Rozenblit v Vainer
[2019] VSCA 164
•31 July 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2019 0067
| BORIS ROZENBLIT | Applicant |
| v | |
| MICHAEL VAINER | First Respondent |
| and | |
| ALEXANDER VAINER | Second Respondent |
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| JUDGES: | McLEISH and NIALL JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 19 July 2019 |
| DATE OF JUDGMENT: | 31 July 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 164 |
| JUDGMENT APPEALED FROM: | [2019] VSC 316 (Sifris J) |
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PRACTICE AND PROCEDURE – Freezing order pending appeal – Whether good arguable case – Whether real prospect of success – Whether reasonable possibility, not necessarily more than 50 per cent chance, that assets may be disposed of, dealt with, or diminished in value – Whether balance of convenience test applicable to freezing orders – Findings by primary judge that first respondent unreliable witness who disregarded discovery obligations and frustrated Court’s processes and proper administration of justice – Previous disposal of assets by respondents – No serious hardship to respondents if order made – Supreme Court (General Civil Procedure) Rules 2015 O 37A – Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, applied.
PRACTICE AND PROCEDURE – Security for costs – Impecunious applicant – Security for costs would result in discontinuance – Findings by primary judge of significant misconduct by respondents but nominal damages – Whether unjust to deprive applicant of ability to vindicate rights arising from misconduct – Respondents have substantial costs liability to applicant from earlier proceedings against which costs of application for leave to appeal may be offset – Supreme Court (General Civil Procedure) Rules 2015 rr 64.38(2)(a), 64.38(4) – Australian Dream Homes Pty Ltd v Stojanovski [2016] VSCA 38, Botsman v Bolitho [2018] VSCA 111, Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2017] VSCA 213, Timbercorp Finance Pty Ltd (in liq) v Tomes [2015] VSCA 322, Jafari v 23 Developments Pty Ltd [2019] VSCA 16, referred to.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Korman | P G Henenberg |
| For the Respondents and Ms Sofya Vainer | Mr N Evans, Solicitor | Aptum Legal |
McLEISH JA
NIALL JA:
There are two applications before the Court pending the hearing of the application for leave to appeal and any appeal in this proceeding: the applicant seeks a freezing order, and the respondents seek security for their costs of the application and any appeal.
Freezing order
First, the applicant (Mr Rozenblit) seeks orders against the respondents, Mr Michael Vainer and his father, Dr Alexander Vainer, and against Dr Vainer’s wife, Sofya Vainer, continuing freezing orders made by Sifris J on 17 September 2018 and varied on 7 June 2019. By those orders, the three respondents to the present application were restrained from disposing of, dealing with or diminishing the value of four parcels of land or shares in four companies.
The orders of Sifris J were to expire on 24 June 2019. By orders made on 20 June 2019, this Court continued the orders until the hearing and determination of the present application. In effect then, the present application is for the making of fresh freezing orders pending the hearing and determination of the application for leave to appeal from the substantive orders of Sifris J.
By those orders, Sifris J gave judgment for Mr Rozenblit against Mr Vainer and Dr Vainer in the sum of $100 and otherwise dismissed the proceeding. Mr Rozenblit was ordered to pay 25 per cent of the defendants’ costs of the proceeding.
The proceeding, which involved a trial of 10 days, raised a large number of issues. However, the proposed appeal is relatively narrow in scope and it is possible to outline the nature of the proceeding quite briefly. In short, the judge accepted that Mr Vainer and Dr Vainer engaged in misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law, and unconscionable conduct contrary to s 21, in connection with a transaction whereby shares owned by Mr Rozenblit in VR Tek Global Pty Ltd (‘VRT Global’) were transferred to Dr Vainer. However, the judge held that Mr Rozenblit was only entitled to nominal damages because VRT Global had no value at the time of the share transfer and was effectively insolvent. VRT Global was placed in insolvency in November 2012 and its shareholders received no return.
Mr Rozenblit seeks leave to appeal on two proposed grounds, both of which challenge the decision of the primary judge to reject the applicant’s expert valuation of VRT Global at the time of the share transfer and to adopt the expert valuation advanced by the respondents.
