[23] Hii v Federal Commissioner of Taxation [No 3],[24] George 218 Pty Ltd v Bank of Queensland Ltd[25] and Xenos v FAL Healthy Beverages Pty Ltd.[26]
[22]See [42]–[43] below.
[23][2014] VSCA 263, [44].
[24](2016) 238 FCR 304, 310 [18]–[22].
[25][2016] WASCA 56, [49]–[52].
[26][2017] NSWCA 240, [27].
The above authorities support the respondents’ submission that an impugned judgment debt can be taken into account in assessing an appellant’s financial position. That is particularly so in a case where an impugned judgment debt in substance involves the repayment to a respondent of money which has been found to have been wrongfully obtained by an appellant. There may well be cases where it may be appropriate for the Court not to take into account an impugned judgment debt or not to take it into account fully. That may be so, for example, where the Court is persuaded that an appeal has strong prospects of success and grants a stay of the impugned judgment debt. However, it is not necessary for us to express a final view on this issue.[27]
Relevance of a cross-appeal
[27]We note that in Wu [2022] VSCA 22, [16], this Court stated that ‘it will typically be difficult to establish an applicant’s impecuniosity where evidence discloses that the applicant owns unencumbered real property the value of which might reasonably be supposed (even absent valuation evidence) to exceed the amount of a prospective adverse costs order’ (emphasis added). However, the Court subsequently stated (at [31]) that it was ‘clear that, even if the judgment debt sought to be appealed is left out of account, the respondents have established the requisite impecuniosity’ (emphasis added).
In relation to factor (f) at [11] above — namely, whether the respondent has cross‑appealed — the authorities establish that the existence of a cross-appeal which raises factual issues that are substantially the same as those in the appeal may weigh against the making of an order for security for costs.[28] However, in an appropriate case, that factor may have less weight or be completely neutralised where:
(a)the cross-appeal is defensive in nature;[29]
(b)upon request, the respondent offers appropriate security for the costs of the cross‑appeal; or
(c)the respondent gives an undertaking to the Court that, if security were ordered and the amount were not paid by the appellant, resulting in a stay of the appeal, then the respondent would also treat the cross-appeal as stayed.[30]
[28]See Sydmar (1987) 73 ALR 289, 300; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 625–8 (‘Interwest’); Ausbulk Ltd v Ewing International Limited Partnership [2009] SASC 202, [21]–[25] (‘Ausbulk’); Bakers [2014] VSC 154, [46]–[50].
[29]See Sydmar (1987) 73 ALR 289, 300; Interwest (1991) 5 ACSR 621, 625–8; Ausbulk [2009] SASC 202, [25]; Bakers [2014] VSC 154, [46]–[50].
[30]Bakers [2014] VSC 154, [47]–[48]; LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128, [47]–[48], [51].
During oral argument in the present case, counsel for the respondents gave an undertaking to the Court that, ‘if security were ordered, and the amount was not paid resulting in a stay of the proceeding, [the respondents] will treat the cross appeal as stayed as well’.[31] Counsel gave a further undertaking to the Court that, if noncompliance with an order for security for costs resulted in the dismissal of the proceeding, the respondents would withdraw or discontinue their application for leave to cross-appeal.[32] In the light of those undertakings, the applicants’ counsel conceded that he could not rely upon the respondents’ application for leave to cross-appeal as a factor militating against the making of an order for security for costs.
[31]Transcript of Proceedings (17 June 2022) 40.10–40.13.
[32]Transcript of Proceedings (17 June 2022) 40.20–41.3.
The applicants’ financial position
In order to form an opinion about the applicants’ financial position, it is necessary to set out in some detail the orders of the County Court and communications between the parties.
On 4 October 2021, a judge of the County Court (who was not the trial judge) dismissed an application by the applicants to file a counterclaim. He ordered the applicants to pay the respondents’ costs of that application on the standard basis.
Following the trial judge’s decision of 14 December 2021, on 24 January 2022, she made an order which relevantly required the applicants to pay:
(a)Mr Li damages and interest totalling $70,913.36;
(b)Mr Liu damages and interest totalling $567,306.91;
(c)the respondents’ costs of the proceeding on the standard basis up to and including 20 May 2021, and on the indemnity basis after that date; and
(d)the respondents’ costs of a summary judgment application on the indemnity basis.[33]
[33]The trial judge also ordered the respondents to pay the applicants’ costs of a strike out application on the standard basis.
