New South Wales Court of Appeal CITATION : Porter v. Gordian Runoff Limited & Anor. [2004] NSWCA 69 HEARING DATE(S) : 23 February 2004 JUDGMENT DATE : 16 March 2004 JUDGMENT OF : Hodgson JA at 1 DECISION : 1. I order that the appellant provide security for costs in the sum of $150,000.00 for each respondent, and that if this security is not provided within fourteen days, that the appeal be stayed until such security is provided. 2. I dismiss the appellant's application concerning appeal books. 3. I order the appellant to pay the respondents' costs of all three applications. CATCHWORDS : PROCEDURE - Costs - Security for costs - Appeal - Impecuniosity of appellant - Whether special circumstances - Whether security should be ordered. LEGISLATION CITED : Supreme Court Rules Part 51, rule 16, Part 52A rules 43, 43A Abdurahman v. Field NSWCA 4/3/86 Australian Democrats WA v. Australian Democrats Victoria, unreported, Supreme court of WA Full Court, 7/10/98 Bethune v. Porteous (1892) 18 VLR 493 Bhattacharya v. Friedman [2001] NSWSC 498 Chiappina v. Chiapppina (1983) 70 FLR 287 Citicorp Australia Limited v. Cirillo [2003] SASC 204 Cowell v. Tayloer (18850) 31 ChD 34 Harlock v. Ashberry (1881) 19 ChD 84 Kardynal v. Dodek [1978] VR 414 Kennedy v. McGeechan [1978] 1 NSWLR 314 CASES CITED : Lall v. 53-55 Hall Street Pty. Limited [1978] 1 NSWLR 310 Maritime Services Board of NSW v. Citizens Airport Environment Association Inc., NSWCA, 23/12/92 McWilliam v. Penthouse Publications [1999] NSWCA 2 Morris v. Hanley [2000] NSWSC 957 Paul v. Snowdon Hubbard & Co. [1899] 1 QB 593 Saba v. National Australian Bank Limited [1999] NSWCA 93 Scerri v. Northam Holdings Holdings Pty. Limited [1967] VR 674 Stevens v. Economic Home Builders Limited [1938] 1 All ER 654 Strata Consolidated (Australia) Pty. Limited v. Bradshaw [2000] NSWCA 114 Uptown Sydney Development Corporation Pty. Ltd. v. Bank of New Zealand (1993) 11 ACLC 862 Whitlam v. Australian Securities & Investment Commission [2003] NSWCA 183 Robert Arthur Porter - appellant PARTIES : Gordian Runoff Limited - 1st appellant OAMPS Limited - 2nd appellant FILE NUMBER(S) : CA CA 40823/03 Mr. Hayes QC with Mr. A. Paterson for appellant COUNSEL : Mr. C.A. Moore for 1st respondent Mr. P. Biscoe QC with Mr. A.M.Gruzmzan for 2nd respondent Withnell Hetherington, Sydney for appellant SOLICITORS : Ebsworth & Ebsworth, Sydney for 1st respondent Bamford & Associates, Sydney for 2nd respondent LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT ED 50072/01 FILE NUMBER(S) : LOWER COURT McClellan J JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40823/03 ED 50072/01 HODGSON JA Tuesday 16 March 2004 PORTER V. GORDIAN RUNOFF LTD. & ANOR. Judgment 1 HODGSON JA: On 21 August 2003, after a trial lasting 63 days, McClellan J in the Equity Division Commercial List gave a judgment of 385 pages plus annexures in proceedings in which the appellant had sued an insurance company, the first respondent (Gordian), and his former employer, the second respondent (OAMPS). There were cross-claims in the proceedings by Gordian and OAMPS, but they turned out to be of little consequence in the event that the appellant failed in the proceedings. In his judgment, the primary judge decided that the appellant's claims should be dismissed. The appellant has appealed to this Court. 2 I am dealing with three motions: two motions for security for costs brought by OAMPS and Gordian, and a motion by the appellant to be absolved from producing three copies of the appeal books for each of the respondents. CIRCUMSTANCES 3 Before directly considering these motions, it is necessary to say something about the proceedings below. 4 In 2000, the appellant was charged with breaches of the Corporations Law, arising out of a transaction in which he was involved as managing director of OAMPS. He was committed for trial, and after some preliminary hearings in April and May 2002, a trial commenced before Judge Kelly in the Victorian County Court. Due to the illness of this judge, the trial was adjourned and the jury discharged without a verdict. In July 2002, a nolle prosequi was entered. In defending these criminal proceedings, the appellant incurred some hundreds of thousands of dollars of costs. 5 In the proceedings heard by McClellan J, the appellant claimed to be entitled to be indemnified for those costs under an insurance policy issued by Gordian, and also to be indemnified by his employer OAMPS. The respondents raised many defences; but central to a number of them was the allegation that the appellant, by his conduct in respect of which the criminal proceedings were brought, breached the law and improperly placed his own interests before those of OAMPS. 6 In his decision, the primary judge in substance accepted the respondents' contention that the appellant had breached the law and acted improperly; and he also found in favour of the respondents on a number of other defences, some independently of that finding. It seems to me almost certain that, in order to succeed on the appeal, the appellant will have to have set aside the finding that he breached the law and acted improperly, as well as showing some other error or errors by the primary judge. 