VS Property and Holding Pty Ltd v Zurzolo

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2024 0045

VS PROPERTY AND HOLDING PTY LTD (ACN 619 774 088)	First Applicant
and
DEANSIDE LAND PTY LTD (ACN 662 312 825)	Second Applicant
v
NICK ZURZOLO	First Respondent
AND
SHERRYN ZURZOLO	Second Respondent

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JUDGES:	NIALL and LYONS JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	27 June 2024
DATE OF JUDGMENT:	27 June 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 154
JUDGMENT APPEALED FROM:	[2024] VSC 89 (Quigley J)

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PRACTICE AND PROCEDURE – Security for costs – Application for leave to appeal – Whether risk that any costs order in respondents’ favour would go unsatisfied – Whether applicants impecunious – Whether open to infer applicants are impecunious – Evidence that applicants have equity interest in two properties – Party seeking security bears onus of establishing impecuniosity – Onus not discharged – Unacceptable risk not established – Application dismissed – Supreme Court (General Civil Procedure) Rules 2015 rr 64.38(2) and (4).

Djordjevich v Rohrt(in his capacity as liquidator of ACN 091 518 302 Pty Ltd (in liquidation) ACN 091 518 302) [2021] VSCA 279, considered.

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Counsel
Applicants:		Mr S Hibble
Respondents:		Mr T Egan
Solicitors
Applicants:	Darrer Muir Fleiter
Respondents:	Best Hooper Lawyers

NIALL JA
LYONS JA:

This is an application by the respondents for security for their costs of the application for leave to appeal (and if leave is granted, the appeal) in the sum of $70,000. The respondents primarily seek security on the basis that there is an unacceptable risk that, if the applicants’ proposed appeal is unsuccessful, and an award of costs is made in favour of the respondents, those costs could not be recovered from the applicants. Indeed that is the only basis on which the application was substantially advanced. The respondents rely upon the affidavit of their solicitor Robert McKay, affirmed 4 June 2024 (the ‘McKay affidavit’).
The applicants oppose any order for security. The applicants rely upon the affidavit of their solicitor Vikas Kalra sworn 19 June 2024 (the ‘Kalra affidavit’). He is a director of the first and second applicant.

The principles

The principles to be applied on such an application are not in dispute. Under r 64.38(2) and (4) of the Supreme Court (General Civil Procedure) Rules 2015, this Court may order that security be given for the costs of an application or appeal on such terms as the Court thinks fit. As the applicants are corporations, this Court also has a discretion to make an order for security under s 1335 of the Corporations Act 2010 (Cth).
The relevant principles were recently summarised by this Court in Djordjevich v Rohrt (in his capacity as liquidator of ACN 091 518 302 Pty Ltd (in liquidation) ACN 091 518 302).[1] Those principles include:
(a)an order for security for costs of an application for leave to appeal is designed to ameliorate an ‘unacceptable’ risk that a successful respondent, put to the expense of defending a first instance decision in their favour, will be unable to recover costs against an unsuccessful applicant;
(b)essential to any application for such an order is therefore the identification of the ‘nature and extent’ of that risk;
(c)the party making the application for security bears the onus of establishing the matters which give rise to the risk;
(d)it must be shown as well that the risk is unacceptable in all the circumstances; and
(e)usually, that risk is said to arise because the applicant is impecunious.[2]
[1][2021] VSCA 279, [7]–[8] (McLeish and Macaulay JJA) (‘Djordjevich’).
[2]Ibid [7].
In determining whether to order security, the Court is exercising a broad discretion which is informed by the following familiar factors:
(a)the prospects of success of the application for leave to appeal;
(b)the degree of risk that a costs order might not be satisfied because of the impecuniosity of the applicant;
(c)whether the giving of security would be oppressive that is, it would stifle a reasonably arguable claim;
(d)whether any impecuniosity of the applicant arises out of the conduct complained of by the applicant;
(e)whether there are aspects of the public interest which militate against the giving of security; and
(f)whether there are particular discretionary matters peculiar to the circumstances of the case.[3]
[3]Ibid [8]. See also Wu v Bi [2022] VSCA 22, [11] (McLeish and Emerton JJA).
As already observed, the application is primarily advanced on the basis of impecuniosity. Although some brief submissions were made in respect of some other factors. In determining whether an applicant is impecunious, the following principles are relevant:
(a)the onus remains on the respondent to establish the applicant’s impecuniosity;
(b)an inference that the applicant is impecunious may be at least partially founded on an applicant’s refusal to provide to the respondent requested evidence as to their financial position and ability to meet an adverse costs order;
(c)an inference that an applicant is impecunious may also be supported by their failure to satisfy final costs orders;
(d)it will typically be difficult to establish 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;
(e)if impecuniosity has been established, it will be a significant, but not decisive, factor in the exercise of the discretion to order security; and
(f)if impecuniosity has not been established, that will ordinarily mean that the requisite unacceptable risk cannot be established.[4]
[4]Djordjevich [2021] VSCA 279, [9]–[15] (McLeish and Macaulay JJA).

