Supreme Court New South Wales Medium Neutral Citation: CBX2 Pty Ltd v National Australia Bank [2015] NSWSC 1945 Hearing dates: 10 December 2015 Date of orders: 14 December 2015 Decision date: 14 December 2015 Jurisdiction: Equity - Commercial List Before: McDougall J Decision: Stand over for hearing of balance of Notice of Motion Catchwords: APPEALS – appeal from an associate judge – relevant principles – appeal by way of re-hearing – whether decision refusing to award security of costs to defendant against plaintiff miscarried – where two crucial findings of fact were wrongly made – first, that the person standing behind the plaintiff had no access to his super fund – second, that he was impecunious – where those wrong findings of fact vitiated the primary judge's exercise of discretion – result that the discretion must be re-exercised Legislation Cited: Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Supreme Court Act 1970 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Do Carmo v Ford Excavations Pty Ltd [1981] 1 NSWLR 409 House v The King (1936) 55 CLR 499 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Nonox Australia v Certain Underwriters at Lloyds [2014] NSWSC 221 Category: Procedural and other rulings Parties: CBX2 Pty Limited (Plaintiff) National Australia Bank Limited (Defendant) Representation: Counsel: AJ McQuillen (Respondent) PD Reynolds (Appellant) Solicitors: Sullivan Fernan Lawyers (Plaintiff) Corrs Chambers Westgarth (Defendant) File Number(s): 2014/243692 Judgment (ex tempore – revised 14 december 2015) 1. HIS HONOUR: This is an appeal from an Associate Justice of the Court. The Associate Justice dismissed an application by the appellant defendant (the Bank) that the respondent plaintiff (CBX2) provide security for the Bank's costs of the claim against it. 2. With one possible exception, the principles relating to appeal from an Associate Justice to a Judge of the Court are not in dispute. The appeal is one by way of re-hearing. See s 75A(5) of the Supreme Court Act 1970 (NSW). It is open to an appellant to adduce fresh evidence if the Court gives leave for it to do so. See s 75A(7). Where the appeal is from a discretionary judgment (as is the present case), the general principles relating to restraint on appellant interference apply, as set out in House v The King (1936) 55 CLR 499. That last point was made clear by Cross J in Do Carmo v Ford Excavations Pty Ltd [1981] 1 NSWLR 409. 3. In general (and this is the one area of possible dispute), the Judge hearing the appeal will defer at least to the primary findings of fact made by the Associate Justice. There are exceptions, for example if it appears that the Associate Justice may have misused his or her advantage in seeing and hearing the whole of the evidence, or may have taken an inexplicably wrong view of it. 4. However, where the question is as to what, if any, inferences should be drawn from facts that are either non-contentious or that the Associate Justice has found proved, the Judge hearing the appeal is generally in as good a position as was the Associate Justice. Again, of course, there is the obvious limitation that the Associate Justice saw and heard the whole of the evidence, whereas in the usual way the Judge is referred to selected snippets, on which one party or the other relies. 5. In the present case, the notice of motion by which the appeal was brought attacked four aspects of the decision of the Associate Justice. Three of those grounds were related. They are the question of possible stultification; the question of the causes of CBX2's impecuniosity and the financial position of the person standing behind CBX2, Mr Blinkworth, and his ability to put his assets in play by undertaking liability for the costs that CBX2 might be ordered to pay. 6. The fourth ground raised asserts that the Associate Justice erred in the exercise of her discretion because she did not take into account, or give proper weight to, the weakness (as it was put) of CBX2's claim, and the "unfairness", as it was put, of the Bank's being required to meet those claims without security. 7. For the reasons that follow, I conclude that the decision of the Associate Justice miscarried in respect of two crucial findings of fact (ultimate findings of fact, or inferences from proved facts) that were of very significant relevance to the first three of those issues: the related issues of stultification, cause of impecuniosity, and the financial position of Mr Blinkworth. 8. The Associate Justice directed herself, correctly, by reference to both s 1335 of the Corporations Act 2001 (Cth) and by reference to UCPR r 42.21(1)(d). She found, and I do not think it was seriously disputed, that CBX2 was not in a position where it could meet the Bank's costs if required to do so. Thus, as she said, the discretion to order security was enlivened. 9. The Associate Justice then directed herself, again correctly, by reference to: 1. the discretionary factors listed in UCPR r 42.21(1A); and 2. the discretionary factors set out in the oft-cited judgment of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196 – 198. 1. The discretion to order security (and for present purposes I shall focus on r 42.21) is broad. Subrule (1) provides that, where the relevant circumstance "appears to the court", the court "may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings..." 2. The factors set out in r 42.21(1A) are matters to which the court "may have regard". The court may also have regard to "such other matters as it considers relevant". 