Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Ulladulla Creative Images Pty Ltd v Tibbles [2021] NSWCA 200 Hearing dates: 16 August 2021 Date of orders: 16 August 2021 Decision date: 16 August 2021 Before: Brereton JA Decision: (1) Time for the applicant to file and serve a notice of appeal substantially in the form annexed to its amended notice of motion filed 29 July 2021 be extended to 23 August 2021. (2) The amended notice of motion filed 2 August 2021 is otherwise dismissed with costs. (3) The applicant provide security in a form acceptable to the registrar for the respondents' costs of the appeal in the sum of $15,000, such security to be provided by 7 September 2021. (4) Liberty to apply in the event that the security is not provided in accordance with order 3. (5) Costs of the respondents' motion for security be costs in the appeal. Catchwords: JUDGMENTS AND ORDERS – Court of Appeal – Stay of primary judgment – Appeal not unarguable – Appeal likely to be rendered nugatory without stay – Where judgment for portion of funds received from insurance payment – Disposition of funds unexplained by applicant – Indicia that appellant may be insolvent – Sums transferred from corporate appellant to director – Sums potentially recoverable by liquidator – Prejudice to respondents if potential appointment of liquidator deferred – Prejudice potentially mitigable by fixed and floating charge over assets of appellant and director – No such security offered – Stay refused COSTS – Security for costs – On appeal – Statutory power under Corporations Act 2001 (Cth), s 1335 – Relevant factors – Where credible evidence that appellant may be unable to pay adverse costs order if unsuccessful – Where director/sole shareholder declined to expose themselves to adverse costs order – Reductions to excessive proposed quantum – Security for costs ordered APPEALS – Procedure – Time limits – Extension of time to appeal – Where appeal filed one day out of time – Extension not opposed – No prejudice – Extension granted Legislation Cited: Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 2005 (NSW), r 51.50 Category: Procedural rulings Parties: Ulladulla Creative Images Pty Ltd t/as Ulladulla Creative Images (Applicant) Ian Tibbles (First Respondent) Debbie Tibbles (Second Respondent) Representation: Counsel: E A Walker (Applicant) M Kalyk (Respondents) Solicitors: McNamara & Associates (Applicant) Paladin Law (Respondents) File Number(s): 2021/186735 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2021] NSWDC 404 Date of Decision: 02 June 2021 Before: Neilson DCJ File Number(s): 2019/387037 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment (ex tempore) 1. The applicant Ulladulla Creative Images Pty Ltd was party to a contract with the respondents Ian Tibbles and Debbie Tibbles whereby the applicant's director Mr John Corrin purchased the respondents' shares in the applicant company. At the time of that transaction, the applicant company had a pending claim on its insurer in respect of losses arising out of a fire that had occurred in premises nearby its place of business. To address this, the contract contained a provision, in cl 15, headed, "Insurance Claim", as follows: "15.1 The Company has made a claim against the Company's Insurers for loss arising out of a fire that took place in the premises known as Unit 83 Collers Road, Ulladulla being Lot 18 in Strata Plan 82760 (the "Premises"). 15.2 The company agrees that if it receives any further monies from the Insurance Company beyond those monies received up to the date of this Agreement then any such monies shall be divided equally between the shareholders Debbie, Ian, Karen and John and paid to each of the parties within seven (7) days from the date of receipt of such monies from the Insurance Company." 1. The applicant received two payments totalling $44,875 from its insurer pursuant to the policy of insurance. It now accepts that half of that sum is payable to the respondents under clause 15, and that formed part of the judgment below. The applicant accepts it is within clause 15, because it was in respect of a claim made on the applicant's insurer under its policy of insurance. 2. The applicant received a further payment, from the same insurance company, in the sum of $380,000. That sum represented uninsured losses suffered by the applicant as a result of the allegedly tortious conduct of the occupier of the premises in which the fire occurred. Coincidentally, the insurer of the occupier was the same insurance company as was the applicant's insurer. It paid the applicant, effectively on behalf of the occupier, without the applicant having to resort to any litigation against the occupier. 