7 The transaction which gave rise to the criminal proceedings was the purchase by a subsidiary of OAMPS of 6,527,249 shares in a company Clifford Corporation (Clifford) from companies controlled by the Executive Chairman of Clifford (one of these companies being Blenheim Pty. Limited (Blenheim)), for a price of $3,160,420.54, representing a price of 48.25 cents per share, the market price being 43.5 cents per share. 8 This purchase was recommended by the appellant to a Board meeting of OAMPS on 30 June 1998, was approved at that meeting, and was carried into effect by payment of the net sale proceeds into a trust account of Perth stockbrokers D.J. Carmichael Pty. Limited (Carmichaels). At the same time (3.45pm on 30 June 1998), a further $232,500.00 was deposited into that same account, to be put together with the sale proceeds for the purchase by Blenheim of 3,000,075 OAMPS shares. 9 Seven minutes later, Blenheim through Carmichaels contracted to purchase 3,000,075 (about 17%) of the issued shares in OAMPS from a nominee of FAI Insurance Limited (FAI) for $3,397,721.58, representing $1.10 per share, the market price being about 75 cents. The money paid into the Carmichaels' account was later used to complete that purchase. 10 There was evidence accepted by the primary judge, and not it seems contested, that FAI had been negotiating with interests associated with one Kingsley Lamont to sell its shares in OAMPS for $1.10 or thereabouts; and that Mr. Lamont had said to the appellant that he was purchasing these shares, would join the Board of OAMPS, and would cause the appellant to be removed from his position as managing director. 11 The purchase of the Clifford shares turned out to be unsatisfactory for OAMPS: an administrator was appointed to Clifford on 9 December 1998, it was placed into liquidation on 23 March 1999, and the entire investment of over $3 million was lost. 12 The criminal conduct or improper conduct alleged against the appellant was essentially that he proposed and supported the purchase of the Clifford shares in order that Blenheim be put in funds to purchase the OAMPS shares from FAI, thereby preventing Mr. Lamont from acquiring those shares and from putting the appellant's position in jeopardy. This was said to involve inter alia a breach of s.205 of the Corporations Law (the prohibition on a company giving financial assistance in connection with a proposed acquisition of its shares); making improper use of his position as managing director to gain an advantage for himself; and lack of full disclosure to his fellow directors of his personal interest in the transaction. 13 The appellant in substance denied that he had any purpose of putting Blenheim in funds to purchase OAMPS shares, and denied that he was aware that the price paid for the Clifford shares would be used for that purpose. The primary judge found against the appellant on these questions. 14 The Notice of Appeal contains 197 grounds over 28 pages, and also a much longer schedule elaborating certain of the matters in the Notice of Appeal. The grounds of appeal relate to the following matters: apprehended bias (two grounds); standard of proof (one ground); concerning a deed of release (10 grounds); concerning interlocutory rulings (14 grounds); credit issues (5 grounds); other factual matters (74 grounds); other matters concerning the claim against OAMPS (22 grounds); other matters concerning the claim against Gordian (69 grounds), and costs. EVIDENCE ON APPLICATIONS 15 The evidence of the respondents was essentially that the costs incurred in the proceedings at first instance exceeded $1 million each, and that the anticipated costs of the appeal were about $370,000.00 (Gordian) and about $388,000.00 (OAMPS). It was common ground that the appellant was impecunious: indeed, this was the basis of his application to be relieved of having to produce seven of the required eleven sets of the appeal books, at a saving of about $18,000.00. There was however some evidence that the appellant may have some income overseas as a result of an association with Lloyds. 16 The respondents also tendered evidence to the effect that the appellant owed about $180,000.00 to junior counsel and nearly $900,000.00 to senior counsel in respect of the case so far. 17 The appellant gave evidence of bankruptcy proceedings brought against him by OAMPS, which had been adjourned; and of Federal Court proceedings brought by him against ASIC, OAMPS, and officers of OAMPS in relation to the prosecution and evidence given against him in the prosecution. He also gave evidence to the effect that his present impecuniosity was due to the conduct of OAMPS. 18 The appellant also tendered a judgment dated 14 October 2003 in proceedings brought by him in the Victorian County Court alleging contempt in relation to alleged non-compliance with subpoenas by certain witnesses, these being witnesses whose evidence had been accepted by the primary judge. In this judgment, the County Court judge made findings adverse to some of the witnesses, and in particular found that a document which the witness Harris claimed to have created on about 2 July 1998 was not created until 18 October 1998 (this being contrary to a finding of the primary judge in this case). I admitted this judgment, not on the basis that it was in any way admissible on the appeal, but on the basis that it could have some small relevance to the perceived merits of the appeal, on the very brief preliminary assessment which I may need to make on these applications. 