Reddy v C&P Syndicate Pty Ltd
[2013] NSWCA 425
•11 December 2013
Court of Appeal
New South Wales
Case Title: Reddy v C&P Syndicate Pty Ltd Medium Neutral Citation: [2013] NSWCA 425 Hearing Date(s): 2 December 2013 Decision Date: 11 December 2013 Before: Gleeson JA Decision: The first respondent's notice of motion filed 26 November 2013 is dismissed with costs.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: PROCEDURE - costs - security for costs - impecuniosity - where it is submitted that there has been a dissipation of assets - where it is submitted that the appeal has limited prospects of success - whether special circumstances shown Legislation Cited: Uniform Civil Procedure Rules 2005, rr 42.21, 51.50 Cases Cited: J M Properties Pty Ltd v Strata Corporation No 13975 Inc [2006] SASC 227
Porter v Gordian Runoff Ltd [2004] NSWCA 171
Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247
P S Chellaram & Co Ltd v China Ocean Shipping [1991] HCA 36; 102 ALR 321
Shannon v Australia and New Zealand Banking Group Ltd (No 2) [1994] 2 Qd R 563
Swift v McLeary [2013] NSWCA 173
Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; 60 NSWLR 143Category: Interlocutory applications Parties: Jeanette Dawn Reddy (Appellant)
C & P Syndicate (First Respondent)
Teddington Pty Ltd ABN 12 136 980 124 T/as Teddington Legal (Second Respondent)Representation - Counsel: Counsel:
M R Lawson (Appellant)
K Rees SC with J Simpkins (First Respondent)
T Faulkner (Second Respondent)- Solicitors: Solicitors:
Atkinson Vinden (Appellant)
Newhouse & Arnold (First Respondent)
Gilchrist Connell (Second Respondent)File Number(s): 2013/223386 Decision Under Appeal - Before: Lindsay J - Date of Decision: 27 May 2013 - Citation: [2013] NSWSC 643 - Court File Number(s): 2011/232981
JUDGMENT
GLEESON JA: This is an application by the first respondent, C&P Syndicate Pty Ltd (C&P), that the appellant, Mrs Reddy, provide security for costs of the appeal which was filed on 24 June 2013. The amount of security sought in the notice of motion was $24,200 in respect of the first respondent's costs and $35,000 in respect of the second respondent's costs.
C&P sought security in respect of the second respondent's costs of the appeal on the basis that C&P has filed a notice of cross-appeal against the second respondent (Teddington Legal), and if Mrs Reddy's appeal failed, C&P would seek an order that Mrs Reddy pay to C&P the costs which C&P would be liable to pay in respect of the cross-appeal.
The essential issue is whether the respondent has shown "special circumstances" which enliven the discretion to order security for costs under Uniform Civil Procedure Rules 2005 (UCPR) r 51.50. Although C&P's written submissions also placed reliance on UCPR r 42.21(1)(a), for the reasons explained below, this rule is not applicable to the present case.
Decision below
C&P brought proceedings against Mrs Reddy, as first defendant, and Teddington Legal, as second defendant, in the Equity Division of the Supreme Court. The dispute concerned whether C&P as owner of land located at Tweed Heads West, acting through a solicitor, Teddington Legal, validly exercised a put option requiring Mrs Reddy to acquire the land. C&P sued Mrs Reddy for damages for breach of contract. In the alternative and upon an assumption that the option was not validly exercised, C&P sued its solicitor, Teddington Legal, for damages for professional negligence.
On 27 May 2013, Lindsay J found that the option had been validly exercised and C&P was entitled to judgment against Mrs Reddy in the sum of $575,000 plus an allowance for interest to be quantified. C&P's claim against Teddington Legal was dismissed. Judgment was subsequently entered for C&P against Mrs Reddy in the sum of $704,403 and Mrs Reddy was ordered to pay C&P's costs of the proceedings, including the costs which C&P had been ordered to pay to Teddington Legal.
The unassessed legal costs of C&P in the proceedings below is an amount of $202,698. The unassessed legal costs claimed by Teddington Legal is an amount of $188,841.56. The unchallenged evidence of the solicitor for C&P is that the combined legal costs of both C&P and Teddington Legal, once assessed, will be in the vicinity of $300,000. Thus, Mrs Reddy's liability under the judgment is in the order of $1,000,000 plus interest accruing post-judgment.
On 24 June 2013, Mrs Reddy filed a document entitled "Summons commencing an appeal (Pt 50)". This document was in the incorrect form. Subsequently on 23 July 2013, Mrs Reddy filed an amended notice of appeal. On 11 September 2013, a second amended notice of appeal was filed.
On 6 August 2013, C&P filed a notice of cross-appeal against Teddington Legal to meet the possibility that Mrs Reddy succeeded on her appeal.
