Federal Court Orders Security for Costs in Appeal

OUTCOME: Allowed

FEDERAL COURT OF AUSTRALIA

[COMPANY] v [NAME] (Trustee) [2011] FCA 1149 Citation: [COMPANY] v [NAME] (Trustee) [2011] FCA 1149

Appeal from: [COMPANY] v [NAME] [2011] [NAME] 384

Parties: [APPELLANT] AS [NAME] [APPELLANT] v [NAME] AS TRUSTEE OF THE ESTATE OF [NAME] number: NSD 1387 of 2011

Judge: [NAME] of judgment: 4 October 2011

Catchwords: PRACTICE AND PROCEDURE – appeal – whether security for the respondent's costs of an appeal from a Federal Magistrate should be ordered

Legislation: Bankruptcy Act 1966 (Cth), s 180 Corporations Act 2001 (Cth), s 1335 Federal Court of Australia Act 1976 (Cth), s 56

Date of hearing: 4 October 2011

Place: [APPELLANT]: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 19

Solicitor for the Applicant: [redacted]

Counsel for the Respondent: [redacted]

Solicitor for the Respondent: [redacted]

IN THE FEDERAL COURT OF AUSTRALIA [APPELLANT] 1387 of 2011

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: [COMPANY] AS [NAME] [APPELLANT] (ACN 128 139 935)

Appellant

AND: [NAME] AS TRUSTEE OF THE ESTATE OF [NAME]

Respondent

[APPELLANT] OF ORDER: 4 OCTOBER 2011 [APPELLANT]

THE COURT ORDERS THAT:

1. The appellant provide security for the respondent's costs of the appeal in the amount of $35,000, such security to be provided within 28 days of today's date by way of cash payment to the Registrar of the Court, such amount to stand as security for the respondent's costs of the appeal and not to be disbursed without a prior order of the Court.

2. In the event that the security is not provided within the timeframe ordered above, the proceeding be stayed.

3. The costs of the respondent's Interlocutory Application filed on 8 September 2011 be the respondent's costs in the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA [APPELLANT] 1387 of 2011

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN: [APPELLANT] [COMPANY] AS [NAME] [APPELLANT] (ACN 128 139 935)

Appellant

AND: [NAME] AS TRUSTEE OF THE ESTATE OF [NAME]

