AUSTEUR PTY LIMITED v VLAHOS SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL SHELLER JA 11 March 1996 [1996] NSWCA 31 Sheller JA. The claimants, Sam Vlahos and Olga Vlahos, apply for an order that the opponent, Austeur Pty Limited, give security for the claimants" costs as respondents to the opponent's appeal from decisions of Abadee J and Master Greenwood in proceedings instituted by the claimants. The claimants sought possession of a property known as 209 Oxford Street Bondi Junction, which, at relevant times, they owned, from the opponent which was the lessee. The claimants also claimed amounts alleged to be owing for rent, rates, land tax and legal costs and disbursements. On 11 September 1995 Master Greenwood gave judgment for possession and judgment in the sum of $44,032.76 for amounts owing under the lease up until the date of forfeiture. Master Greenwood struck out the opponent's defence and cross claim. In its defence the opponent sought to rely upon a set off and in its cross claim sought to recover damages for an alleged failure by the claimants in breach of acovenant in the lease to keep the leased premises in reasonable order and condition. The background of the litigation and what happened at the hearing is as follows. The opponent carried on a restaurant and nightclub business known as 'Fred' at the leased premises. It fell behind with the rent. The basis of its defence and cross claim was that the state of the premises was such that by mid-April 1995 it was forced to close down. On 30 May 1995 Master Greenwood ordered that the opponent file and serve all affidavits and any expert reports on which it intended to rely by 29 June 1995. This order had not been complied with as late as 10 July 1995 when the time for compliance was extended for a further fourteen days. At some point leave was given to the opponent to file its cross claim. On 8 June 1995 the claimants" solicitors wrote to the opponent's then solicitors seeking further and better particulars of its cross claim '(t)o enable us to file a defence'. The opponent's new solicitors responded on 7 July 1995. The claimants and opponent filed and served their affidavits. On 28 July 1995, on the basis that the matter was defended, it was listed for hearing for three days commencing 11 September 1995. On the morning of 8 September 1995 Mr Comino, the claimants" solicitor, attended the Supreme Court Registry to file affidavits which had been served and the defence to the cross claim. The clerk at the Registry advised him that he could not file the defence to the cross claim as the filing fee on the cross claim had not been paid. Even so the defence to cross claim was filed. On 8 September 1995 the then solicitors for the opponent wrote to the claimants" solicitors pointing out that no defence to cross claim had been filed and giving notice that any application for leave to file a defence to the cross claim or to dispute any matter in the cross claim other than damages would be vigorously opposed. This brought forth a response on thesame day asserting that the opponent had been aware as far back as 9 June 1995 that the claimants proposed to defend the cross claim. In addition it was said that evidence had been 2 UNREPORTED JUDGMENTS filed on behalf of the claimants to meet the cross claim and this had been served on the opponent's solicitors some weeks before. When the matter came before Abadee J on 11 September 1995 the opponent applied for an adjournment which was refused. No previous notice of this application had been given nor was it supported by any affidavit. The matter was referred to Master Greenwood under Schedule D, Part 3, subcl 4 of the Rules for hearing on the same day. The opponent was not represented before Master Greenwood. Apparently its solicitors took the view that their instructions were limited to applying for an adjournment. No evidence was presented to the Master in support of the claim for repairs. The Master said that he was according to the defence and cross claim a status as pleadings properly filed in court. No doubt he said this because no filing fees had been paid. I am not quite clear why he ordered the defence and cross claim to be struck out but the effect of what the Master did is plain enough. Apparently on 27 September 1995 Master Greenwood assessed mesne profits in the sum of $32,258. On 9 January 1996 the opponent filed a notice of appeal with appointment. I assume it had previously filed a notice of appeal without appointment. Most of the grounds of appeal are directed to the refusal by Abadee J to grant the opponent an adjournment. The opponent has provided a copy of the transcript of what took place before Abadee J. The submission in support of the opponent's application for an adjournment amounted to no more than the statement 'that the defence to the cross claim was only filed by the [claimants] on Friday last'. Counsel for the claimants said that they were