We will refer to the amounts of $70,913.36 and $567,306.91 in the trial judge’s order as ‘the judgment debts’.
On 21 February 2022, the respondents’ solicitors, Accuro Maxwell, sent a letter to the applicants’ solicitors, VMC Legal, demanding that the applicants pay the judgment debts. On 23 February 2022, VMC Legal replied by email, foreshadowing that they expected to receive instructions to file an application for leave to appeal as well as an application for a stay of the trial judge’s order. VMC Legal also stated that the applicants instructed that ‘the only way they could satisfy orders would be to sell their home which could not be easily reversed if the appeal is successful’. The application for leave to appeal was filed on 4 March 2022.
On 7 April 2022, Accuro Maxwell wrote to VMC Legal, expressing concern as to the applicants’ ability to satisfy any adverse costs order which may be made against them and seeking information about their financial position. Accuro Maxwell stated that they held instructions to apply for security for costs unless the applicants provided confirmation of their assets and any encumbrances secured over those assets.
On 13 April 2022, VMC Legal sent an email to Accuro Maxwell, which did not provide any details of the applicants’ assets or encumbrances. It stated that ‘the satisfaction of the judgement if required and costs would necessitate the sale of [the applicants’] family home’ and nominated this as the basis for an application for a stay and as ‘an answer to [the] security [for costs] issue’.
On 14 April 2022, Accuro Maxwell sent a reply email to VMC Legal, which expressed concern as to the applicants’ ability to satisfy the judgment debts and the costs of the appeal and cross-appeal if the applicants are unsuccessful, and requested a full disclosure of their financial position.
On 20 April 2022, Accuro Maxwell sent an email to VMC Legal, noting that no response had been received to its email of 14 April 2022 and repeating its request for a full disclosure of the applicants’ financial position.
In early May 2022, Accuro Maxwell conducted title and ASIC searches. The title searches disclosed that the applicants jointly owned their family home in Kallista, Victoria which is subject to a mortgage to the ANZ Bank and a caveat in respect of a charge to ACN 601 158 507 Pty Ltd.[34] The ASIC searches disclosed that Ms Mikkelsen was the registered owner of 64 fully paid shares in the company, being the balance of shares after the sale of 36 shares to the respondents which is the subject of the proceeding.
[34]The title searches also disclosed that Ms Mikkelsen is a co-owner of a property in Campbells Creek, Victoria. However, that ownership interest is not presently relevant because it is common ground that the property is virtually worthless.
On 11 May 2022, the respondents filed their application for security for costs.
On 26 May 2022, the applicants filed a notice of opposition to the application for security for costs, together with a supporting affidavit sworn by Stephen Walters of VMC Legal, which relevantly stated:
[T]he satisfaction of all obligations in this proceeding will require the sale of the applicants’ home if the appeal fails.
In contrast, if the appeal succeeds the sale of the home will not be necessary.
The applicants therefore oppose the security for costs application and will apply for a stay of the judgement to obviate the need for disruption of the family by sale of the family home which may not be required but for this application.
…
I am instructed that the equity in the applicants’ residence is in the vicinity of $1,200,000.00 which is easily sufficient to satisfy the judgement and all costs in the event of an unsuccessful appeal.
On 27 May 2022, the respondents filed a notice to produce requiring the applicants to produce, by 2:00 pm on 3 June 2022, documents showing the value of their interest in the Kallista property; the ANZ Bank mortgage; the loan and present indebtedness to the ANZ Bank; and the applicants’ present liabilities. No documents were produced by that time.
At 3:43 pm on 3 June 2022, Ms Mikkelsen filed an affidavit in which she confirmed the contents of Mr Walters’ affidavit of 26 May 2022. She exhibited the following documents:
(a)The first page of a statement of the ANZ Bank mortgage, which she deposed was ‘the only encumbrance on [the applicants’] home’. That statement records a closing debit balance of $611,273.49 as at 4 April 2022.
(b)Proof of account documents for three Bendigo Bank accounts in Ms Mikkelsen’s name dated 3 June 2022. The current credit balance on those accounts totals $59,768.07 (comprising amounts of $2,782.52, $5,135.42 and $51,850.13 respectively). The applicants have not provided bank statements for the three Bendigo Bank accounts and thus it is not possible to ascertain the debit and credit items that have produced the closing balances.