19 There was also evidence from the appellant's solicitor with reference to a letter from Gordian's solicitor inviting the withdrawal or re-formulation of the Notice of Appeal, and indicating that, if this was not done, his client reserved all rights including the right to make an application for the costs of the appeal to be paid by the solicitors and counsel acting for the appellant. The appellant's solicitor said he considered this an attempt to intimidate him and counsel from continuing to act for the appellant, and thus an abuse of process. 20 I should say at once that I do not accept this last contention. The Supreme Court rules Pt.52A r.43 and r.43A contemplate that, where costs are incurred improperly or without reasonable cause, and it appears to the Court that a solicitor or barrister is responsible, the Court may order that solicitor or barrister to pay costs of the other party. If a party is contemplating seeking such an order, it is entirely appropriate that fair notice be given to the solicitor or barrister concerned. SUBMISSIONS 21 Mr. Biscoe QC for OAMPS referred to the Supreme Court rules Pt.51 r.16(1), authorising the Court to order security for the costs of an appeal in special circumstances. He referred to Citicorp Australia Limited v. Cirillo [2003] SASC 204 for its expression of the view that impecuniosity alone can amount to special circumstances, in the equivalent South Australian rule. 22 Mr. Biscoe also referred to Kennedy v. McGeechan [1978] 1 NSWLR 314N for the statement that impecuniosity may constitute a special circumstance, that being repeated in Lall v. 53-55 Hall Street Pty. Limited [1978] 1 NSWLR 310 at 312. 23 Mr. Biscoe referred to the statement in Abdurahman v. Field NSWCA 4/3/86 to the effect that the rule concerning the ordering of security for costs of an appeal is limited in its application to cases where there is established a prima facie abuse of process. Mr. Biscoe submitted that that statement was obiter dictum only, in circumstances where no impecuniosity had been shown. The statement was associated with a reference to Lall, without dissent from the view there expressed that impecuniosity may constitute a special circumstance. The statement was also associated with reference to Stevens v. Economic Home Builders Limited [1938] 1 AllER 654, where it was said that it was not sufficient to justify an order for security that the appellant had not paid the costs below, but that it must be shown that the appellant could not pay the costs of the appeal if unsuccessful. 24 Mr. Biscoe referred to Strata Consolidated (Australia) Pty. Limited v. Bradshaw [2000] NSWCA 114, in which Registrar Jupp said that impecuniosity could be a special circumstance, but that in practice orders are not normally made simply because an appellant is impecunious, because to do so would frustrate many genuine appeals. 25 In this case, Mr. Biscoe submitted, there were many factors beyond mere impecuniosity: there was the circumstance that the impecuniosity had deprived OAMPS of its costs below, as well as prospectively of its costs of the appeal; the magnitude of the costs; it was known to the appellant when he commenced the proceedings that if OAMPS successfully defended them, it could not collect the costs of the trial; the finding by the primary judge that the appellant's evidence was false to his knowledge; the appellant had spent little or no money on his own costs; there was no matter of great moment such as would make the litigation exceptional; the appellant was suing for the benefit of others, namely his lawyers; and the appeal had poor prospects of success. 26 Mr. Moore for Gordian referred to English authorities for the proposition that, if an appellant would through poverty be unable to pay the respondents' costs if an appeal was unsuccessful, this was itself sufficient ground for requiring security for costs: Harlock v. Ashberry (1881) 19 ChD 84; Cowell v. Taylor (1885) 31 ChD 34; Paul v. Snowdon Hubbard & Co. [1899] 1 QB 593. 27 Mr. Moore submitted that the situation in Victoria was that the likelihood that an appellant would be unable to pay the respondent's costs if the appeal was unsuccessful constituted a special circumstance justifying an order for security: Scerri v. Northam Holdings Pty. Limited [1967] VR 674; Kardynal v. Dodek [1978] VR 414. He also referred to Ciappina v. Ciappina (1983) 70 FLR 287 and Bethune v Porteous (1892) 18 VLR 493. 28 Mr. Moore submitted that while it was not necessary for the applicant for security to establish that an appeal has low prospects of success, it may be inappropriate to order security where the appeal is on strong grounds or concerns a matter of general importance, and an order would stifle the appeal. In the present case, however, the appeal had low prospects and did not raise any matter of general importance. 29 Mr. Moore submitted that another special circumstance in this case was the form and contents of the Notice of Appeal. In substance, it sought a re-hearing by alleging that numerous findings of the primary judge were errors, without identifying in what respect they were erroneous. 