In support of the application for a freezing order, Mr Rozenblit submits that the orders he seeks are not obtrusive and do not affect the respondents in their daily lives. Three of the properties in question are the homes in which the respondents and Dr Vainer’s daughter respectively reside, and the fourth is the premises from which Dr Vainer conducts his medical practice. Mr Rozenblit submits that there is a very real danger that the respondents, if unrestrained, will dissipate their assets so as to frustrate a potential future judgment against them and render his proposed appeal nugatory.
Mr Rozenblit submits that, if he were to succeed on appeal he could expect a judgment in his favour of at least $1,008,214 and up to $1,852,045 comprising an award for loss and damage, interest and net costs. He submits that the combined unencumbered value of the land holdings is $1,124,081 (which includes an amount of $196,028 representing increased equity in the hands of Sofya Vainer in one of the properties, in respect of which amount Mr Rozenblit asserts he may have a right to trace). Mr Rozenblit submits that no value has been suggested for the shares in the companies which are sought to be subject to the order.
The respondents (including Sofya Vainer) oppose the application on the basis that Mr Rozenblit is said not to have a good arguable case or real prospects of success on the appeal and because there is little or no risk of dissipation of assets that would render any appeal nugatory. It is also submitted that the balance of convenience does not favour the making of the orders because the respondents will need to deal with one or more of the properties in order to meet past legal costs and any future costs in relation to the application for leave to appeal.
Principles governing freezing orders pending appeal
The application is made under O 37A of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’). That order enables the Court to make a freezing order for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied: r 37A.02(1). By virtue of r 64.36(1), this Court has the same powers as the judge in the Trial Division had, which extends to the making of a freezing order pending the hearing and determination of the application for leave to appeal and any appeal.[1]
[1]See Ketchum International plc v Group Public Relations Holdings Ltd [1996] 4 All ER 374, 381 (Stuart-Smith LJ, with Peter Gibson and Ward LJJ agreeing) (‘Ketchum’); Tomasetti v Brailey [2012] NSWCA 6 (‘Tomasetti’); Aspermont Ltd v Lechmere Financial Corporation (2002) 27 WAR 1; Sopov v Kane Constructions Pty Ltd [2009] VSCA 216.
The requirements for the making of a freezing order are set out in r 37A.05. The Court also retains its inherent jurisdiction to make a freezing order: r 37A.06. Rule 37A.05(1) states that r 37A.05 applies, among other things, if an applicant has a ‘good arguable case on an accrued or prospective cause of action that is justiciable’ in the Court. In the context of an appeal, it is necessary to read this as a reference to a ‘good arguable appeal’.[2] It has been said that this threshold is ‘at least as high as that which has to be satisfied when the court considers whether or not to grant leave to appeal’.[3] However, it must be borne in mind that the hearing of the freezing order application is not to be treated as a ‘dress rehearsal’ for the hearing of the application for leave to appeal and is necessarily conducted on more limited material.[4]
[2]Ketchum [1996] 4 All ER 374, 381 (Stuart-Smith LJ, with Peter Gibson and Ward LJJ agreeing).
[3]Ibid.
[4]Tomasetti [2012] NSWCA 6 [19] (Campbell JA).
Rule 37A.05 then makes specific provision for the making of a freezing order in respect of a judgment debtor and a third party respectively, in the following terms:
(4)The Court may make a freezing order … against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur—
(a)the judgment debtor, prospective judgment debtor or another person absconds; or
(b)the assets of the judgment debtor, prospective judgment debtor or another person are—
(i)removed from Australia or from a place inside or outside Australia; or
(ii) disposed of, dealt with or diminished in value.
(5)The Court may make a freezing order … against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that—
(a)there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because—
(i)the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(ii)the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(b)a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.[5]
[5]Emphases added.
In addition, r 37A.02(4) requires the Court in making a freezing order to have regard to the Practice Note concerning freezing orders. That Practice Note, issued on 30 January 2017, contains, among other things, the following requirements:
4.2The purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order.