(c)The first page of a bank statement in the name of the company dated 27 May 2022. The closing credit balance in that statement is $5,196.59.
(d)A copy of a late payment notice from Yarra Ranges Council (‘Council’) dated 16 March 2022 in respect of overdue rates and charges for the Kallista property totalling $4,856.05. A handwritten annotation on that notice records that $1,000 was paid on 24 April 2022, leaving an outstanding balance of $3,856.05. That notice does not include the Council’s assessment of the improved capital value of the property.
(e)A screenshot from the ‘myOpenAgent’ website relating to the Kallista property, which she believed accurately reflected the price range that might be expected in the sale of the property. That range was $1,400,000 to $1,700,000.
On 6 June 2022, the respondents filed a second notice to produce requiring the applicants to produce, by 2:00 pm on 9 June 2022, all documents relating to the existence of any encumbrances on the Kallista property. The notice to produce specified that these documents should include the ANZ Bank mortgage, the charge in favour of ACN 601 158 507 Pty Ltd and materials setting out the applicants’ indebtedness to ACN 601 158 507 Pty Ltd.[35]
[35]See [49] above.
On 6 June 2022, Maggie Wang of Accuro Maxwell affirmed an affidavit and exhibited to it an ‘ABN Lookup’ search and an ASIC search showing that ACN 601 158 507 Pty Ltd was the registered holder of the business name ‘businessloans.com.au’. She stated that a Google search of that website address redirected to the website address ‘ which website purported to offer ‘finance on demand’ permitting customers to enter into business loans/overdrafts of up to $1,000,000. She also exhibited four online estimates of the value of the Kallista property, with the following ranges: $1,435,000 to $1,753,000; $940,000 to $1,490,000; $880,000 to $1,160,000; and $1,600,000 to $1,800,000. She deposed that, pursuant to the costs orders made by the County Court, she expected the respondents to recover about $217,800 from the applicants.
On 6 June 2022, Yiling Yang of Accuro Maxwell affirmed an affidavit in which she stated that, on 26 May 2022, she was informed by David McKay of Fletchers Yarra Ranges (‘Fletchers’) that:
(a)Fletchers had prepared a ‘full valuation’ of the Kallista property ‘about a month ago’ at the request of Mr Mikkelsen;
(b)Mr McKay estimated the property could sell for around $1,500,000 to $1,650,000 if necessary repair work was performed; and
(c)without that work, ‘the estimate would be lower, sitting at $1.50 [million] or below’.
In her affidavit, Ms Yang also stated that, on 26 May 2022, she was informed by Jo Hirst of Bell Real Estate Belgrave (‘Bell’) that:
(a)the applicants had contacted Bell for a valuation ‘18 months ago and in 2016’;
(b)the property ‘might be sitting at about $1 m’; and
(c)Ms Hirst could not be sure of the property’s value without conducting an internal inspection.
On 15 June 2022, Mr Walters swore a second affidavit in which he relevantly deposed as follows:
I am instructed that the caveat lodged by [Shift] relates to a loan for $70,000.00 that was taken out in 2019 and which is gradually being paid off, and that the current payout amount is $35,480.31. …
I am instructed that [Ms Mikkelsen] failed to depose to this debt as whilst she was aware that there was a small amount being paid monthly to pay the financial accommodation in full, she was not aware that [Shift] had registered a caveat on the property.
Mr Walters exhibited a statement of account from Shift dated 28 March 2022. That statement shows that the loan is in the name of the company. Because the Kallista property is security for the loan, it can be inferred that the applicants have guaranteed the loan and that the property secures the guarantee. The statement included the following summary as at 28 March 2022:
Principal Remaining
$25,406.91
Interest
$ 8,267.53
Dishonour Fees
$ 100.00
Direct Debit Fees
$ 15.40
Additional Legal Charges
$ 1,435.00
Arrears Fee/Default Interest
$ 255.47
Total Payout Amount
$ 35,480.31
The fee history in that statement of account for the period from 14 June 2019 until 7 April 2020 lists four dishonour fees of $25.
On 17 June 2022, at the suggestion of the Bench during the hearing of the present application, the applicants produced a copy of the Council rate notice for the Kallista property for the current financial year. That notice sets out a capital improved value of $900,000. Upon production of the rate notice, the parties agreed that the Court could proceed on the basis that the current value of the Kallista property is $900,000.