Submissions and the evidence

As noted above, the primary basis upon which the respondents seek security is that there is an unacceptable risk that the applicants would be unable to meet an adverse costs order. The respondents also submitted that the applicants’ application for leave to appeal has low prospects of success.

Alleged unacceptable risk

As to the alleged unacceptable risk relating to the applicants’ inability to meet an adverse costs order, the respondents primarily rely upon an inference of impecuniosity by reason of the applicants’ alleged failure to provide adequate information about their financial situation. This is based upon requests made in late April 2024 at a time when the applicants’ solicitors had indicated the applicants’ intention to seek leave to appeal, but no application had been filed. These requests were also made in the context of the applicants seeking undertakings in relation to orders made by the trial judge.
In oral argument, the respondents pointed to inadequacies in the provision of information relevant to the financial standing of the applicants, a matter to which we shall return.
The applicants responded by letter sent on 26 April 2024 (the ‘26 April letter’) advising that the applicants had substantial equity in the three properties located in Victoria. Those properties were located in Truganina, Shepparton North and Rockbank. The 26 April letter also set out a statement as to the value of the properties and the amount owing to mortgagees in respect of them.
These details, if accurate, revealed that the applicants had more than sufficient assets to satisfy the existing costs order made by the trial judge and any possible costs order in respect of the appeal if the respondents were to be successful in resisting the application for leave to appeal.
This information did not satisfy the respondents. By letter dated 30 April 2024, the respondents sought further information including the detail of mortgage instruments, associated loan documents, and whether the properties were held as trustees of any trust. The respondents advised that upon receipt of this further information, they would take further instructions concerning security.
On 6 May 2024, the application for leave to appeal was filed. The respondents filed their application for security for costs on 4 June 2024, together with the McKay affidavit. Between 30 April and 4 June 2024 the respondents did not make any further requests for information and no further information was supplied to them by the applicants.
On 19 June 2024, the applicants filed their submissions opposing the application for security for costs, together with the Kalra affidavit. In that affidavit, further information was produced in relation to the financial position of the applicants. Mr Kalra deposed that the first applicant (who is said to be in the business of holding land which is purchased and sold from time to time) is the current registered proprietor of two properties, namely the Truganina property and the Rockbank property.
In respect of the Truganina property, the applicants produced a Register Search Statement of the property, a written appraisal dated 19 June 2024 from Biggin Scott Melton and a mortgage statement from Westpac Ltd (‘Westpac’) as at 24 April 2024. These documents indicated that the Truganina property has a value of $1.8 million and is subject to a Westpac mortgage of $476,634.88.
In respect of the Rockbank property, the applicants produced a Register Search Statement of the property, a written appraisal dated 19 June 2024 from Biggin Scott Melton and a letter from Angas Securities Pty Ltd (‘Angas Securities’) advising of the amount owing pursuant a mortgage. These documents indicated that the Rockbank property was valued at $12.1 million and was subject to a first mortgage to Angas Securities of $7,150,550.
In light of this information, it was said that there were net assets available to the first applicant in the sum of approximately $6.2 million.
The respondents submitted that the appraisals ought be given no or limited weight in light of their content, including that they did not disclose whether or not each property had been inspected by the author of the appraisal and that the amounts identified in the appraisals were the same as had been supplied by the applicants in the 26 April letter.
Specifically in relation to the Truganina property it was said that the address in the appraisal did not match the details in the Kalra affidavit and was inconsistent, or at least significantly at variance, with historical sales values (which the respondents provided through an internet real estate search). Further, the respondents submitted that the documents exhibited in the Kalra affidavit disclosed that a second mortgage had been entered into in July 2023 with Angas Securities, but no details had been provided by the applicants in relation to that mortgage or the amounts owing in respect of it. It was noted that the mortgage was the subject of a caveat in respect of the Truganina property. For those reasons, it was said that the appraisal in respect of the Truganina property should be given no weight and that the Court could not have any confidence that there was a net surplus available to the applicants in relation to this property.
