NOT FOR DISTRIBUTION FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NX 191 of 1993 GENERAL DIVISION ) RE: JEREMY WILLIAM MARDEN NOLAN Debtor BETWEEN: DAVID LLEWELLYN SEARGEANT Applicant AND: JEREMY WILLIAM MARDEN NOLAN Respondent CORAM: SACKVILLE J. PLACE: SYDNEY DATE: 10 APRIL, 1995 REASONS FOR JUDGMENT In this matter I reserved my decision on an application by the applicant (the respondent to the appeal) ("the creditor"), that the debtor (the appellant on the appeal) provide security for the payment of costs that may be awarded against him on the appeal. The application has not been formalised by the filing of a notice of motion. Nor is it supported by an affidavit. However, no objection has been taken by the debtor to my dealing with the application, notwithstanding the procedural irregularities. Mr Armstrong, on behalf of the creditor, submits that the debtor should provide security in the sum of $5,000. This amount has been reduced from the figure of $30,000 that was mentioned when the application was foreshadowed in court, on 4 April 1995. Mr Armstrong contends that the debtor has been shown to be impecunious and that the creditor is at risk of being out of pocket, should the appeal fail. He also points out that most of the grounds in the notice of appeal concern questions of fact and that the errors of law said to have been made in the exercise of the discretion conferred by s.222(2) of the Bankruptcy Act 1966 have not been identified in the notice of appeal with any particularity. This submission is presumably intended to suggest that the debtor does not enjoy good prospects of success on the appeal. The relevant provisions governing the making of an order for security for costs are contained in s.56 of the Federal Court of Australia Act 1976 and Order 52, r 20 of the Federal Court Rules. Section 56 reads as follows: (1) The Court or a Judge may order an applicant in a proceeding in the Court or an appellant in an appeal to the Court to give security for the payment of costs that may be awarded against him. (2) The security shall be of such amount and given at such time and in such manner and form, as the Court or Judge directs. ... (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security." Order 52, r.20 is in the following terms: 20 Unless the Court or a Judge otherwise directs no security for costs of an appeal to the Court shall be required. Mr Maxwell, on behalf of the debtor, submits that an order for security for the payment of costs should not be made, since the debtor was effectively in the position of a defendant in the proceedings. Accordingly, he was forced to protect himself against the creditor's claims. However, this is not a material consideration in determining whether such an order should be made against an appellant, pursuant to the provisions to which I have already referred: Riv-Oland Marble Company (Vic) Pty Ltd v Settef S.p.a., unreported, 2 May 1988, (FCA/Jenkinson J.). Mr Armstrong relies upon Ciappina v Ciappina (1983) 70 FLR 287 (FCA/Neaves J.), and the authorities cited at 290, for the proposition that: "the impecuniosity of an appellant resulting in an inability to pay the costs of an appeal should that appeal not be successful amounts to a special circumstance justifying an order for security." Mr Maxwell does not challenge this proposition, but says there is insufficient evidence that the debtor is impecunious in the relevant sense. However, Mr Maxwell does not dispute that I can take into account evidence adduced before me at the hearing. That evidence reveals clearly that the debtor has substantial undisputed debts that have remained unpaid for a very considerable period of time. On his own evidence he has few, if any, assets. The statement of affairs of November 1993, discloses assets of $15,000 against debts of some $529,000. The assets include personal effects and shares in family companies. The value of the shares (if Mr Nolan's evidence is to be accepted) is likely to have declined since November 1993, because of the decline in the activities of the companies. Although neither party addressed this issue, it is necessary to take into account the consequences for the creditor if the debtor's appeal is ultimately dismissed. In those circumstances, assuming that the sequestration order has been stayed in the meantime, the order would take effect and the debtor would become a bankrupt. Section 51 of the Bankruptcy Act 1966 provides that: "[s]ubject to section 109, the prosecution of a creditor's petition to and including the making of a sequestration order on the petition shall be at the expense of the creditor." Section 109(1)(a) provides that, before applying the proceeds of the bankrupt's assets to other payments, the trustee must apply the proceeds, in the order prescribed by the rules, in payment of the taxed costs of the petitioning creditor and of certain other charges and expenses. The Bankruptcy Rules, r.40 prescribes the order of application of proceeds for the purposes of s.109(1)(a) of the Act. Under r.40 priority is to be given to the expenses incurred by the trustee in protecting the assets of the bankrupt and the expenses incurred in carrying on the bankrupt's business. The rule provides for two other classes of payments to be made and then specifies that the fourth priority item is the payment of the taxed costs of the petitioning creditor, or of the applicant for a sequestration order under Part X of the Act. The creditor in the present case is an applicant under Part X of the Act. The end result of these provisions is that, in my opinion, the creditor is at risk that he will not receive his costs, should the appeal be unsuccessful. (I reach this conclusion on the assumption that the phrase, "the taxed costs of the applicant for a sequestration order under Part X", as used in r.40, includes the costs incurred by a creditor on a debtor's unsuccessful appeal. If it does not, the creditor is at even greater risk.) I appreciate that my conclusions in the judgment delivered on 14 March 1995 are based, in part, on the view that the trustee should have the opportunity of exploring whether the house transaction should be set aside and whether the debtor should be required to make contributions for the benefit of his creditors. If the trustee takes advantage of this opportunity to yield tangible results, the creditor's costs are likely to be paid out of the estate of the bankrupt. However, the prognosis is far from certain and I think that the creditor remains at risk because of the debtor's impecuniosity. In these circumstances, in my opinion, the creditor should be given the protection of an order for security in relation to his costs of the appeal. The creditor adduced no evidence of the costs likely to be incurred by him in contesting the appeal. As in Ciappina v Ciappina, I can only fix a sum that I consider just in the circumstances of the case. I consider that, in the absence of evidence, I should err on the side of providing for a modest amount. On that basis, I think that security should be given in the sum of $3,000. Accordingly, I direct that the debtor give security to the satisfaction of the Registrar, within 28 days from 28 April 1995, in the sum of $3,000, failing which the appeal herein is dismissed. I have chosen the date of 28 April 1995 because that is the date upon which the matter is to return to the Court to deal with the other issues that have been canvassed. The costs of this application are to be the creditor's costs in the appeal. I reserve liberty to apply to either party on 7 days notice. I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville. Associate: Dated: 10 April, 1995 Heard: 6 April, 1995 Place: Sydney Decision: 10 April, 1995 Appearances: Mr A. Armstrong, Solicitor of Holmes & Bevan, appeared for the applicant. Mr D. Maxwell, Solicitor of Garland Hawthorn Brahe, appeared for the respondent.