Parties’ submissions
We will not repeat the parties’ submissions on the issues we have discussed under the heading ‘Applicable legal principles’.
In their written case, the respondents submitted that the Court should order security for costs because the applicants ‘are impecunious and there is a significant risk that the [respondents] will be unable to recover costs of the appeal if the [applicants] are unsuccessful’.
In oral submissions, the respondents contended that adverse inferences should be drawn from the applicants’ failure to respond to their requests for information and the two notices to produce, namely, that the applicants chose not to provide information about their liabilities because it was not in their interests to do so. They also contended that Ms Mikkelsen lied when she stated in her affidavit of 3 June 2022 that the ANZ Bank mortgage was ‘the only encumbrance on [the applicants’] home’, in an attempt to convince the Court that the applicants were not impecunious.
According to the respondents, the applicants failed to comply with their overarching obligations to cooperate and disclose critical documents in ss 20 and 26, respectively, of the Civil Procedure Act 2010 (‘CPA’). Those sections relevantly provide as follows:
20Overarching obligation to cooperate in the conduct of civil proceeding
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
…
26 Overarching obligation to disclose existence of documents
(1)Subject to subsection (3), a person to whom the overarching obligations apply must disclose to each party the existence of all documents that are, or have been, in that person’s possession, custody or control—
(a)of which the person is aware; and
(b)which the person considers, or ought reasonably consider, are critical to the resolution of the dispute.
(2)Disclosure under subsection (1) must occur at—
(a)the earliest reasonable time after the person becomes aware of the existence of the document; or
(b)such other time as a court may direct.
(3)Subsection (1) does not apply to any document which is protected from disclosure—
(a)on the grounds of privilege which has not been expressly or impliedly waived; or
(b)under any Act (including any Commonwealth Act) or other law.
(4)The overarching obligation imposed by this section—
(a)is an ongoing obligation for the duration of the civil proceeding; and
(b)does not limit or affect a party’s obligations in relation to discovery.
In their written case, the applicants submitted that security for costs ought not be ordered because their equity in the Kallista property ‘is more than sufficient to cover any costs that might be incurred in connection with the appeal’ and therefore ‘the magnitude of risk that [a] costs order will not be satisfied is slight’. They also submitted that ‘[i]t is not reasonable to require them to take steps to sell the [Kallista] property, which would have to occur, to prosecute the appeal’. However, in oral submissions, the applicants resiled from the proposition that they would have to sell the property to meet an order for security for costs.
In oral submissions, the applicants contended that the Court should not conclude that they have failed to cooperate, or draw an adverse inference from the manner in which they provided information to the respondents. That was said to be because they were focused on demonstrating that they owned the Kallista property and that they had equity in it and therefore, on this basis, the only documents that were relevant were those demonstrating that they had a net positive equity position. The applicants also argued that the Court should not conclude that Ms Mikkelsen’s statement in her affidavit of 3 June 2022 that the ANZ Bank mortgage was the only encumbrance on the Kallista property was deliberately false. That was said to be because the reason for the error was explained in Mr Walters’ affidavit of 15 June 2022.
Decision on whether security for costs should be ordered
At [37] above, we concluded that an impugned judgment debt can be taken into account in assessing an appellant’s financial position. In our opinion, in the present case, it is appropriate to include the judgment debts as liabilities for the purpose of determining whether the applicants currently have a surplus or deficiency in their assets. That is because the judgment debts represent moneys paid by the respondents to Ms Mikkelsen which the trial judge found should be repaid (after an adjustment for contributory negligence) due to the wrongful conduct of the applicants. Further, the moneys paid by the respondents have been absorbed within the assets of the applicants and therefore it is appropriate to treat the obligation to repay those moneys as an offsetting liability to accurately assess the applicants’ financial position.
Although the applicants have stated on a number of occasions that they intend to apply for a stay of the judgment debts, no such application has been filed. Whilst we cannot pre-empt the outcome of any application for a stay, in our opinion it is appropriate in all the circumstances of this case to proceed on the basis set out at [68] above.