On 19 November 2013, Mrs Reddy filed a notice of motion seeking a stay of the judgment. That motion was subsequently resolved by an agreement between the parties. This provided for a stay of the judgment pending the outcome of the appeal upon terms which included that (a) C&P agreed to discharge a writ lodged against Mrs Reddy's property at Hope Island, Queensland, to enable completion of a contract for sale to occur on 4 December 2013; and (b) Mrs Reddy agreed to give a Conditional Irrevocable Authority and Direction to her solicitors to hold the net proceeds of sale in trust on behalf of both parties pending the outcome of the appeal.
Legal principles
Special circumstances must be shown before an order for security for costs of an appeal can be made under UCPR r 51.50.
The considerations engaged by the concept of "special circumstances" were considered by this Court in Transglobal Capital Pty Ltd v Yolarno Pty Ltd [2004] NSWCA 136; 60 NSWLR 143 (Beazley, Santow and Ipp JJA), and in Porter v Gordian Runoff Ltd [2004] NSWCA 171 (Bryson JA, Sheller and Giles JJA agreeing).
In Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18], Basten JA identified the following principles: (1) that no order for security should be made in the absence of "special circumstances"; (2) that consideration of what may constitute special circumstances should not be fettered by some general rule of practice; (3) that impecuniosity, without more, will usually be insufficient; (4) that an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature; (5) that where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made; and (6) that the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal.
The last two factors, it was suggested by Basten JA, might better be seen as influencing the exercise of the discretion rather than as potential special circumstances engaging the power.
When weighing all the circumstances of the case in the exercise of the discretion to order security for costs, it is necessary to keep in mind that the weight to be given to any circumstance depends not only on its own intrinsic persuasiveness, but upon the impact of the other circumstances which have to be weighed (see P S Chellaram & Co Ltd v China Ocean Shipping [1991] HCA 36; (1991) 102 ALR 321 at 323 per McHugh J).
Special circumstances
The first respondent submitted that the following special circumstances exist justifying an order for security for costs of the appeal:
(1)the appellant is unable to meet an order for costs made against her should her appeal be unsuccessful;
(2)that the appellant is pursuing the appeal in her capacity as trustee of the Reddy Investment Trust but her husband, Mr Reddy as a beneficiary of that Trust, is not prepared to undertake to provide security for the costs of the appeal;
(3)that the appellant entered into a contract for sale of her property at Hope Island in Queensland;
(4)the appeal grounds have poor prospects of success.
The appellant accepted that her assets were insufficient to meet the costs of the appeal if it was unsuccessful.
As to the merits of the appeal, the appellant submitted that the appeal was bona fide, and a genuine pursuit of her rights to appeal. The appellant has filed its written submissions in support of the appeal, which is fixed for hearing on 14 February 2014.
The appellant did not contend that an order for security would stultify the appeal.
As to the circumstances of the sale of the appellant's property at Hope Island, the appellant submitted that no adverse inference should be drawn to the effect suggested by the first respondent, namely, that the appellant was attempting to divest herself of assets. Rather, the appellant submitted that the sale of this property is to be characterised as a realisation of an asset and transformation into cash of approximately $127,000 after discharge of the mortgage, to assist her to meet her living expenses and legal costs. The anticipated net proceeds of sale are now the subject of the undertakings given by the appellant as referred to at [8] above.
Impecuniosity
It is convenient to deal with the first two matters together. The appellant is the trustee of the Reddy Investment Trust. The Trust Deed dated 17 July 2003 was tendered in evidence and revealed that the primary beneficiaries are the appellant and her husband, Stephen James Reddy. The financial statements of the Reddy Investment Trust for the year ended 30 June 2013, which are unsigned but dated 6 November 2013, revealed that the net assets of the Trust as at that date were $583,632.32. The judgment obtained by C&P against Mrs Reddy exceeds this amount.
The evidence tendered by the first respondent on this application supports the conclusion that the appellant is impecunious. The appellant accepted that this was the case. There is, on the evidence, a substantial risk that if successful, the first respondent would not recover its costs of the appeal.
However, as already noted, mere impecuniosity, without more, will usually be insufficient to amount to special circumstances.
The first respondent submitted that the trust structure is akin to the use of a corporate vehicle and if the appellant was a company it would not be necessary to demonstrate special circumstances, but the fact that there is a trust in place and Mr Reddy, as a beneficiary, is not prepared to provide security, is a relevant factor justifying an order for security.
In my view, the mere fact that the appellant (who is an individual) is also a trustee does not of itself amount to special circumstances in the present case. First, the analogy with the position of the company is inapt. The appellant is not sheltering behind a corporate shield in order to protect some assets of her own from liability to meet a costs order. Furthermore, the appellant has now given the Conditional Irrevocable Authority and Direction referred to at [9] above, in respect of the net proceeds of sale of her Hope Island property.
Secondly, the absence of an offer of security from Mr Reddy does not of itself amount to special circumstances. The absence of such an offer would be relevant if the appellant had contended that an order for security for costs would have stultified the appeal, but the appellant disavowed any reliance on such a contention.