3. In proceedings in the District Court, the respondents claimed to be entitled to 50% of the $380,000 pursuant to clause 15 of the contract, which the applicant disputed. The primary issue in the proceedings was the construction and effect of clause 15 and whether it captured the $380,000 payment. Ultimately, evidence of negotiations which preceded the contract was admitted and taken into account by the trial judge in holding that clause 15.2 did capture the payment. Accordingly, his Honour gave judgment for the present respondents against the applicant for approximately $120,000 each. 4. That judgment was given on 2 June 2021. The applicant filed a notice of intention to appeal on 29 June 2021, within time, but did not serve it until 1 July 2021, one day out of time. Now, by summons filed on 27 July 2021, the applicant seeks an extension of time in which to appeal. Further, by notice of motion also filed on 27 July 2021, the applicant seeks a stay of the judgment below. By an amended notice of motion filed on 2 August 2021 it offers an undertaking not to charge, dispose of, or deal with its assets other than in the ordinary course of its business, and to pay its reasonable legal expenses, and submits to a condition (which the Court is informed has been performed), that it pay the respondents the sum of $27,448, being the undisputed amount of the judgment below. 5. By a notice of motion filed on 29 July 2021, the respondents seek security for costs of the appeal. 6. The matters which therefore require resolution today are, first, the question of an extension of time for the appeal; secondly, the application for a stay; and thirdly, the respondents' application for security for costs of the appeal. 7. Turning first to the question of an extension of time, the problem arises because the notice of intention to appeal was served one day out of time. The respondents have been on notice at all material times that an appeal was proposed. No prejudice arising from the delay has been identified. The delay was as short as one could be, and it has been explained by the applicant's solicitor as an oversight. No submissions were made against the extension of time and there is no reason why it should not be granted. 8. Then, as to the application for a stay, I accept that the appeal is at least not unarguable, and it may be even stronger than that. I also accept that it is likely to be rendered nugatory if a stay is not granted, and that is a powerful consideration. In those circumstances, it is necessary to consider a little more closely the financial position of the applicant as evidenced by its draft financial statements as at 30 June 2020. Although those statements disclose, without any provision for the debt to the respondents, net equity of $47,500, the chief asset which underpins that is the intangible asset of goodwill of $150,000. Current assets are $89,000, against current liabilities of $146,000, indicating a significant negative net current ratio, which is a powerful indicium of insolvency. The financial statements indicate net losses for the 2020 financial year of $210,000. The respondents have served a creditors statutory demand. 9. The respondents point to the circumstance that this is not a case in which there has been an award of damages against the applicant, but one in which the applicant is being required to disgorge 50% of funds that it received by way of the insurance payment, and that the applicant has not explained what has become of those funds. The evidence establishes that an explanation has been sought, but none has been provided. In the course of the hearing, an opportunity was offered again to provide an explanation, but the response was, in effect, that it was not a relevant consideration on the present application. 10. To my mind, it is a relevant consideration because if, as appears to be the case from the evidence adduced by the respondents, at least some of those moneys have been transferred to Mr Corrin personally or his associates, then while the respondents might not be able to execute directly against him, a liquidator might well be able to recover such payments as insolvent transactions or uncommercial director-related transactions. As is well known, the passage of time in the recovery of such transactions is vital, because liquidator's powers depend on such things as dates on which windings up commence, relation back dates, and dates of insolvency. 11. Mr Corrin has given some evidence of his personal financial circumstances which, so far as that evidence goes, indicates that he owns no real property and has limited assets. That might well be so, but it does not indicate what has become of the $380,000. It is not as if this issue comes at the heel of the hunt, because the respondents have previously sought an explanation for it, and the decision not to provide one must be regarded as a deliberate forensic choice. 12. Balancing, on the one hand, the circumstance that failing to grant a stay would probably render nugatory what seems to me an arguable appeal, with, on the other, the prejudice to the respondents from deferring the potential appointment of a liquidator and the accrual of a liquidator's remedies, it seems to me that the only basis upon which a stay might be granted would be if, in addition to the undertaking proffered, the applicant were to offer a fixed and floating charge over its assets, and Mr Corrin were to do likewise personally. That would not totally ameliorate the prejudice to the respondents, but it would go some substantial way towards doing so. However, when I raised that prospect, it was made clear that there were no instructions to offer any such security. 