New South Wales Court of Appeal CITATION : Patrick v Howorth [2002] NSWCA 285 FILE NUMBER(S) : CA 40255/02 HEARING DATE(S) : 26 August 2002 JUDGMENT DATE : 29 August 2002 PARTIES : Albert Patrick (Claimant) Victoria Howorth (Opponent) JUDGMENT OF : Heydon JA at 1; Hodgson JA at 25; Young CJ in Eq at 26 LOWER COURT JURISDICTION : Supreme Court LOWER COURT FILE NUMBER(S) : LOWER COURT Handley JA JUDICIAL OFFICER : COUNSEL : Claimant appeared in person Mr R Pearson (Opponent) SOLICITORS : Claimant appeared in person Creagh & Creagh (Opponent) CATCHWORDS : Court of Appeal - practice and procedure - security for costs Bankruptcy Act 1966 LEGISLATION CITED : Life Insurance Act 1945 Life Insurance Act 1995 Supreme Court Act 1970 CASES CITED: Warner v Frost [1999] NSWCA 327 DECISION : See paragraph 24 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40255/02 HEYDON JA HODGSON JA YOUNG CJ in Eq 29 August 2002 PATRICK v HOWORTH Judgment 1 HEYDON JA: On 3 April 1998 the appellant was allegedly injured in a motor vehicle accident. He sued the respondent for approximately $2,000,000 in damages. 2 On 15 February 2002, after a long trial, Herron DCJ found a verdict and judgment for the respondent, and ordered the appellant to pay the respondent's costs. 3 The appellant has filed as of right a Notice of Appeal. The appeal is fixed for hearing on 11 November 2002. 4 The respondent made an application for an order for security for the costs of the appeal. This application was heard by Handley JA. By reason of Part 51 rule 16(1) of the Supreme Court Rules, an order for security for the costs of an appeal can only be made "in special circumstances". Handley JA found that an action brought by the appellant against Mirvac Projects Pty Ltd was settled for $900,000 inclusive of costs. A tax invoice tendered before this Court reveals that after the solicitors for the appellant had deducted various refunds and various amounts payable to them for costs and disbursements, about $300,000 was paid to the appellant. The appellant contends that much, though not all, of that sum was also spent on litigation-related expenses. 5 In his reasons for judgment dated 15 July 2002, Handley JA described the respondent as "the claimant"; he described the appellant as "Mr Patrick"; and his references to the submissions of Mrs Patrick stemmed from the fact that she was given leave by Handley JA to speak on the appellant's behalf. 6 Handley JA said: "On 20 September 2001, the plaintiff, perhaps as a trustee, perhaps beneficially, it is not clear, purchased an investment unit at Southport and paid $100,000 for the property. This property was transferred to Mrs Patrick's sister on 4 March 2002 for $99,000. The evidence before me includes a claim that only $45,000 of this amount was the property of Mr Patrick, the rest belonging to other beneficiaries under a trust. It is possible that this investment property was purchased with funds from the settlement of Mr Patrick's action against Mirvac Projects, at least in part. Mr and Mrs Patrick purchased a property at Benowa Queensland, in October 2000 for $335,000. Mr Patrick in his affidavit of 24 June states that that property has been sold since the judgment of Herron DCJ and a mortgage over the property said to secure a debt of $200,000 was paid off out of the proceeds of sale. It seems to me that the circumstances, including the nature of the findings made by Herron DCJ, although I do not overlook the fact that they are not challenged in the appeal, the evidence dealing with the receipt of the settlement sum from the other action and the sale of two properties since the judgment of Herron DCJ, do constitute special circumstances. Mrs Patrick submits that if such an order is made the appeal will effectively be stifled and she informs me that after investigation the Department of Social Security have granted pensions to her husband and herself, no doubt in her case a carer's pension, and currently these are their sole source of income. The substance of that matter is stated in Mr Patrick's affidavit of 24 June. There is no evidence before me of the ownership of the house at Maleny Place, Queensland which Mr and Mrs Patrick currently occupy. I do not know whether the house is in their joint names or merely in Mrs Patrick's name. I do not know whether there is a mortgage on the title and, if so, for how much. I do not know how much was paid for the property and who was the vendor. This also is a matter which is relevant in considering whether a case of special circumstances has been made out. The claimant asserts that the costs of the proceedings in the District Court as recorded in a bill of costs comes to $374,000. I am unable to form any view as to the validity of this claim but obviously a trial of 29 days will result in very substantial costs being incurred, whatever the final figure might be. On the evidence before me there is no way in which Mr Patrick will be able to pay this amount or anything like it if the appeal should fail. For all those reasons it seems to me that this is a case where the claimant has established special circumstances and I therefore must direct my attention to the question of the appropriate amount to be ordered by way of security." 7 The reference to the findings of Herron DCJ "not" being challenged on the appeal appears to be a slip: in context the meaning is that the findings are challenged in the appeal. The findings referred to were summarised earlier by Handley JA thus: "The judge concluded that the plaintiff was a malingerer and that this was confirmed by the film footage taken of him in September 2001." 8 Handley JA then decided the appropriate quantum of security. He ordered: "that the appellant provide security for costs in the amount of $30,000 either in cash or in security to the satisfaction of the Registrar, that this be provided on or before 16 September 2002 and if not provided, that the appeal be stayed." 9 This is an application by Notice of Motion dated 26 July 2002 for a review of Handley JA's order pursuant to s 46(4) of the Supreme Court Act 1970. 