ready to proceedand the defence to the cross claim was denial. The grounds of appeal are that his Honour erred in law in failing to grant the adjournment, erred in law in failing to give reasons for judgment and in particular erred in granting an adjournment by reason of the claimants only having filed their defence to the opponent's cross claim 'within a couple of working days prior to the hearing'. On the material before me I am not impressed by the chances of success of this part of the appeal. The grounds of appeal against the decision of Master Greenwood of 11 September 1995 that he erred in continuing to hear the proceedings after the opponent's solicitors had been given leave to withdraw fall into the same category. The appeal against the decision of Master Greenwood of 27 September 1995 is put quite baldly on the basis that the assessment of mesne profits 'was unsupported by any evidence'. There is no material before me to suggest that that ground of appeal has any merit. Against this background I come to consider this application for security for costs. It is supported by an affidavit of Mr Comino of 31 January 1996 which shows that as at 30 June 1994 the opponent had a paid up capital of $100, its net assets were nil and in the previous period of trading it had shown a loss of $44,666. Miss Vine-Hall in an affidavit of 22 February 1996 estimated the party and party costs reasonably recoverable by the claimants in respect of the appeal, estimated to take one day, as at least $20,640. This seems to me surprisingly high. It allowed for senior counsel to be retained for the appeal. The opponent relied upon an affidavit by a solicitor, Mr Boyd, deposing that a proper estimate of the taxed costs of the appeal would be in the order of $6,324.50. Although the 1995 financial accounts are yet to be prepared draft documents indicate that the previous year's loss may have turned into an operating profit for 1995. However the company's assets consist substantially of goodwill and are exceeded by its current liabilities. What is perhaps more important is evidence from two directors and shareholders of the opponent that the shareholders will, URJ AUSTEUR PTY LIMITED v VLAHOS (Sheller JA) 3 by 1 March 1996, establish a trust fund of $34,000 to prosecute the appeal. Such sum is intended to cover any costs ordered against the opponent. In this case there is evidence that the opponent did not prosecute its cross claim with due diligence. In the result it applied on the very day the proceedings were to be heard for an adjournment of the hearing which had been set down for three days. On the material I have looked at I am not surprised that the application for adjournment was refused. Nor am I impressed with the alleged inability of the opponent to proceed when the adjournment was refused. There is no material before me which persuades me that the appeal has good prospects of success. There is material which suggests that if the appeal fails the company will be unable to pay the claimants" costs from its own resources. These are all matters which would lead me to conclude that there are special circumstances which make it just that security be given by the opponent for the costs of the appeal; Pt 51 r 11 of the Supreme Court Rules. A contrary consideration would be that an order for security would have the consequence that the appeal could not be prosecuted because the opponent would not have the resources to comply with an order for security. On behalf of the opponent it was submitted that its impecuniosity was caused by the alleged breaches of covenant by the claimants. However in view of the dilatory manner in which the claimant prepared for trial I do not regard this as of great significance. In any event a fund is to be established to enable the opponent to prosecute itsappeal. No doubt part of this fund which is designed to meet the claimants" costs if the appeal fails can be used to meet any order for security. In my opinion this is an appropriate case for an order to be made. The sum asked for is $12,000. However this appeal raises quite narrow issues for the most part about the discretionary refusal of an adjournment. I regard the amount sought as too high. I am impressed by the estimate made on behalf of the opponent by Mr Boyd. In all the circumstances I propose to order that security be given in the sum of $8,000. The orders will be: 1. The appeal is stayed until the appellant provides security towards the respondents" costs of the appeal in the sum of $8,000 in such form as may be agreed by the parties or failing agreement settled by the Registrar. 2. If the appellant fails to provide such security in such sum and in such form within twenty-eight days of today or such further time as the Registrar may allow, the respondents are at liberty to apply to the Court to have the appeal dismissed. 3. The opponent to pay the claimants" costs of this application. Orders accordingly.