30 Mr. Hayes QC for the appellant submitted that the correct principle was as stated in Abdurhaman; and submitted that impecuniosity was not a ground for denial of justice: see Uptown Sydney Development Corporation Pty. Limited v. Bank of New Zealand (1993) 11 ACLC 862 at 862-3; and Maritime Services Board of NSW v. Citizens Airport Environment Association Inc., NSWCA, 23/12/92. He submitted that authorities in other States were of little assistance; and that the statements in the English cases excepted cases where a new trial was being applied for, as in this case. 31 Mr. Hayes submitted that an order for security in this case would stultify the litigation, and that this was a powerful reason against the making of such an order: see Bhattacharya v. Freidman [2001] NSWSC 498, and Morris v. Hanley [2000] NSWSC 957. He submitted that this case was very similar to Saba v. National Australia Bank Limited [1999] NSWCA 93, where Sheller JA was not persuaded that special circumstances had been shown, by reason of the appellant's impecuniosity, and was not prepared to frustrate the appellant's prima facie right to pursue the appeal simply because he might be in an impecunious situation. He also referred to McWilliam v. Penthouse Publications [1999] NSWCA 2. 32 Mr. Hayes submitted that the length and costs of the appeal could be kept to a minimum by separating out issues to be heard and determined before other grounds, and he submitted proposed orders for this effect, as follows: 1. The following grounds identified in the notice of appeal be heard and determined before the other grounds identified in the notice of appeal: (a) Ground 3 (standard of proof) and the following items in Schedule 1: (i) (a) [should be common ground] (ii) (b) [a matter of law]' (iii) (c) [see proposed order 2 below]; and (iv) (f) and (g) [matters of law]. (b) Grounds 4, 5 and 8 to 13 (deed of release) (c) Grounds 128 to 139 (period of insurance) (d) Grounds 155 to 164 (waiver) (e) Grounds 183-184 (whether the Professional Indemnity part of policy applied). 2. For the purpose of determining ground 3, each of the appellant and the respondents identify five of the parts of schedule 2 of the notice of appeal that they wish to be heard by 2004 33 He submitted that the appeal had substantial merit. He submitted that the judge had not applied the Briginshaw standard in relation to making adverse findings against the appellant; that he had ignored compelling evidence in favour of the appellant; and he had failed to approach the question as to the drawing of adverse inferences on the Briginshaw standard on the basis that inferences should not be drawn where the absence of evidence was due to the respondent's failure to call important witnesses: see Whitlam v. Australian Securities & Investment Commission [2003] NSWCA 183 at [119]. 34 Mr. Hayes submitted that there was a real public interest in resolving this appeal where a significant ground was apprehended bias of a primary judge. The circumstance of public interest in an appeal was a substantial consideration against the ordering of security: Australian Democrats WA v. Australian Democrats Victoria, unreported, Supreme of WA Full Court, 7/10/98; Maritime Services Board v. Citizens Airport Environment Association. 35 Mr. Hayes submitted it was also relevant that the respondents, and in particular OAMPS, had caused the appellant's impecuniosity: Morris v. Hanley. It was significant that the decision had a huge impact on the appellant, over and above the financial impact, in that it destroyed his reputation. Mr. Hayes also submitted that it had never been put to the appellant that he was in fact appealing for the benefit of his lawyers; and it had never been considered in other cases that the circumstance that lawyers are owed costs by the appellant means that the appellant is regarded as bringing the appeal for the benefit of others. 36 Mr. Hayes also submitted that, in view of the appellant's impecuniosity, it was appropriate to relieve him of at least some of the costs of preparing appeal books. DECISION 37 I do not think the costs of this appeal can be reduced by ordering the determination of certain issues in advance of the rest of the case. I do not think there would be any utility in doing this. 38 I accept that the appellant has some chance of success on certain questions of law which, on the way the primary judge found them, were complete answers to the appellant's case against one or other of the defendants. For example, it is possible that the appellant could succeed in a challenge to the primary judge's finding at par.[566] of the judgment that the appellant could not rely on insuring clause B as against Gordian: to my mind it is arguable that the appellant could sue Gordian in proceedings in which his employer was a party so as to compel Gordian to pay on behalf of his employer. 39 As regards OAMPS, it seems to me that the appellant has an arguable case as to the effect of the deed of release which the primary judge found was effective to bar the appellant's claim, at least as against OAMPS. To my mind it is arguable that the primary judge's decision expressed in par.