10 It is not open to this Court to make, or to refuse to make, an order for security of the kind which it or its individual members would have made had it or any of them been sitting to determine the respondent's original application for security for costs. According to Mahoney JA in Wentworth v Wentworth (1994) 35 NSWLR 726 at 731, it is necessary to show that Handley JA misdirected himself in principle or that his order was plainly wrong. According to Handley JA in Wentworth v Wentworth at 733, the court's power of review is subject to the principles relevant to the review of interlocutory discretionary decisions on matters of practice and procedure. According to Powell JA in Wentworth v Wentworth at 737, the party seeking review must demonstrate that the discretion plainly miscarried. These tests overlap. A review of the decision to order an appellant to provide security for costs, like other s 46(4) reviews of procedural decisions, will ordinarily not succeed unless the decision turns on an error of law, a material error of fact, a failure to take into account some material consideration or the taking into account of an irrelevant consideration, or unless the decision is so unreasonable as to suggest that one of these types of error has been committed even though it does not appear on the face of the reasoning. 11 The points which the appellant made in support of his review application can be grouped under five heads. 12 The first is that if the sum of $30,000 was to come from his assets, it would come from the proceeds of an insurance policy. He argued that the insurance policy moneys were "life insurance moneys protected by the Commonwealth Parliament, and Life Insurance Act 1945-1961". This submission had in mind s 92 of the 1945 Act. That Act was repealed in 1995 and replaced by the Life Insurance Act 1995. The relevant section corresponding to s 92 is s 204, which provides: "(1) The rights and interests of a person under: (a) a life policy effected on his or her life; or (b) a life policy effected on the life of the person's spouse; are not liable to be applied or made available by any judgment, order or process of a court in discharge of a debt owed by the person. (2) Subsection (1) applies: (a) regardless of when a policy was issued; and (b) in the case of a policy referred to in paragraph (1)(a) - whether or not the policy is owned by the person. (3) This section has effect subject to the Bankruptcy Act 1966." 13 It is convenient to assume, first, that the appellant has or had a policy which answers to the description set out in one of the paragraphs of s 9(1), and hence is a "life policy", and, secondly, that the appellant has or had assets which represent or represented policy moneys under that policy. 14 The appellant submitted: "As evidenced in my affidavit of 24th June 2002 in response to the motion for security for costs, the security of costs order can only be satisfied with moneys I received from life insurance moneys protected by the Commonwealth Parliament, and Life Insurance Act 1945-1961 . Protected moneys that are neither available to the respondents to pay the judgment entered by Judge Herron now, nor will they be made available to the respondents as creditors in the event of my bankruptcy, should I loose [sic] on appeal. His Honour Handley JA, in his judgment, did not take into account the evidence submitted in my affidavit of response to the motion for security of costs dated 24th June 2002 (Item 'H' reproduced below), either in court, or in his Honour's reasons for judgment. That was an error of law: Albert Patrick's affidavit dated 24 June 2002: (H) The respondents now claim that I am hiding assets and produced their usual barrage of misleading information to prove that. The respondents know as well as I do that all moneys I have left are 'compensation for injury' moneys, and that these 'injury' moneys are protected under the bankruptcy act, that the little money I have left is 'protected' money and would not be made available to creditors even in bankruptcy. The respondents brought a barrage of documents to this court that refer to 'protected' moneys I am supposedly hiding. Why would I need to hide 'protected' moneys when they are protected by the law??? The respondents, in obtaining the court order, have in effect tricked the court putting me in the situation that should I want an appeal of right to be heard, I have to give up $30,000.00 'injury' or 'protected' moneys they would not otherwise be entitled to." 15 If the appellant chooses to provide security for costs as ordered by Handley JA, either that security will come from his policy moneys or it will not. At one stage in the oral argument to this Court the appellant said that the security could come from a mortgage which a relative could obtain over that relative's assets. If so, s 204 does not apply. But even if, contrary to that statement, the appellant provides the security directly out of the policy moneys that will not be applying them, or making them available, by any judgment, order or process of a court in discharge of a debt owed by the appellant. The appellant does not yet owe any debt constituted by the respondent's costs of the appeal. He will only do so if, after the appeal is heard, the court makes an order that he pay the respondent's costs of the appeal. A decision by the appellant to satisfy the security order out of the policy moneys will not cause s 204 to apply. Section 204 protects the policy moneys from compulsory seizure by the respondent, but does not prevent the appellant from using them, if he wishes, to provide security for the costs of the appeal so as to obtain the financial advantages that may flow from success in the appeal. Section 204 interferes with the liberty of persons other than the policy holder, but it does not interfere with the policy holder's liberty. Hence, even if, as the appellant contended, Handley JA "did not take into account" the evidence that the appellant's assets derived from the policy moneys, that omission does not justify setting aside his order, and it did not lead Handley JA into an error of law. 16 The second argument advanced by the appellant was that if he were made bankrupt after the appeal, he would be able to retain the "protected moneys"; and that if the respondent received the $30,000 after succeeding in resisting the appeal, that would be a preferential payment and void under s 122 of the Bankruptcy Act 1966. It was said Handley JA had thus committed an error of law. Even if it be assumed that the appellant is able to retain any "protected moneys" which continue to exist, it does not follow that the receipt by the respondent of the $30,000 would necessarily be a preference. Whether any payment will be a preference will depend on the date of any bankruptcy: it cannot be postulated of any payment in advance of bankruptcy that it is a preference. In short, Handley JA's order will not necessarily result in the giving of a preference to the respondent. 