Respondent

JUDGE: [NAME]: 4 OCTOBER 2011 PLACE: [APPELLANT] FOR

JUDGMENT 1 The respondent, Mr [APPELLANT], has applied to the Court for an order that the appellant provide security for his costs of the appeal in the amount of $80,000 or in such other amount as the court deems fit. In addition, the respondent seeks an order that the amount of the security be paid into Court by cash or bank cheque within 14 days from the date of any order for security. Finally, the respondent seeks an order for the appeal to be stayed pending the payment of security. 2 In support of his application, the respondent read and relied upon the affidavit of [RESPONDENT], sworn on 8 September 2011. He also relied upon certain other documents, being two ASIC documents and a Notice to Produce requiring certain financial documentation to be produced by the appellant, together with the documents produced in answer to that Notice to Produce (Exhibits A, B and C). 3 The appellant opposed the making of any order for security. Essentially, the appellant submitted that, it being an [NAME], there was every reason to expect that, should it be required to pay costs in due course, it would do so without demur. 4 The evidence before me shows that the appellant is a company with a paid up capital of $1,000 and assets of $1,000 or less. It has earned reasonably substantial income in the past, generating a relatively small annual profit. It has no real estate in New South Wales. 5 In answer to the Notice to Produce served by the respondent, the appellant produced certain documents but did not produce all of the documents required by the Notice to Produce. The documents which it did produce confirmed the essential facts concerning its financial position which I have noted at [4] above. The appellant did not produce, as it was required to do, financial statements for the years ended 30 June 2009, 30 June 2010 and 30 June 2011. I infer that those documents would not have improved the general position summarised at [4] above. 6 On the evidence, therefore, the position is that it is likely that, should an order for costs be made against the appellant at the conclusion of the current appeal, the appellant will not be able to meet that order from its own funds. This simple circumstance enlivens the Court's jurisdiction pursuant to s 1335 of the Corporations Act 2001 (Cth) and s 56 of the Federal Court of Australia Act 1976 (Cth). Once the jurisdiction is enlivened, I am required to consider, as a discretionary matter, whether security should be ordered and, if so, in what amount. 7 The appeal is an appeal from a decision of a Federal Magistrate in which the Federal Magistrate ordered, pursuant to s 180 of the Bankruptcy Act 1966 (Cth), that the resignation of the respondent as trustee of the estate of [NAME] be accepted. The contest before the Federal Magistrate involved a claim by the appellant that the respondent should be removed as trustee of that estate, on the one hand, and a claim by the trustee that he should be allowed to resign on terms, on the other hand. It is not necessary to traverse the detail of the Federal Magistrate's decision. 8 Counsel for the respondent has conceded that the appeal is not hopeless and should not be regarded as without merit for the purposes of the present application. Mr [APPELLANT], who is the principal of the appellant, urged upon me that the prospects of the appellant on the appeal are substantial and that I should weigh that in the balance in favour of the appellant and against an order for security. I do not think it is appropriate to enter into any assessment of the prospects of the appellant on appeal once I have come to the view that there is sufficient prospect to regard the appeal as having some merit. 9 In the circumstances of the present case, I note that the respondent accepts that the appeal has some merit and that I am entitled to take that circumstance into account in favour of the appellant insofar as the present application is concerned. I will approach my consideration of the present application on that basis. 10 It seems to me that I should exercise my discretion in favour of making an order for security. I do so, principally, because, in the circumstances of the present case, if the position of the respondent is not reasonably secured, the costs of the present appeal may ultimately be visited upon the creditors of the [NAME] of which the respondent was formerly trustee, or, indeed, on the trustee personally, in circumstances where he may have succeeded in the appeal. This is an unsatisfactory state of affairs and should be avoided if at all possible. In any event, it seems to me that the financial position of the appellant is such that an order for security is warranted. 11 The evidence adduced on behalf of the respondent concerning quantum is found in the affidavit of Mr [NAME] at paragraphs 39 to 45. In that affidavit, Mr [NAME] estimates that the costs of the appeal will ultimately be in the order of $94,792.50, inclusive of GST. The detail of the process which Mr [NAME] undertook to arrive at that estimate is set out in those paragraphs of his affidavit. It is not necessary to traverse the detail of Mr [NAME] calculations for present purposes. 12 I have come to the view that the appeal should not take more than one day and that the interlocutory stages of the appeal can be adequately met by allowing an amount of $25,000 for those stages. I propose to allow $10,000 for the hearing itself, making a total of $35,000 by way of security. 13 I have carefully considered the extent of preparation which Mr [NAME] believes will be required and have come to the view that it is unlikely, in all the circumstances, that as much time as he has allowed will be required and that the matter can be prepared more efficiently than he has perhaps thought. 14 I propose by way of brief explanation as to how I arrived at the amount of $25,000 to set out the following matters: 15 First, Mr [COUNSEL] has, in effect, allowed 77 hours for a junior solicitor (at a cost of $22,715) and 34 hours for a partner level lawyer (at a cost of $16,830) to prepare the matter as well as seven and a half days for junior Counsel (at a cost of $26,250). The total of these three components accounts for a significant part of his estimated costs (viz $65,795). It seems to me that junior Counsel ought not to be involved and will not be involved to the extent set out by Mr [NAME] and that there should be a substantial discount in the number of days allowed, in the order of about 50%. In relation to the costs of the [APPELLANT], both junior and senior, there is a real potential for duplication which should also result in a significant discount. Doing the best I can and approaching the matter rather broadly, it seems to me that, if I allow something of the order of two days for Counsel and two and a half days for the two solicitors by way of preparation, that would be sufficient and reasonable in the circumstances. The cost of preparation which I propose to allow is therefore $25,000. 16 As already mentioned, I would allow $10,000 for the hearing itself. 17 Accordingly, I propose to order that the appellant provide security for the respondent's costs in the amount of $35,000, such security to be provided within 28 days of today's date by way of cash payment to the Registrar of the Court and such amount to stand as security for the respondent's costs of the appeal and not to be paid out without an order of the Court. 18 Secondly, in the event that the security is not provided within the timeframe I have indicated, the proceeding will be stayed. I note that the orders which I have made will not affect the listing of the appeal for hearing in the February/March 2012 appellate sittings of the Court unless the stay which I have proposed comes into effect in due course for the reason that the security is not provided. 19 I order that the costs of this application be the respondent's costs in the appeal. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the [NAME].

Associate: Dated: 6 October 2011