In relation to the Rockbank property, it was observed that according to the mortgage payout information, the mortgage was due to expire on 30 June 2024 and the applicants had provided no detail as to how that debt was to be either repaid or the property refinanced. Further, it appeared that the first applicant is in breach of an agreement with A Perfectly Straight Line Pty Ltd entered into in respect of the property, which required the first applicant to pay $540,000 within 60 days of 15 June 2023. The Court was invited to infer that the first applicant was in breach of that obligation on the basis that there was no evidence this obligation had been satisfied and that a caveat in respect of the property was still on title, suggesting that the first applicant was presently in default. Again, the respondents submitted that no or little weight could be accorded to the appraisal.
In addition to the attack on the valuations of the two properties, the respondents noted that the applicants had failed to provide any overall financial information which would reveal the overall financial health of the applicants. Counsel for the respondents submitted that there was a dearth of evidence as to the overall financial standing of the applicants and whether there were other debts or liabilities in respect of them.
The respondents submitted that the Court should infer impecuniosity in relation to the applicants by reason of the quality of the evidence and the fact that the third property relied upon in the initial correspondence (being a property in Shepparton) was identified as being an asset available to meet a potential costs order with a valuation of $3.5 million. That Shepparton property was identified in 26 April letter, but the evidence to which the respondents pointed suggested that the property had been sold prior to that date for $3.2 million and, as the affidavit of Mr Kalra observed in paragraph 11, the Shepparton property was held by the first applicant as trustee of a unit trust and the applicants had no beneficial interest in respect of it.
Having regard to all of that material, the respondents invited the Court to infer that the applicants are relevantly impecunious and could not meet any costs order that might be ordered against them should they be unsuccessful in the application to this Court.
In light of all the material before the Court, while the evidence of the respondents is unsatisfactory in many respects, and given that we are not in a position to give no weight to the valuation (recognising its imperfections), we are unable to conclude that the first applicant is impecunious or that there is an unacceptable risk that the respondents’ costs of the application for leave to appeal (and if successful, the appeal) would not be able to be recovered.
The respondents also rely upon the fact that the second applicant was unable to obtain finance to purchase the property, which was the subject of the proceeding before the trial judge. The applicants dispute this, pointing to [37] and [83] of the reasons of the trial judge which suggest that alternative private equity finance was offered and ultimately obtained, although not until one day before settlement. In our view, little significance should be attached to that fact.
In these circumstances, and in light of the financial position of the first applicant referred to above, we are unable to conclude or infer that the first applicant is impecunious at the time of this application.
As already observed, if impecuniosity has not been established, then ordinarily it could not be shown that there would be an unacceptable risk. That is the conclusion that we have reached in this case.

Merits of the application for leave to appeal

Finally, to the extent it is relevant, the respondents relied upon the fact that the applicants have low prospects of success in this appeal. It is unnecessary for us, and we are reluctant to, express any concluded view as to the merits of the applicants’ application for leave to appeal. Having read the reasons of the judge and the written case of the applicants, we would only note that the prospects of success are arguable.

Conclusion

Given that impecuniosity has not been established, and that was the substantial basis upon which the application for security for costs was prosecuted, we are unable to accede to the application and the application for security for costs is refused.
Accordingly, the order of the Court is that the application for security for costs is refused.
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[2024] VSCA 154

27 June 2024