17 The appellant relied on a passage in a judgment of Registrar Jupp in Warner v Frost [1999] NSWCA 327. He refused an application for security for costs on the ground that to do so would stifle the appeal. He rejected an argument based on the lateness of the application. But he also dealt with a third argument in the following terms: "The third argument that was put by Mr Motbey was that there may be no utility in making an order for security of cost because of the effect of bankruptcy law. Mr Young has submitted that the operation of bankruptcy law is probably not a significant matter which should impact on my discretion. As I have already mentioned, the principle reason why I have refused the motion is because of my fear that the appeal would be stifled. However, it appears to me that there may also be some real question as to the utility of an order for security, if, in fact, the appellant is made bankrupt after this appeal has been determined. If security for cost has been provided, any payment to the respondents, in respect of that security, may constitute a preferential payment. I would not want to be seen as making an order which would be endorsing such a preferential payment. This is a case where I have wavered during the course of the afternoon and, as I say, the principle issue was a question of whether I felt the matter could, or would, be stifled if an order for security was made. I have great sympathy for the respondents in this case, because there is a real likelihood that the appeal will be unsuccessful and that they will have to bear their costs of defending the appeal without recourse to the appellant. Nevertheless, the appellant is employed at the moment and is earning $40,000 a year and there is a possibility that some amounts will be available to the respondents in the course of the administration of the bankruptcy." This is an indecisive and tentative statement, uttered as an obiter dictum, in an unreserved judgment. It is unclear how far detailed argument was presented on the point. In my opinion the statement is not correct. If it were, in a good many cases security for costs could not be ordered since it is common for those ordered to supply security for costs to be in financial difficulty that may result in their bankruptcy if the appeal (or the trial) does not succeed; yet it has never been suggested that that is a valid reason for not ordering security against them. 18 The third factor advanced by the appellant against Handley JA's order was that he had drawn the wrong inferences from the property dealings and financial history of the appellant since his accident. In particular it was said Handley JA had wrongly held, impliedly, that the appellant had attempted to conceal his assets. The history given to this Court, if taken at its face value, suggests that the appellant has some capacity to supply security to the value of $30,000 by mortgaging property, and that the history set out by Handley JA is not shown to be substantially erroneous. The appellant's point is that the property was obtained by using "protected moneys", but the argument based on protected moneys was rejected above. Further, Handley JA was not asserting that the appellant had been attempting to conceal assets: he was asserting merely that the appellant had some assets and that the ownership of the present matrimonial home was not the subject of evidence (though in this Court the appellant's affidavit said that it had been bought with "protected moneys"). 19 Fourthly, the appellant advanced various contentions to the effect that the only reason why the respondent sought the order for security was as a means of "stifling" the appeal and that she deliberately misled Handley JA through her solicitor. There is no evidence to support these contentions. 20 Finally, the appellant submitted that he lacked the cash resources to support his family and pay medical bills. His only income was said to be a disability pension. He tendered a pharmacist's statement in an endeavour to prove a monthly expenditure of about $2,000 on medical bills, and said from the bar table that in the next few months he needed an operation costing about $20,000. He said: "We are going down slowly". 21 While the appellant's account of the overall position of himself and his family, including their financial position, must generate considerable sympathy, it does not demonstrate that he is incapable of raising the security from his own resources, and his address indicated that some relative might well be able to provide the security. In short, while the security order may not be easy to comply with, it is not so unreasonable as to require this Court to set it aside. 22 Accordingly the Notice of Motion must be dismissed with costs. 23 The appellant asked this Court to extend the time for compliance with Handley JA's order. Handley JA required security to be provided by 16 September 2002, ie about two months after the date of the order, 15 July 2002. The appeal has been fixed for hearing on 11 November 2002. Handley JA's order should be varied by substituting for the date 16 September 2002 the date 1 November 2002. This is regrettably close to 11 November 2002, but in the circumstances that cannot be avoided. 24 The following orders are proposed. 1. The Notice of Motion dated 26 July 2002 is dismissed. 2. The appellant is to pay the respondent's costs of the Notice of Motion of 26 July 2002. 3. The order for security for costs made by Handley JA on 15 July 2002 is varied by deleting "16 September 2002" and substituting "1 November 2002". 25 HODGSON JA: I agree with Heydon JA. 26 YOUNG CJ in Eq: I also agree with Heydon JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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