3. I set out r 42.21(1), (1A): (1) If, in any proceedings, it appears to the court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside Australia, or (b) that the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with intention to deceive, or (c) that, after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or (e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, or (f) that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings, the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given. (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant: (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) whether the plaintiff is effectively in the position of a defendant, (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. 1. There was a very significant contest before the Associate Justice as to the financial position of Mr Blinkworth. It was accepted, of course, that in an appropriate case the court could and should look to whether those who stood to benefit by any judgment in favour of CBX2 might in an appropriate case be prepared to commit themselves to funding (if they are able to do so) the proceedings that, in essence, are being brought for their benefit. In the present case, Mr Blinkworth is and for ten years has been the sole director and shareholder of CBX2. It follows that if CBX2 recovers judgment, the recovery is likely to be for his benefit. If he could not support the company financially, its claim might well be stultified by an order for security. 2. Before I move to the evidence as to Mr Blinkworth's financial position, I should spend a little time looking at the nature of the claim that CBX2 brings against the bank. I do that because when one does so, it makes doubly plain that Mr Blinkworth is the person who will benefit if the litigation succeeds. 3. In very bare essence, the claim that CBX2 brings against the Bank is based on what it says were wrongful debits to its account. Mr Blinkworth apparently received a cheque for $1,950,000 in payment from his employer or former employer, back in August 2008. He said that he instructed the Bank that the cheque was to be paid into CBX2's account, and that the proceeds of the cheque were to be used for the sole purpose of repaying a home loan that he and his then (or then just former) wife had with the Bank. However, it is said, the Bank permitted withdrawals to be made contrary to that mandate, and indeed in some cases at least to be made pursuant to cheques signed by a person who was not authorised to do so. 4. The total amount said to have been paid away wrongly is of the order of $1.8 million. 5. Those bare facts have given rise to a Commercial List Statement that comprises a huge number of paragraphs (191 in all) based on a vast number of allegations. The causes of action have been dressed up in all sorts of dubious guises, including misleading or deceptive conduct (a cause of action which, as pleaded, is dubious because it relies on the Australian Consumer Law) and, for reasons that frankly I do not understand, suggested breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). 6. Thus, it will be seen, the money that CBX2 says it lost was originally the money of Mr Blinkworth. 7. The Associate Justice noted, correctly, that Mr Blinkworth had a self-managed superannuation fund with a credit balance of about $430,000. She noted that Mr Blinkworth contended that he had no present access to that fund. She said at [46] of her reasons: "I am satisfied that Mr Blinkworth will not be access those funds in the foreseeable future." 1. In my view, that conclusion cannot be justified on the evidence as it stands. The trustee of the fund is a company controlled by Mr Blinkworth. The trust deed was in evidence. It provides for the payment of benefits on both temporary incapacity (cl 20.10) and permanent incapacity (cl 20.12). Those expressions are defined to mean: Temporary Incapacity 20.10 If the Trustees are reasonably satisfied that a Member suffers Temporary Incapacity, it may choose to pay a Benefit in the manner and for no more than the amount permitted by the Act to the Member from the time of that Temporary Incapacity to the earlier of: (a) the date the Member is re-instated in similar employment the Member was previously engaged in prior to suffering the Temporary Incapacity; (b) the date on which the Trustees believe the Member commenced to suffer Permanent Incapacity; (c) the date of death of the Member; (d) such other time permitted under the Act. … Permanent Incapacity 20.12 If the Trustees are reasonably satisfied that a Member suffers Permanent Incapacity the Trustee may pay all or part of any of a Member's Accounts to the Member, or if permitted by the Act, to a Dependant or Pension Dependant or LPR of the Member whether as a lump sum or a Pension or a combination of both, in its absolute discretion. 1. The evidence for Mr Blinkworth was that he is in receipt of a Centrelink disability support pension, and has been since about 1 August 2013. The evidence was, further, that he is presently disabled from carrying out his occupation as a consultant. 2. It seems to me to be at least arguable, and I would have said likely, that this amounts to, at least, temporary incapacity for the purposes of the trust deed. Indeed, given that the unfortunate condition to which I have referred has enured now for more than two years, it may very well be that the trustee, acting properly, could regard it as amounting to permanent incapacity. In that case, of course, the trustee could make payments up to the whole amount of the capital of the trust to Mr Blinkworth. 