Mualim v Dzelme

[2020] NSWCA 333

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Mualim v Dzelme [2020] NSWCA 333

Hearing dates:

On the papers

Decision date:

15 December 2020

Before:

Basten JA

Decision:

(1)   Order that the appellants provide security for the costs of the first and second respondents of the appeal by paying into court an amount of $40,000.

(2)   The amount referred to in order (1) is to be paid into court no later than Friday, 29 January 2021.

(3)   Failing compliance with orders (1) and (2), the proceedings in this Court are stayed pending further order.

(4)   Order that the costs of the motion for security of costs be the respondents’ costs in the appeal.

Catchwords:

APPEALS – security for costs – appellants resident outside Australia – appellants without assets in Australia – merits of appeal balanced – order would not stifle appeal – costs not disproportionate to amount in dispute – relationship of UCPR r 42.21 and r 51.50(1) – effect of r 51.50(3)

Legislation Cited:

Corporations Act 2001 (Cth), s 175

Uniform Civil Procedure Rules 2005 (NSW), rr 42.21, 51.50; Pt 51

Category:

Procedural and other rulings

Parties:

Gani Mualim (First Appellant)
Jordia Mualim (Second Appellant)
Ricards Dzelme (First Respondent)
Pacific Springs Pty Ltd (Second Respondent)

Representation:

Counsel:
D E Grieve QC (Appellants)
A J Macauley (Respondents)

Solicitors:
RBHM Commercial Lawyers (Appellants)
Swaab (Respondents)

File Number(s):

2020/285001

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

[2020] NSWSC 1240

Date of Decision:

11 September 2020

Before:

Rees J

File Number(s):

2019/55505

Judgment

1. BASTEN JA: The appellants each own 100 shares in the second respondent, Pacific Springs Pty Ltd. The company was managed by their son, Dean Mualim, now deceased. In 2004 Dean Mualim arranged for the issue of 1,800 shares in Pacific Springs to himself. The validity of the transaction depended upon the consent of his parents. On the death of Dean Mualim, his shareholding passed to the present respondent, Ricards Dzelme.

2. The appellants brought proceedings in the Equity Division seeking to have the allotment of shares to their late son set aside and correct the share register, under s 175 of the Corporations Act 2001 (Cth). The matter was heard over four days in July 2020 by Rees J in the Corporations List. On 11 September 2020 Rees J delivered judgment refusing the application to correct the share register. [1] She further declared that the appointment of Mr Dzelme as director and secretary was not invalid. The appellants have lodged an appeal from that judgment. The respondents seek an order that the appellants provide security for the costs of the appeal.

   1. Re Pacific Springs Pty Ltd [2020] NSWSC 1240.

3. Pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR), Pt 51, r 51.50(1), the court may, in special circumstances, order that such security as the court thinks fit be given for the costs of an appeal. That provision is said not to affect the general power of the court to grant security under UCPR r 42.21: see r 51.50(3). Pursuant to r 42.21(1)(a), the power to award security is engaged if it appears to the court that a plaintiff (which term includes an appellant [2] ) is ordinarily resident outside Australia. Whether, pursuant to r 51.50(3), or because it will constitute special circumstances for the purposes of r 51.50(1), the fact that an appellant is resident overseas suffices to engage the power to order security.

   2. UCPR, R 51.1(4).

4. Subrule 42.21(1A) provides a list of factors which the court may take into account in considering an application for security, including the prospects of success (par (a)), and whether an order for costs made against the plaintiff would be enforceable within Australia (par (m)). The court will also consider the possibility that an order for security for costs may stifle the proceedings (par (f)).

5. It is not in dispute that the appellants do not reside in Australia, but in Indonesia. Further, there is evidence before the Court that they do not own property in Australia of a kind which would appear on the Register of National Property Ownership, or on the ASIC business name register. It may be inferred that it would not be possible to enforce an order for costs against the appellants in Australia.

6. The evidence discloses that orders for security for costs were made by the trial judge, totalling $162,000, the amounts being paid into court in accordance with those orders. There is no evidence to suggest that an order for security for the costs of the appeal would stultify the proceedings.

7. It is not suggested that the appeal is not bona fide, nor that the challenge to the findings of the trial judge are not reasonably arguable. However, the respondents submitted that those findings turn to a large extent on an assessment of the evidence of the appellants as to whether or not they knew of the allocation of shares and consented. The trial judge made adverse credibility findings and ultimately did not accept their evidence. Accordingly, the respondent submits, the appellants will face the usual difficulties in overturning such findings. The appellants, however, say that there is objective evidence which makes their claims to ignorance entirely plausible, and that some findings, including as to repayment of the loan made by the appellants to their son to run the business, lacked an evidentiary basis.

8. There is no doubt that it is open to this Court in considering an application for security for costs to assess the merits of the proposed appeal. There are, however, well understood limits on the extent to which such an assessment can proceed. An application for security for costs is not to be turned into a preliminary hearing of the appeal. I have read the written submissions, including the reply filed by the appellants on the morning the application was listed for hearing. Based on the considerations set out above, I accept that the appellants’ case is clearly arguable, and that the outcome may be nicely balanced. However, there remains a reasonable prospect that the appellants will fail and be ordered to pay the costs of the appeal. The respondents presently have a judgment in their favour.

9. Because such costs will not easily be recoverable by the respondents in Australia, the power available to the Court should be exercised in favour of ordering security. The costs will not be disproportionate to the amount in issue, and I am satisfied an order will not prevent the pursuit of the appeal.

10. The solicitor for the respondents has estimated the likely costs of the proceedings, with appropriate allowances for the limits on amounts recoverable pursuant to an assessment, in an amount of $46,000. I am also conscious that in a letter prior to the commencement of the application, the appellants were advised that security would be sought in an amount of $40,000. In my view the latter sum is the appropriate amount to order.

11. Because the parties agreed to have the motion determined on the papers, some costs have been saved. The costs of the motion should be the respondents’ costs in the appeal.

12. Accordingly, the Court makes the following orders:

1. Order that the appellants provide security for the costs of the first and second respondents of the appeal by paying into court an amount of $40,000.

2. The amount referred to in order (1) is to be paid into court no later than Friday, 29 January 2021.

3. Failing compliance with orders (1) and (2), the proceedings in this Court are stayed pending further order.

4. Order that the costs of the motion for security of costs be the respondents’ costs in the appeal.

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Endnotes

Decision last updated: 15 December 2020