4.3A freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets, even before judgment, and is commonly granted without notice.
4.4The respondent is often the person said to be liable on a substantive cause of action of the applicant. However, the respondent may also be a third party, in the sense of a person who has possession, custody or control, or even ownership, of assets which he or she may be obliged ultimately to disgorge to help satisfy a judgment against another person. Rule 37A.05 addresses the minimum requirements that must ordinarily be satisfied on an application for a freezing order against such a third party before the discretion is enlivened.
…
4.9The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs. Sometimes it may not be possible to satisfy this principle (for example, an employer may discover that an employee has been making fraudulent misappropriations, but does not know how much has been misappropriated at the time of the discovery and at the time of the approach to the Court).
…
4.14As a condition of the making of a freezing order, the Court will normally require appropriate undertakings by the applicant to the Court, including the usual undertaking as to damages.
4.15If it is demonstrated that the applicant has or may have insufficient assets within the jurisdiction of the Court to provide substance for the usual undertaking as to damages, the applicant may be required to support the undertaking by providing security.[6]
[6]Supreme Court of Victoria, Practice Note SC Gen 17: Freezing Orders, 30 January 2017.
The governing principles set out in O 37A, which was introduced in 2006 as part of a harmonisation exercise involving all Australian States and Territories, closely reflect the principles enunciated by the High Court of Australia in Cardile v LED Builders Pty Ltd.[7] That judgment makes it clear that the rationale for freezing orders is to prevent the frustration of the Court’s processes and ensure the effective exercise of the jurisdiction invoked or, in the case of a non-party, to prevent interference with the administration of justice.[8] It is clear from Cardile that the Court must exercise a high degree of caution before making a freezing order, which is a drastic remedy that must not be granted lightly.[9]
[7](1999) 198 CLR 380 (‘Cardile’), especially in the joint judgment of Gaudron, McHugh, Gummow and Callinan JJ.
[8]Ibid 401 [42]. See also Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157, 169–70 [27] (Kiefel CJ).
[9]Ibid 403–4 [50]–[51].
The word ‘might’ in r 37A.05(4) has been held to mean ‘a reasonable possibility, not fanciful or unreal, but not necessarily more than 50 per cent’.[10]
[10]Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127, 131 [14] (Bell J) (‘Gashi’).
There are some references in the cases to the balance of convenience as a necessary element to be satisfied as a precondition for the making of a freezing order. In Transerve Pte Ltd v Blue Ridge WA Pty Ltd [No 2], it was said that an applicant seeking a freezing order pending appeal after failing in the proceeding at trial is required to satisfy a higher test and that, in assessing the balance of convenience, weight must be given to the respondent’s success at trial.[11] McKerracher J cited the following authorities for the proposition that there is a role for the balance of convenience in determining freezing orders: Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Co Pty Ltd,[12] Re Middle Harbour Investments Ltd (in liq)[13] and Eastland Technology Australia Ltd v Whisson.[14]
[11][2015] FCA 1222 [14] (McKerracher J). See also Gashi (2010) 27 VR 127, 130 [11] (Bell J), quoting Zhen v Mo [2008] VSC 300 [22]–[30] (Forrest J).
[12][2011] WASCA 188 [5] (Pullin JA).
[13](New South Wales Court of Appeal, Moffitt P, Glass and Mahoney JJ, 15 December 1976).
[14](2003) 28 WAR 308.
However, these cases concern injunctions or stays pending appeal. The joint judgment in Cardile makes it clear that a freezing order is not an injunction and that principles governing injunctions do not necessarily apply in the context of freezing orders.[15] The judgment makes no reference in its extensive discussion of the governing principles to the balance of inconvenience. In those circumstances, although the point does not now need to be decided, our present view is that the preferable approach is to treat the balance of convenience as only one among multiple discretionary considerations rather than as a mandatory requirement.
[15](1999) 198 CLR 380. 394–401 [27]–[42] (Gaudron, McHugh, Gummow and Callinan JJ).