3. The Associate Justice does not appear to have considered the terms of the trust deed. Further, although she noted the evidence for Mr Blinkworth that he has not been well enough to engage in his occupation of a consultant, she did not consider what, if any, impact that might have on the availability of benefits under the trust deed. 4. In my view, the conclusion that the Associate Justice reached at [46], that Mr Blinkworth will not be able to access any part of the superannuation fund balance in the foreseeable future, was plainly inconsistent with the evidence, and (accepting the deference that must be paid to her findings of fact) wrong. 5. The next matter that in my view is unsupportable is the conclusion of the Associate Justice at [52], that Mr Blinkworth does not have access to significant financial resources. I set out that paragraph: I have already referred to my hesitation is [sic] accepting the evidence of Mr Blinkworth provided through his solicitor, particularly in relation to whether Mr Blinkworth has disclosed all of his assets. By adopting this approach, Mr Blinkworth was not able to be cross-examined. I regard Mr Blinkworth's approach as being less than satisfactory. Despite my view of the manner by which Mr Blinkworth's evidence was adduced, I have had regard to the financial documents that support the assertions made by Mr Blinkworth. The financial records show that although in 2008 he was a wealthy man by 2010 his financial situation was in serious decline. He was in a dire financial position. I am satisfied that the current situation is that Mr Blinkworth does not have access to "significant financial resources" and further that he would be unable to meet an adverse costs order, if made against CBX2. 1. The Associate Justice rightly referred to doubts arising from the way in which evidence for Mr Blinkworth was given. In essence, he sheltered behind his solicitor, who swore a number of affidavits setting out what he said (and, of course, I accept) were his "instructions" from Mr Blinkworth. The solicitor did not say, in the affidavits, that he believed those instructions to be correct. Thus, in principle, the affidavits were not admissible (see s 75 of the Evidence Act 1995 (NSW)). However, at the commencement of his oral evidence, the solicitor said that he had been so instructed and that he did believe his instructions to be correct. I accept, of course, that the solicitor did have this belief. 2. However, it will be seen that the Associate Justice was able to overcome the suspicions arising out of the way in which the evidence was given by having regard to "the financial documents that support the assertions made by Mr Blinkworth". With all respect to the Associate Justice, there are no financial documents that can be regarded as doing so: at least at the time when she made the assessment, which was on 27 October 2015, when she handed down her reserved reasons for judgment. 3. The simple truth is that the documents produced by Mr Blinkworth say very little (and in most cases nothing) as to his financial position past 2011. And in this context, it is to be noted that, when the Bank caused a subpoena to be issued and served upon him, he made production that could be described as being, at best, scanty. Specifically, although Mr Blinkworth produced tax returns from 2007 to 2011, he produced nothing thereafter. Again specifically, he produced nothing in relation to various assets for which the subpoena sought details. 4. Of itself, that might mean very little. However, there was other evidence which could be taken to lead to the conclusion that Mr Blinkworth had had, over the years, access to very substantial sums of money. For example, between August 2010 and March 2012, there were deposits made into his bank account in amounts totalling about $1.8 million. Some of those deposits were made by cash, and some by cheque. In many cases, the sums involved were substantial. For example, on 11 March 2011, Mr Blinkworth received $187,000 "from Michael Harmer Trust Refund". He received further amounts of $17,500, $10,000 and $10,000 from that source in April and May 2011. Again, on 5 July 2011, Mr Blinkworth received $150,000 "from Bs Super Fund". On 8 March 2012 he received $92,000, "cheques deposit" (having received $50,000, likewise sourced, on 25 January 2012). 5. Those payments appear from the evidence that the Bank put on. There is simply no explanation of how it was that, at times, including when it would appear Mr Blinkworth had received no income, such substantial amounts were being paid into his bank account. Left unexplained, that raises very real suspicions. It certainly puts in doubt the proposition asserted by the Associate Justice that there were "financial documents that support the assertions made by Mr Blinkworth". In my view, the documents properly regarded go the other way. 6. Again, Mr Blinkworth caused some apparently very valuable showjumping horses to be sold by a Mr Sanna, who gave evidence. Those horses were said to be assets of CBX2. Mr Sanna said that the sales were a "fire sale". There was no evidence to justify that conclusory statement, except equally conclusory and unsupported assertions of what was the true value of the animals in question. If it were a fire sale, it was a very slow burning fire. The sales, which produced about $900,000, took place over a two-year period. Further, although the horses were apparently the property of CBX2, the proceeds were paid to Mr Blinkworth. (That is consistent with the record of payments to which I have referred, which does indeed record a few payments coming from Mr Sanna into Mr Blinkworth's bank account; but the payments recorded go nowhere near what Mr Sanna said was the total amount raised by the "fire sale".) 