13. Lest it be said that, by giving direct rights against Mr Corrin, requiring such security would improve the respondents' position beyond what they would be entitled to on execution, several observations can be made. First, as often happens in security for costs applications, sometimes if a company wants an indulgence, its shareholders will need to come out from behind the corporate veil and place their personal assets in jeopardy to ameliorate prejudice to the other party. Secondly, in circumstances where the real concern is that corporate assets might have been transferred to Mr Corrin and then dissipated by him, a liquidator would have remedies against him personally, even though the respondents directly might not do so. And thirdly, as I will explain in connection with the security for costs application, Mr Corrin would ordinarily be required to expose himself personally to an adverse costs order if the application for security against the company were to be declined on the basis of stultification, and he declines to do so. 14. Turning then to the security application, the company's financial circumstances constitute credible evidence that it may not be able to pay an adverse costs order if unsuccessful in the appeal. The ground for a security order under Corporations Act 2001 (Cth), s 1335, is therefore established, and because the applicant is a corporation, it is unnecessary to resort to Uniform Civil Procedure Rules 2005 (NSW), r 51.50, to found an order for security for costs. 15. The discretionary argument raised against making a security for costs order was that it would stultify the proceedings. Given that the company has limited liquid assets, that is a distinct possibility. However, as I have said, in such circumstances the Court will normally expect those who stand behind the company – in this case Mr Corrin, who is the sole shareholder – to at least expose themselves to an adverse costs order; and as I have also noted, he declines to do so. In those circumstances, a security for costs order should be made. 16. The respondents' solicitor deposed to an estimate of $25,000, which included, for counsel, two days for submissions, one day for preparation, and one day for the hearing of an appeal which seems to me to be a half-day appeal. In the not too distant past, counsel would have received for a half-day appeal a brief fee for one day. Somehow, this is now extrapolated into four days, being a day for the appeal, two days for submissions, and a further day for preparation. Whatever the arrangements might be between solicitor and client, I do not consider that this is an appropriate basis to approach the matter on a party/party basis. I therefore propose to disallow approximately $10,000, and to make an order for security in the sum of $15,000. 17. Accordingly, I have reached the following conclusions. First, that the extension of time sought should be granted. Secondly, that, the applicant being unwilling to submit to any of the conditions I have suggested so far as security is concerned, the application for a stay must be refused. Thirdly, I will make an order for security in the sum of $15,000. 18. The Court therefore orders that: 1. Time for the applicant to file and serve a notice of appeal substantially in the form annexed to its amended notice of motion filed 29 July 2021 be extended to 23 August 2021. 2. The amended notice of motion filed 2 August 2021 is otherwise dismissed with costs. 3. The applicant provide security in a form acceptable to the registrar for the respondents' costs of the appeal in the sum of $15,000, such security to be provided by 7 September 2021. 4. Liberty to apply in the event that the security is not provided in accordance with order 3. 5. Costs of the respondents' motion for security be costs in the appeal. Addendum 1. After this judgment was delivered ex tempore, the respondents' solicitors sent a communication, with the applicant's consent, to my Chambers, including the following: "At Schedule A to the Submissions for the Respondents, the company accounts were summarised as being that various transfers were made to an account in the name of John Corrin ending 325. A related submission can be seen in reliance on that fact at [28](d) and the final sentence of paragraph [29] of the submissions. That statement was made in error and should be corrected. While Mr Corrin does have an account ending 325, the funds were in fact transferred into an account ending 325 in the name of the company, UCI. Further, the company's account ending 325 continues to exist, contrary to the submission at [28](b)." 1. While this reduces significantly the quantum of funds evidently transferred from the company to Mr Corrin, there remain a number of other such payments (from the company's 325 account), not least an unexplained transfer of $200,000 to an account numbered 837 on 28 February 2019. It does not affect the circumstance that the disposition of the $380,000 remains unexplained, notwithstanding that explanation was requested. 2. The applicant has not sought to re-open the application after that correction was made. ********** Amendments 02 September 2021 - Correction to spelling "Neilson DCJ" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 September 2021