For the same reason, it is not relevant or helpful to give content to the expression ‘good arguable case’ by reference to principles governing applications for injunctive relief pending appeal. In the latter context, it can be said that the test is more stringent on appeal because the successful party is entitled to the benefit of the judgment sought to be appealed.[16] But a freezing order does not serve to deny the successful party the benefit of the judgment, just as it is not made for the purpose of providing security for a future judgment. The freezing order’s purpose of preventing frustration or abuse of the process of the Court applies equally pending trial or pending appeal. We therefore do not think that the test applicable to an appeal is any more stringent. At the same time, however, the context is plainly different. We see no reason why a ‘good arguable case’ should be taken as imposing a requirement beyond that of the general leave requirement under s 14C of the Supreme Court Act 1986, namely that the proposed appeal has a real prospect of success. Allowance must of course be made for the fact that the merits of the case will only be argued in a broad brush way at the hearing of the application for a freezing order.
[16]See Transerve Pte Ltd v Blue Ridge WA Pty Ltd[No 2] [2015] FCA 1222 [14] (McKerracher J).
In summary then, the principles governing an application for a freezing order pending appeal are as follows:
(1) The purpose of granting a freezing order is to prevent the frustration or inhibition of the Court’s process by seeking to meet a danger that a prospective judgment of the Court will be wholly or partly unsatisfied. Its purpose is not to provide security in respect of a prospective judgment or order.
(2) A freezing order is to be viewed as an extraordinary interim remedy. The order is a drastic remedy which calls for a high degree of caution on the part of the Court before an order is made.
(3) An applicant for a freezing order pending appeal will be required to establish that there is a good arguable case that the appeal will succeed. This means that it can be seen from the available material that the appeal has a real prospect of success.
(4) It must be shown that there is a reasonable possibility, not necessarily more than a 50 per cent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.
(5) In the case of an order against a third party, it must be shown that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the third party’s ability to exercise power in respect of the relevant assets, or that a court process may be available to the applicant as a result of a prospective judgment, under which the third party may be obliged to disgorge assets or contribute to satisfying the prospective judgment.
(6) The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs.
(7) As a condition of making a freezing order it will normally be appropriate to require the applicant to give undertakings to the Court, including the usual undertaking as to damages, supported if necessary by the provision of security.
(8) The order being discretionary,[17] other considerations including the balance of convenience may bear upon the Court’s ultimate decision, but it is not a distinct requirement that the balance of convenience favours the making of the order.
(9) The inherent jurisdiction of the Court is preserved and r 37A.05 simply addresses the minimum requirements that ordinarily need to be satisfied in an application.
Submissions of the parties
[17]Cardile (1999) 198 CLR 380, 404 [53] (Gaudron, McHugh, Gummow and Callinan JJ).
The applicant submits that there is a danger of the respondents dealing with the relevant assets so as to diminish their value. The trial judge made adverse findings as to Mr Vainer’s credit. He described him as a ‘most unreliable witness’ who had deliberately given untruthful and fabricated evidence.[18] The judge found that Mr Vainer had disregarded his discovery obligations and that his conduct had frustrated the Court’s processes and the proper administration of justice.[19]
[18]Rozenblit v Vainer [2019] VSC 316 [64], [139] (Sifris J) (‘Reasons’). See also Rozenblit v Vainer [No 2] [2019] VSC 366 [39] (Sifris J) (‘Costs Reasons’).
[19]Costs Reasons [40] (Sifris J).
In addition, the applicant relied on the conduct of Dr Vainer and Sofya Vainer before trial. Dr Vainer had transferred his interest in five parcels of land (including three of the four parcels sought to be the subject of the freezing order) to his wife by way of gift. She had then sold two of those properties. The applicant submitted that some of the proceeds of sale might be traceable in the hands of two of the three tenants in common of one of the remaining properties, to which the proceeds of sale had been applied in the reduction of a mortgage loan.
As previously mentioned, the applicant submitted that if he were to succeed on appeal he could expect judgment in his favour, including interest and net costs, in an amount between $1,008,214 and $1,852,045. Allowing for the possibility of tracing the proceeds mentioned above, the properties were said to be worth $1,124,081. No amount was attributed to the shares, because Dr Vainer has deposed that the value of one of them is not known and Mr Vainer has deposed that the remaining companies have no value.
