IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 534 of 1998 BETWEEN: JAGEEV PTY LIMITED Applicant AND: FRANCIS MERVYN DEANE Respondent JUDGE: EMMETT J DATE of order: 18 september 1998 where made: SYDNEY the court orders that: 1. Jageev Pty Ltd furnish security to the satisfaction of the Registrar in the sum of $7,500 on or before 30 October 1998. 2. The appeal be stayed until the provision of such security. 3. If security is not furnished by 30 October 1998, the appeal be dismissed with costs. 4. Jageev Pty Ltd pay the costs of the motion of Francis Mervyn Deane. 5. Liberty be reserved to the parties to apply in relation to any complication which might arise by reason of the appointment of a liquidator. Note: Settlement and entry of orders is dealt with in O 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 534 of 1998 BETWEEN: JAGEEV PTY LIMITED Applicant AND: FRANCIS MERVYN DEANE Respondent JUDGE: EMMETT J DATE: 18 september 1998 PLACE: SYDNEY EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: I have before me an application for security in connection with an appeal brought to the Full Court of this Court from a decision of Davies J. The respondent to the appeal and the applicant on the motion, Mr Francis Mervyn Deane ("Mr Deane"), is a solicitor who acted for the appellant, Jageev Pty Limited ("the Company"). Mr Deane commenced proceedings on 16 October 1991 claiming an amount of $4203.03 for work done and services provided by him to the Company. A default judgment was entered in the Local Court on 19 December 1991. On 1 August 1995 a statutory demand referring to the debt due under the judgment was served on the Company. By application of 22 August 1995 the Company sought an order that the statutory demand be set aside. That application was heard by a Deputy Registrar. At the time of the hearing, the Registrar was advised that the Company had filed a notice of motion in the Local Court to set the default judgment aside but it had not then been heard. On 30 April 1996 the Deputy Registrar made an order dismissing the application. In the meantime, the Company's motion before the Local Court had been heard and dismissed. On 20 May 1996 the Company filed an application seeking to have the Deputy Registrar's decision reviewed. On 3 September 1996 a magistrate set aside the default judgment. The matter was then heard before another magistrate and judgment was entered in favour of the Company on 28 February 1997. However, on 5 December 1997 Dunford J of the Supreme Court of New South Wales held that the magistrate had erred and remitted the matter to the Local Court to be reconsidered. After the taking of further evidence, the magistrate of the Local Court gave judgment on 9 April 1998 in favour of Mr Deane. The application for review of the Deputy Registrar's decision came on before Davies J on 15 April 1998. Davies J considered the function of the court on the hearing of such a review and concluded that there was no present dispute, that the amount claimed in the statutory demand was due by the Company to Mr Deane. Accordingly, he dismissed the application to set aside the statutory demand. From that decision, the appeal has been brought to the Full Court. The application is based on section 56 of the Federal Court of Australia Act 1976 (Cth) which provides 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 or her. (2) The security shall be of such amount and given such time and in such manner and form as the court or Judge directs. (3) If 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. Order 28 also deals with security for costs, however, it is accepted by both parties and consistent with the authority that Order 28 is not exhaustive as to the circumstances in which security may be ordered. The basis of the application is that the Company may well not be in a position to meet an order for costs if the appeal is dismissed and such an order is made against it. It is necessary to consider some of the background to the apparent dispute between the company and Mr Deane. There is evidence, which is unchallenged, that the Company is presently indebted to Mr Deane in a sum of some $56,000 arising out of various pieces of litigation between the parties. I shall summarise the way in which that sum is made up. On 24 April 1996 costs and fees were ordered in the Local Court. Those costs and fees were assessed on 9 July 1997 at some $8,188. On 30 April 1996, Registrar Quinn ordered costs and fees to be paid. A certificate of taxation of 18 August 1998 assesses those fees at $6,963. On 23 May 1996, Magistrate Dyer ordered costs and fees in the Local Court in the sum of $300. Further costs and fees were reserved and became due pursuant to the judgment by Magistrate Price on 9 April 1998. Those fees are estimated at $3,875. On 18 October 1996, Lindgren J ordered the Company to pay costs and fees, which are estimated at $1,411. On 9 April 1998, Magistrate Price ordered the Company to pay costs and fees which were estimated at $7,878.50. On 9 April 1998, judgment was entered by Magistrate Price for the sum of $3,303.03 plus interest which to 9 April 1998 amounted to $6,263. On 21 August 1998, Bryson J of the Supreme Court ordered the Company to pay costs and fees in connection with an unsuccessful application to set aside a statutory demand. Those fees are estimated at $6,000. In addition, there are the costs ordered by Davies J to be paid by the company. They, of course, would depend upon the outcome of the appeal, but they are estimated at $15,542. Against that background one must consider the fact that, following the order of Davies J declining to set aside a statutory demand, the Company was, on 4 June 1998, deemed to be insolvent for the purpose of section 459C of the Corporations Law. Mr Deane served a further demand in respect of the costs ordered to be paid by the Magistrate. That demand was the subject of an application before Bryson J which was dismissed. Accordingly, from 28 August 1998, a further presumption of insolvency arises in the motion to the Company pursuant to section 459C. Mr Deane has in fact filed an application in the Supreme Court of New South Wales for the winding up of the Company and, on the basis of the matters to which I have just referred, it is difficult to see what the answer to that winding up application might be in view of the deemed insolvency of the Company. That, of course, is a matter for the Supreme Court. Nothing has been advanced before me as to why a winding up order will not be made on that application. Mr Deane has sought to obtain from the Company some evidence as to its financial position in the light of the deemed insolvency, at least for the purposes of any winding up application under the Corporations Law. A notice to produce was originally served on the Company on 11 August 1998 requiring production of financial