[645] gave insufficient weight to the word "now" in cl.8.2 of the deed. 40 However, success on matters such as this would not result in a successful appeal, unless the appellant was also substantially successful in his challenge to the factual findings, essentially to the effect that he acted dishonestly. So long as those findings stand, it seems clear to me that the appellant's claim against both respondents would fail. In my opinion, there is no way which is fair to both parties that the appellant's challenges to these findings can be split up for separate determination. It follows, in my opinion, that the appeal will inevitably be an extremely long one; and also that it will be a difficult one for the appellant to win, when what is required is that he overturn factual findings of a primary judge which were to a substantial extent dependent upon the primary judge's assessment of the credibility of witnesses who gave evidence before him. 41 In my opinion it is also relevant to these applications that each of the respondents has already lost in the order of $1 million by reason of the proceedings, this being money which the respondents appear to have virtually no chance of recovering. The appellant, on the other hand, has not lost much money by reason of the proceedings. It appears that he owes over $1 million to barristers, and it may well be that he owes substantial amounts to his solicitor. This does not mean that his appeal can be considered as being brought on behalf of his legal advisers, but it does mean, I think, that his legal advisers have a large stake as a matter of fact in the success of the appeal. 42 It is also significant that the respondents stand to lose, as a result of the appeal, if it is unsuccessful, a further sum which they estimate as being over $300,000.00 each. 43 I accept that the decision has very serious consequences for the appellant, financial and otherwise; and that it will be most unfortunate if an order for security prevents him pursuing his right of appeal. However, to my mind it would be unfair to permit the appeal to proceed in the circumstances I have outlined without the ordering of security. I do not think the case has such general importance, or such merits, that the likelihood that an order of security would stifle the appeal is sufficient to justify refusal of security. To the extent that the appellant's impecuniosity was caused by the respondents, the effect of the primary judge's decision is that the relevant conduct of the respondents was justified. 44 In my opinion, the weight of authority in New South Wales supports the view that impecuniosity, such that an appellant would be wholly unable to pay any of the costs of the respondent if the appeal is unsuccessful, can of itself amount to special circumstances within Pt.51 r.16(1); although I also accept that orders would not normally be made simply because an appellant is impecunious. I do not accept that security for costs of an appeal will be ordered only in cases where there is established a prima facie abuse of process; and in so far as Abdurahman suggested this, I respectfully disagree. In this case, there are a number of factors in addition to the bare impecuniosity of the appellant; and in my opinion those factors together plainly constitute special circumstances, and they do justify the order of security. Those are the matters which I have set out above in this decision. ORDERS 45 As I understand it, the appellants are seeking security in the amounts evidenced in their affidavits. They also seek orders to the effect that if security is not provided within a specified time, the appeal be dismissed. 46 In effect, each respondent seeks an order on the basis that the appeal will involve at least six weeks of work. At present, I am not satisfied that the appeal will involve as much as six weeks of work by solicitors and senior and junior counsel, but I am prepared to order security for costs on the basis that it will involve three weeks of work by such persons. If it later becomes clear that it will involve substantially more than three weeks of work altogether, then an application could be made for additional security. On that basis, I am prepared to order security for costs for $150,000.00 for each respondent. 47 I am not disposed to make a self-executing order for the dismissal of the appeal. As I understand it, the usual form of order is to provide for a stay if security is not given, and then, after a reasonable time has elapsed, it would be open for the respondents to apply for the appeal to be dismissed for want of prosecution. 48 I think it follows from my other reasons that the appellant's application to be relieved of producing the usual appeal book copies should be dismissed. This would merely have the effect of passing to the respondents costs which are normally borne, at least in the first instance, by appellants. 49 For those reasons, I make the following orders: 1. I order that the appellant provide security for costs in the sum of $150,000.00 for each respondent, and that if this security is not provided within fourteen days, that the appeal be stayed until such security is provided. 2. I dismiss the appellant's application concerning appeal books. 3. I order the appellant to pay the respondents' costs of all three applications. ********** Last Modified: 03/16/2004 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.