Oral submissions were directed substantially to the question whether the applicant had a good arguable case. The applicant submitted that the valuation question was one of mixed fact and law. It was submitted that there was no evidence that VRT Global was insolvent at the time of the share transfer. The evidence was said to establish the contrary. Instead, the insolvency of VRT Global was due to the supervening refusal of the Vainers to continue to fund the company’s operations, which occurred in October 2012.
Mr Korman of counsel, on behalf of the applicant, submitted that the evidence demonstrated two critical facts. First, it was said to show that, at around the time of the share transfer, a pilot plant was already operational at Deakin University and there had been favourable customer responses to its outputs. There was evidence that Mr Vainer had said in February 2012 that the next stage for VRT Global, now that the pilot plant was operational, was to establish a commercial scale facility. In addition, it was submitted that the evidence was that the Vainers’ company Polymeric Powders Company Pty Ltd (‘Polymeric’) had created a production line in 2013 substantially using equipment purchased from VRT Global and other equipment which VRT Global had taken steps towards acquiring. It was submitted that the judge had not dealt with this evidence.
The applicant submitted that, consistently with the High Court’s decisions in Potts v Miller,[20] Kizbeau Pty Ltd v WG & B Pty Ltd[21] and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd,[22] it was permissible for a Court assessing damages for misleading or deceptive conduct to take account of future events as bearing upon the likelihood of those events as at the time of valuation. The distinction was drawn between future events which were inherent in the nature of the subject matter of the valuation and those which intervened to affect its value. It was submitted that the decision of the Vainers to cease funding VRT Global in October 2012 was an event in the latter category and that the trial judge had not made any finding that this event was inevitable. The applicant submitted that the judge had erred in his treatment of future events by placing weight on the subsequent insolvency of VRT Global.
[20](1940) 64 CLR 282, 297 (Dixon J).
[21](1995) 184 CLR 281, 290–1.
[22](2004) 217 CLR 640, 656–9 [35], [39]–[40].
The applicant relied also on his written case, which submitted, among other things, that the judge had wrongly attributed reliance by the applicant’s expert (Mr Rose) on the future maintainable earnings (‘FME’) method of valuation and that the judge had not considered a further report of Mr Rose, responding to the respondents’ expert valuation, upon which the applicant had relied.
The respondents (including Sofya Vainer) submitted that the applicant does not have a good arguable case on appeal and that the proposed appeal has no real prospect of success. First, the proposed appeal sought to disturb factual findings which could not be shown to be ‘glaringly improbable’ or ‘contrary to compelling inferences’, citing Robinson Helicopter Co Inc v McDermott.[23]
[23](2016) 331 ALR 550, 558–9 [43]; [2016] HCA 22.
Secondly, the respondents submitted that, in substance, the application for leave depends on challenging a finding made by the judge that VRT Global was effectively insolvent as at November 2011.[24] It was said that the task of reviewing that finding is made more difficult by the fact that the applicant did not seek to challenge the findings of the judge that, as at 27 November 2012, VRT Global was insolvent and that the respondents’ undertaking in Polymeric was not a continuation of the VRT Global business. The respondents contended that the judge’s finding about VRT Global’s insolvency in November 2011 was a finding of fact, which did not depend on which of the methods of valuation, relied on by two competing experts who gave evidence at trial, the judge chose to adopt.
[24]Reasons [262].
Thirdly, there was said to be no reliable evidentiary basis for the assumptions underpinning the expert valuation of Mr Rose, upon which the applicant relied. In particular, his valuation was said to have relied on the correctness of assumptions in VRT Global’s business plan, which called for capital in the sum of $1.08 million to be raised. It was submitted that there was no evidence to support the assumption that such a sum could be raised.
Finally, the respondents submitted that the applicant’s case was fundamentally flawed because, if Mr Rozenblit had retained his shares in VRT Global, they would have become worthless in November 2012 and he would have been in precisely the same position as if the impugned conduct had not occurred.