The discussion at [44]–[61] above indicates that the applicants have been very reluctant to provide accurate and complete financial information in response to repeated requests by the respondents for such information. The applicants initially made general assertions about their financial position and, in the face of persistent requests by the respondents, they provided financial information in a piecemeal and belated manner. Moreover, the applicants have not acted in a transparent manner in responding to the respondents’ requests for financial information. We will refer to two examples.
First, it appears from Ms Yang’s affidavit that Mr Mikkelsen obtained a valuation of the Kallista property from Fletchers in April 2022.[36] The applicants did not disclose the existence of that valuation. Instead, they sought to rely on the ‘myOpenAgent’ online estimate of the value of the property which is presumably based upon an algorithm that takes into account local sales but not any specific attributes of the Kallista property apart from basic details such as the land size and sales history. However, we accept that, when the applicants were invited by the Court to disclose the capital improved value of the property in the Council’s rate notice, they promptly did so. The capital improved value of $900,000 is just over half of the top of the estimated range of $1,400,000 to $1,700,000 provided by the ‘myOpenAgent’ website.
[36]See [56] above.
Secondly, initially the applicants failed to disclose either the loan from Shift or the caveat lodged by Shift. Whilst there is insufficient evidence to satisfy us to the Briginshaw v Briginshaw[37] standard that Ms Mikkelsen deliberately lied when she deposed that the only encumbrance on the Kallista property was the ANZ Bank mortgage, we are satisfied that the applicants failed to take basic precautions to ensure that the information they provided was accurate and complete.
[37](1938) 60 CLR 336. See also Evidence Act 2008, s 140(2).
Allowing for the limitations in the evidence before us, our best estimate of the applicants’ current assets and liabilities is summarised in the following table:
Assets
Applicants’ home
$ 900,000.00
Applicants’ bank accounts
$ 59,768.07
Total assets
$ 959,768.07
Liabilities
ANZ mortgage
$ 611,273.49
Debt owed to Shift
$ 35,480.31
Overdue rates and charges
$ 3,856.05
Judgment debts
$ 70,913.36
$ 567,306.91
Total liabilities
$ 1,288,830.12
TOTAL ASSETS LESS TOTAL LIABILITIES
($ 329,062.05)
The above table indicates that the applicants have a deficiency of assets over liabilities of $329,062.05. This is an underestimate because we have not included as a liability costs recoverable pursuant to orders of the County Court, which Ms Wang estimated at $217,800.[38] Furthermore, the applicants have not disclosed any liabilities for legal costs incurred by them. Even if it is assumed that they have paid all outstanding legal fees, it is likely that they will incur legal fees extending into the tens of thousands of dollars in pursuing their application for leave to appeal. The applicants have also failed to disclose whether they have any credit cards and, if so, whether there are any outstanding debit balances.
[38]See [55] above.
The applicants have not provided any information about their income and expenditure, including any income they derive from the business conducted through the company. It appears from the bank statement of the company for the period from 29 March 2022 until 29 April 2022 that was exhibited to the affidavit of Annette Leung of Accuro Maxwell affirmed on 11 May 2022 that modest amounts were deposited on a regular basis. The source of those deposits is not disclosed. In the absence of any reliable information from the applicants as to their income and expenditure, we do not know whether they have a weekly or monthly surplus of income. However, we note that the applicants are in arrears in relation to rates due to the Council and that the Shift loan which they have apparently guaranteed has incurred default interest, dishonour fees and additional legal charges. Those items indicate that the applicants have some cash flow problems.
On the basis of the above analysis of the applicants’ financial position, we are satisfied that they currently have difficulties meeting their financial obligations. We are also satisfied that, in the absence of any net equity in the Kallista property, there is an unacceptable risk that they would not be able to satisfy an order that they pay the respondents’ costs if the proposed appeal is unsuccessful.
In the light of our conclusion at [76] above, it is not necessary for us to consider whether any adverse inferences regarding the applicants’ financial position should be drawn from their failure to provide complete, accurate and timely financial information in response to the respondents’ repeated requests. It is also not necessary for us to consider the respondents’ submission that the applicants have breached their overarching obligations in ss 20 and 26 of the CPA.
In the absence of any factors which militate against the making of an order for security for costs, our conclusion that there is an unacceptable risk that the applicants would not be able to satisfy a costs order means that it is appropriate to make an order for security for costs. Because the amount of $67,774 sought by the respondents is not contested, we will order that security be provided in that amount.
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