information in relation to the Company. It was not complied with. On 1 September 1998, a subpoena addressed to the Company was served also requiring production of financial information relating to the Company. Nothing was produced in answer to the subpoena. Although the company was represented by a legal adviser when the subpoena was called, there was no proper answer to the subpoena because there was no officer of the Company available to explain why documents were not produced. The subpoena was originally returnable on 9 September 1998. It was stood over to 16 September 1998 and came before me on that day. On no occasion was there a representative or proper officer of the Company in attendance to answer the subpoena. As I have said, nothing has been produced. Mr Deane has endeavoured to provide other evidence from which it is contended some inference of incapacity to pay an order for costs should be drawn over and above the failure to comply with the statutory demands. There are apparently proceedings on foot in the common law division of the Supreme Court of New South Wales between the Company and Colonial State Bank ("the Bank"). I have before me reasons for judgment of Spurling J delivered on 11 December 1997. Those reasons were the result of a dispute between the Company and the Bank arising out of the proceedings in which Spurling J had given judgment on 26 March 1996. It appears from those reasons that the Company in effect gave a guarantee of certain indebtedness of one of its directors to the State Bank. In support of that guarantee it gave a charge over a parcel of land situated at 136 Victoria Avenue, Chatswood. In the course of the proceedings before Bryson J in relation to the application to set aside the second statutory demand, Mr Mark Lloyd-Stephenson, who swore that he was a director of the Company, was cross-examined by counsel for Mr Deane. Mr Stephenson said that "the Company is not run as a normal company where you have employees or whatever". What he seemed to be saying was that the Company owned a property and received income from the property but engaged in no other activity. Mr Stephenson said there was no minute book of the Company. The rent income which the Company derived was apparently paid by Mr Stephenson who derives his livelihood as a qualified motor mechanic carrying on business on the company's property at 136 Victoria Avenue, Chatswood. That property, according to Mr Stephenson, is the only asset of the Company. He said that he did not know what its value was but that its value could be worth considerably less than $2 million. He also said that the Company could not, at the time when he was cross-examined, pay the amount of the statutory demand and that it would need at least a month to pay that amount. In the proceedings involving the State Bank, evidence has been filed comprising a report of an accountant calculating the indebtedness of the Company. The report indicates that the Company is indebted in the sum of approximately $839,000 in respect of an overdraft account and, in respect of a term loan account, in the sum of at least $1,305,000. The only evidence of value of the property is a valuation dated 17 June 1992 indicating a fair market value of the property of $1 million. It is difficult to attach much weight to a valuation which is in excess of six years old. In addition, it is difficult to give much weight to Mr Stephenson's concession that the value of the property might be less than $2 million. However, in the absence of any evidence from the Company as to its financial position, it seems to me that I am entitled, as I am asked on behalf of Mr Deane, to draw an inference that the Company is not in a position to meet its debts as and when they fall due. The only evidence which I have, little weight though it may have, is that the Company has twice failed to comply with statutory demands within the last few months, that it may well have a liability to the bank to the State Bank in excess of $2 million and that its only asset is a property which six years ago was worth $1 million and which today may or may not be worth $2 million. The fact that the Company has failed to answer the subpoena, it seems to me, makes it easier for me to draw an inference that it is not in a position to meet the liabilities which it has to Mr Deane. In all of the circumstances, in the absence of any explanation and what seems to me to be almost a contumelious approach on the part of the Company to these proceedings, it seems to me that justice would require that I order security for the costs of the appeal. The sum of $7500 has been mentioned. It is accepted on behalf of the Company that that is not an inappropriate figure for security. One factor which must be taken into account is the fact that there is a winding up application pending in the Supreme Court in relation to the Company. It will be a matter for the liquidator if a winding up order is made to decide whether he wishes to pursue the appeal. It is not for me to express any firm view about the likely prospects of the appeal. In the course of argument I did indicate a tentative view that without hearing anything further I would be disposed to accept that Davies J's decision was correct. However, the circumstances are unusual such that I would certainly not hold that the appeal is vexatious or that it is doomed to failure. The point of the appeal may be that the demand which the Company sought to set aside referred to the judgment of the Local Court which was obtained by default and which by the time the matter came before Davies J had been set aside and replaced by a judgment after a hearing on the merits. Nevertheless, it was clear by the time Davies J heard the matter that there had been a hearing on the merits as to the underlying debt and for that reason it seems to me that it may be that a Full Court would accept Davies J's reasoning. In the circumstances, I consider that it is appropriate to order that the Company provide security to the satisfaction of the Registrar in the sum of $7,500. In order to give the liquidator, if there is one, the opportunity of considering the appeal, I propose to direct that that security be furnished within six weeks. I propose to stay the appeal in the meantime and to order that if the security is not provided within the period which I have indicated, that the appeal will be dismissed pursuant to section 56(3) of the Federal Court Act. I also order the Company to pay Mr Deane's costs of the notice of motion for security. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett Associate: Dated: 18 September 1998 Counsel for the Applicant on the Motion: P.R. Glissan Solicitor for the Applicant on the Motion: PW Smyth King & Son Solicitor for the Respondent on the Motion: Martin Churchill Date of Hearing: 18 September 1998 Date of Judgment: 18 September 1998