Mr Evans, appearing on behalf of the respondents, submitted that the trial judge had undertaken a careful review of the evidence going to value. He accepted that the judge had been in error in stating that Mr Rose had used the FME method of valuation, but submitted that this was not critical to his reasoning and represented only an alternative basis for his rejection of Mr Rose’s evidence. It was submitted that the evidence was rejected because there was no evidence supporting the assumptions that there would be ‘sufficient capital’ to implement the business plan or that production including sales would take place.[25]
[25]Ibid [164].
It was further submitted that the judge had found that the liquidation of VRT Global was a logical and unremarkable consequence of its financial position and performance.[26] As such, its insolvency was inevitable and not a supervening event for valuation purposes.
[26]Ibid [179], [263].
Mr Evans submitted that regard could not be had to the Vainers’ subsequent investment in Polymeric, because it was the unchallenged finding of the trial judge that Polymeric did not continue the business conducted by VRT Global and this finding broke the nexus between the two companies.[27]
Analysis
[27]Ibid [256]–[257].
In our opinion, the material to which we were taken suffices to demonstrate that, at least on the present material, the applicant has a good arguable case on appeal. It is undesirable, even if it were possible in the context of these applications, for us to deal at any length with the arguments that were raised. However, we think that it is arguable that in rejecting the evidence of Mr Rose, the judge placed undue emphasis on the subsequent insolvency of VRT Global without determining whether the Vainers’ decision to cease funding VRT Global in October 2012 was a supervening event for the purposes of the valuation, which a putative purchaser would not have taken into account. We also think it is arguable that the judge’s mistaken characterisation of the method upon which Mr Rose proceeded cannot be viewed as an alternative explanation for his decision but instead infected his treatment of Mr Rose’s report. In each case, our present view is that these arguments have a real prospect of success as that expression is used in the context of determining leave to appeal. We were not taken to any specific feature of the responding report of Mr Rose which was said to establish error, and so we leave that matter to one side.
We prefer to say nothing about the specific factual matters raised by the applicant, because despite their undoubted significance to the overall disposition of the application for leave to appeal, and any appeal, the matters to which we have already adverted suffice to establish a good arguable case. Further, on the limited material we have been able to consider for the purposes of the present applications, we do not think that it can be said that the findings of the judge upon which the respondents rely serve to make the proposed appeal hopeless or to undermine the conclusion that the arguments we have mentioned are arguable in the sense we have explained.
We are also satisfied that the applicant has shown a sufficient risk that the respondents might dissipate or deal with the relevant assets so as to affect their value and potentially frustrate the recovery of any judgment the applicant might obtain on appeal. The past conduct upon which the applicant relies, both in the disposal of assets and actions taken in the course of the proceeding calculated to frustrate the Court’s processes (specifically, as to discovery), affords an ample basis for that conclusion. We rely also on the very adverse findings made by the judge as to the credit of Mr Vainer.
In the end, it was not seriously suggested that any discretionary considerations stood in the way of the freezing order sought if the above matters were satisfied. It was not suggested that the orders would subject the respondents (including Sofya Vainer) to any substantive inconvenience.
On the continued undertakings of the applicant, including as to costs, we will make the order sought. We will reserve liberty to apply, for the avoidance of doubt, lest any application might subsequently be made in respect of the respondents’ legal costs as referred to in their written submissions.
Security for costs
The respondents sought an order requiring the applicant to provide security for their costs, in the amount of $57,931.79, of the forthcoming application for leave to appeal and appeal.
Evidence
In answer to the application for security for costs, the applicant affirmed an affidavit on 4 July 2019, in which he deposed that he is without assets, is an aged pensioner and that, if ordered to pay funds as security for costs, he would be unable to do so, with the consequence that he would be forced to discontinue the appeal.
The respondents adduced evidence establishing the impecuniosity of the applicant and supporting the reasonableness of the amount sought by way of security. It is not necessary to refer further to that evidence.