Conduct of the appellant
It is convenient to deal next with the contention of the first respondent that the appellant's conduct post-judgment, in entering into a contract for sale in respect of the Hope Island property, was a dissipation of assets with the objective of frustrating the first respondent's ability to enforce a costs order against the appellant.
The first respondent referred to Swift v McLeary [2013] NSWCA 173 at [45], where I expressed the view that any dissipation of assets which affects the ability of a successful respondent to recover costs may amount to special circumstances for the purposes of UCPR 51.50: see also J M Properties Pty Ltd v Strata Corporation No 13975 Inc [2006] SASC 227; Shannon v Australia and New Zealand Banking Group Ltd (No 2) [1994] 2 Qd R 563.
However, the facts of the present case are readily distinguishable from those in Swift v McLeary. That case concerned the disposal of assets post-judgment by an appellant and corporations in which the appellant had an interest, in circumstances that ultimately led to freezing orders being imposed against the appellant.
In this case there is no suggestion that the sale of the Hope Island property was other than on bona fide terms. As already noted, the sale would permit the appellant to realise an asset and receive the net proceeds of approximately $127,000 to assist her to meet living expenses and legal costs. At the time the contract was entered into, the first respondent had placed a writ on the property. Unless the first respondent lifted the writ, completion of the contract for sale could not occur. The first respondent complained that the appellant did not seek its consent before entering into the contract for sale. This complaint ignored that the appellant was under no legal obligation to obtain such consent, albeit as a practical matter such consent would need to have been sought and obtained before completion was due, in view of the presence of the writ.
There was a dispute in the affidavit evidence as to whether the appellant was aware of the writ on the Hope Island property, before entering into the contract of sale. Neither deponent was cross-examined on their affidavit. It is not possible to resolve this conflict in the evidence in the absence of cross-examination. Furthermore, even if the appellant was aware of the writ prior to entering into the contract for sale, this does not demonstrate that the appellant was attempting to dissipate her assets. In all the circumstances, I would not draw the inference, suggested by the first respondent, that by entering into the contract of sale, the appellant was intending to dissipate her assets.
The first respondent also tendered in evidence (exhibit H) correspondence between the National Australia Bank (NAB), the appellant and her husband dated 27 November 2013, concerning the terms upon which the NAB was prepared to release the security it held over the Hope Island property. In addition to standing as security for a loan to the appellant (or possibly the appellant and her husband), this property also appears to have been also given as third party security in support of a home loan from the NAB to Kelly Morgan Reddy and Shaun John Fisher. The terms of the release of the security include that a guarantee for $49,500 be given to the NAB by the appellant in her own right and in her capacity as trustee of the Reddy Investment Trust and by her husband.
The first respondent submitted that the evidence was not entirely clear but it seemed to indicate that the NAB were prepared to release the mortgage over the Hope Island property so that the sale could complete and replace that security with a guarantee by the appellant in respect of the home loan to Ms Reddy and Mr Fisher. It would appear therefore that the NAB is giving up its position as secured creditor of the appellant in return for a guarantee for an amount of $49,500 in respect of the obligations of Ms Reddy and Mr Fisher. The proposed change in security arrangements does not, on the evidence, amount to special circumstances.
Prospects of success
The first respondent submitted that the appeal is very unlikely to succeed. However, the first respondent did not go so far as to suggest that the appeal was not bona fide.
The grounds of appeal raise issues concerning (a) findings of fact as to whether a letter which exercised the option was enclosed in an envelope received by the appellant's solicitor on 13 May 2011 (this finding does not turn on credit findings: see the observations of Lindsay J at [37]); and (b) whether an e-mail sent on 11 May 2011 is to be construed as an exercise of the option. It is not appropriate to embark on any consideration of the likely strength of these grounds of appeal. It is sufficient to observe that it was not suggested by the first respondent that the appeal is manifestly hopeless.
The appellant was the defendant to a claim brought by the first respondent, and unsuccessfully defended that claim. The appellant has exercised her right of appeal. The subject matter of the appeal is not an insignificant sum of money, and well exceeds the appellant's net assets. The appeal is critical to her financial survival. The appeal cannot be described as being hopeless, unreasonable or of a harassing nature.
Overall, I proceed on the basis that the appeal is bona fide and at least fairly arguable.
Other matters
Insofar as the first respondent's written submissions relied upon the powers of the court to order security for costs under UCPR 42.21(1)(a), this rule, in its current form, only empowers the court to order security for costs where "a plaintiff is ordinarily resident outside Australia", not simply outside New South Wales. This rule was not engaged in the present case where the appellant resided in Queensland. The first respondent conceded so much during oral argument.
Conclusion
In my view, special circumstances have not been shown which enliven the discretion to order security for costs. The appellant's mere impecuniosity does not of itself justify an order for security for costs. The additional matters relied upon by the first respondent are not, in my view, in combination, sufficient to amount to special circumstances. Nor is the court's power under UCPR 42.21(1)(a) engaged in the present case.
The orders of the Court will be that:
(1)The first respondent's notice of motion filed 26 November 2013 is dismissed with costs.
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