7. In my view, the documentary evidence simply does not justify the conclusion that the Associate Justice reached at [52]. 8. It follows, contrary to the conclusion reached by the Associate Justice, that the evidence did not lead to the conclusion that an order for security would stultify CBX2's claim. Since she concluded to the contrary, and apparently relied on that as a reason for dismissing the application for security, it follows that the question of provision of security must be dealt with on what is, in my view, the correct basis. 9. As I have said, the grounds of appeal attacked more than the question of stultification. They dealt also with the question of whether the Bank had caused CBX2's precarious financial position. The Associate Justice concluded, so far as I can see, that there were two causes for the impecuniosity of CBX2. See at [60], where she pointed to the loss of the proceeds of the cheque for $1,950,000, and to Mr Blinkworth's loss of employment. She concluded that while the Bank's "actions were not the sole cause of CBX2's impecuniosity, it is my view that it [sic] at least materially contributed to its ultimate demise". 10. However, the evidence showed that the financial position CBX2 had commenced to deteriorate, very seriously, well before the events complained of. The Associate Justice does not appear to have taken that evidence into account in reaching the conclusion that she did. Nor does she appear to have considered why it was that the Bank should be held responsible for the apparent inability of Mr Blinkworth to contribute to the financial health of CBX2 through the earnings that he could, but for his disability, make. 11. Thus, in my view, this finding also was not one that was supported by the evidence. Again, it is clear that the Associate Justice regarded this matter as one of significance to the exercise of the discretion, adverse to the Bank. 12. The third matter attacked related to the financial position of Mr Blinkworth. I have dealt with that. 13. The fourth matter attacked related to what was said to be the weakness of CBX2's case. I have referred already to the seeming over-elaboration of the claim. There is no doubt that the way the claim has been elaborated will make it more difficult, and thus more expensive, to defend. 14. There are also at least questions as to the claim. It is integral to the pleaded claim that Mr Blinkworth in effect earmarked the money for the payment down of his housing loan, and so directed the Bank. However, there was other evidence to suggest that, at other times, he had expressed a different view. For example, in September 2010, a solicitor then instructed by Mr Blinkworth wrote him a letter of advice which, among other things, recited instructions he had given. The instructions that he gave back in 2010 included: You had specifically directed Mr BALL, that the entire amount of $1.950m be transferred to Reliance after having been deposited into CBX2 Pty Ltd and like the other funds you had loaned to the Reliance organisation they should be recorded against your loan account. 1. That does not really sit very well with the direction said to have been given to the Bank, that is the foundation for the claim that it paid out without authority. 2. Thus, as was correctly submitted for the Bank, it may be that there are some difficulties standing in the way of the claim. 3. I do accept, as I have said before, that the strength of the case is of some particular relevance where the provision of security is resisted on the basis that it is the defendant's conduct that caused the plaintiff's impecuniosity. I looked at some of the authorities in Nonox Australia v Certain Underwriters at Lloyds [2014] NSWSC 221 at [16] and following. 4. However, obviously enough, the Court is in no position to undertake even a cursory review of the strengths and weaknesses of the parties' competing positions. Apart from noting what appears to be a fundamental inconsistency in the way that CBX2 has articulated how the moneys were to be dealt with, and noting that this may have a significant impact on its claim, I think I can do no more than say that at least the bare bones of the claim – that is to say, the claim in effect for payment away without authority – may be fairly arguable. Whether that is so in respect of the other elaborations of the claim may be a different matter. 5. Having said that, I do think that the apparently excessive elaboration of the case may be a matter that bears on the exercise of the discretion. 6. Having come to the conclusions that I have, it is incumbent on me to exercise the discretion afresh. It may be of course that I will nonetheless conclude that no security should be given. Accordingly, apart from noting that in my view there is error in the reasons of the Associate Justice that requires the discretion to be re-exercised, I shall do no more than stand the proceedings over to enable the underlying questions, whether security should be given, if so, how much and in what way, to be argued. 7. The parties have indicated that they can do so tomorrow, 15 December 2015, and accordingly I stand the matter over to that date. I regret having to do so, because the matter had been fixed for today on the basis that, if necessary, the remaining questions could be dealt with. However, for unforeseen reasons, that has not proved practicable. 8. I stand the proceedings over to 10am on 15 December 2015. I reserve costs to date. ********** 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: 17 December 2015