Applicable principles on security for costs
Pursuant to r 64.38(2)(a) of the Rules, a party may apply to the Court of Appeal for an order for security for costs of an application or appeal. Rule 64.38(4) provides that the Court may make an order that security be given on such terms as the Court thinks fits.
Rule 64.38(4) confers on the Court a broad discretion to order security, which is to be exercised in light of the facts and circumstances of the particular case.[28] In Australian Dream Homes Pty Ltd v Stojanovski,[29] the Court observed that:
The basis for making an order for security for the costs of an appeal lies in identifying a risk, which is unacceptable in all the circumstances, that the respondent to the appeal may be put to the expense of defending the judgment or decision in its favour without the benefit of expecting that, in the usual course, if it is successful in doing so, the unsuccessful appellant will be required to pay the respondent’s costs of the appeal. As already observed, the considerations that may bear on the Court’s discretion to order security are of many kinds, depending on the features of the particular case. But it is fundamental to the resolution of any application for security to identify the nature and extent of the risk in question (usually, as here, the risk as to the applicant’s impecuniosity).[30]
[28]Botsman v Bolitho [2018] VSCA 111 [36] (Whelan and Niall JJA); Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2017] VSCA 213 [21] (Whelan and Hansen JJA).
[29][2016] VSCA 38.
[30]Ibid [40] (Santamaria and McLeish JJA).
It is the party seeking security that bears the onus of establishing the impecuniosity of the applicant or other cause that gives rise to the risk which the order for security is intended to ameliorate.[31]
[31]Botsman v Bolitho [2018] VSCA 111 [37] (Whelan and Niall JJA).
In Timbercorp Finance Pty Ltd (in liq) v Tomes,[32] McLeish JA (with whom Santamaria JA agreed) stated that, although it has been regularly held that the power of the Court to order for security for costs in relation to an appeal (including an application for leave to appeal) is unconfined, the following matters are relevant to the exercise of the Court’s discretion:
[32][2015] VSCA 322.
(a) the prospects of success of the application, and any appeal;
(b) the extent of the risk that a costs order will not be satisfied;
(c)whether the making of an order for security would be oppressive by stifling a reasonably arguable claim;
(d)whether any impecuniosity of the applicant/appellant arises out of the conduct complained of;
(e)whether there are aspects of the public interest which militate against the making of an order for security; and
(f)whether there are particular discretionary matters peculiar to the circumstances of the case.[33]
[33]Ibid [16], citing Maher v Commonwealth Bank of Australia [2008] VSCA 122; Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2015] VSCA 169 [11] (McLeish JA, with Tate JA agreeing); Trkulja v Dobrijevic [2015] VSCA 281 [43] (Kyrou JA, Kaye JA and Ginnane AJA).
Although the prospects of success of the application are regularly identified as a relevant matter in the mix, it is important to acknowledge that, on an application such as the present, the Court is again not considering the arguments as if it were the application for leave to appeal, and any conclusions on the merits must necessarily be provisional. To use the phrase adopted in Jafari v 23 Developments Pty Ltd,[34] the approach is necessarily ‘broad brush’.[35]
[34][2019] VSCA 16.
[35]Ibid [15] (Whelan and Hargrave JJA).
Parties’ submissions
The respondents submitted that an order for security for costs should be made for the following four substantive reasons. First, the applicant’s appeal has no real prospect of success (as to which question we have already set out the competing arguments). Secondly, any costs order in favour of the respondents will not be satisfied because the applicant is impecunious. Thirdly, the respondents should not be burdened as a result of the applicant’s poor financial position, which is entirely unrelated to the respondents’ alleged misconduct. Fourthly, there are no aspects of public interest in the proceeding, as the proposed appeal is limited to narrow questions of fact, which only affect the parties in the proceeding.
The applicant did not dispute that he would be unable to meet any costs order out of his own resources. He is an aged pensioner and has no assets of his own. However, he opposed the application for security for costs on the basis that the respondents already have adequate security for their costs and he has a good arguable appeal, which would be stifled in the event that security is ordered.
In respect of the first matter, the applicant pointed to the respondents’ ability to offset such costs against their existing liability to him for his costs incurred in conducting a series of appeals. In order to explain that submission, it is necessary to refer to the history of the litigation.
By three separate summonses, the applicant sought leave to amend his statement of claim. Leave was twice refused, and resulted in orders that the respondents’ costs be taxed immediately. Subsequently, orders were made, by consent, to fix the costs without the need for taxation. These costs were never paid.
On the third occasion that the applicant sought leave to amend his statement of claim, the respondents sought to have the proceeding stayed under r 63.03(3)(a) of the Rules. An associate judge stayed the proceeding,[36] that order was affirmed by a judge in the Trial Division,[37] and an appeal to this Court was dismissed.[38] Subsequently, the High Court allowed an appeal brought by the applicant and the stay was lifted.[39] Costs orders were made in favour of the applicant.
[36]Rozenblit v Vainer [No 3] [2015] VSC 731.
[37]Rozenblit v Vainer [No 4] [2016] VSC 451.
[38]Rozenblit v Vainer [2017] VSCA 52.
[39]Rozenblit v Vainer (2018) 262 CLR 478.
The applicant said that he incurred some $211,205 in costs and submitted that, allowing for a reduction on account of party/party costs, the respondents are liable to pay him approximately $147,843.50. The respondents accepted that there is a substantial costs order outstanding.
On the other side of the ledger, the respondents have two taxed costs orders totalling $50,000 and an entitlement to recover 25 per cent of the costs (other than reserved costs) of the trial, pursuant to the order of the judge.
It appears from the evidence that the respondents had two sets of solicitors acting for them. First, CIE Legal, who billed a total of $384,572. It is not clear to what extent these costs relate to the appeals that culminated in the High Court or matters in respect of which costs were reserved, and are therefore not recoverable from the applicant.
The respondents’ current solicitors, Aptum Legal, have billed $413,385, not including reserved costs.
In the result, the applicant claimed that a reasonable estimate would be that, to date, the respondents owed the applicant net costs of $25,502. The respondents submitted that the material simply did not allow any accurate assessment to be made, but that it was likely that the respective costs orders already made would offset each other.
Consideration
The authorities recognise that it may be easier to obtain an order for security for costs against an individual in an appeal where that individual has been unsuccessful at trial.[40] In part, that approach recognises that orders at trial constitute a determination of rights, and are not simply a step along the way to an appeal. It also reflects that the successful respondent will have incurred costs at trial and should not be further burdened by the additional costs of an appeal, without any meaningful prospect of recovery.
[40]Jafari v 23 Developments Pty Ltd [2019] VSCA 16 [7] (Whelan and Hargrave JJA).
There are three features of the present proceeding which take it outside the norm. First, the applicant has the benefit of a substantial costs order arising from his successful appeal to the High Court. He claimed that the net effect is that the respondents already have some security because they could offset any future costs liability from the amount they owe the applicant.
It is for the party who seeks security to make out a case that security is necessary in the interests of justice. The respondents have not established that they are not able to obtain an adequate measure of security by reason of the costs offset.
Secondly, unlike most respondents to an appeal, the present respondents did not contend that they are owed any costs as a result of the primary order. Even if we were prepared to proceed on the basis that, in rough terms, the costs orders in favour of the applicant will balance the costs orders already made in favour of the respondents, that would produce the unusual consequence that the respondents do not approach the appeal with a net costs order outstanding in their favour.
Thirdly, it is apparent that, if security for costs were to be ordered, the appeal would come to an end. In this respect, it is relevant that the judge found significant misconduct on the part of the respondents in respect of the share transfer. In circumstances where, as we have already observed, the appeal appears arguable, it would be unjust if the impecuniosity of the applicant deprived him of the ability to pursue that appeal in vindication of his rights arising from that misconduct. Put shortly, to order security would stifle an arguable claim based on established misleading or deceptive and unconscionable conduct on the part of the respondents.
Taking these matters into account, we are not persuaded that is appropriate to make an order requiring the applicant to provide security for the respondents’ costs of the appeal.
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