Australia: Special Circumstances To Consider When Applying For Security For Costs In Appeals

The Court of Appeal has provided some valuable insights into the nature, content and relevant parameters of what constitutes "special circumstances" in the context of appeals to the NSW Court of Appeal.

Background to the case

Acting for the respondents in this case, our clients (FAL Healthy Beverages Pty Ltd (FAL HB) and its subsidiary FAL Retail Pty Ltd (FAL Retail)) originally brought proceedings in the Supreme Court of NSW against the then defendant (now appellant) for breach of statutory duties under the Corporations Act (Cth) 2001 and fiduciary duties in connection with several unauthorised transactions which benefited him financially. The defendant was the (former) director and chief executive officer of both FAL HB and FAL Retail (with both appointments ending in February 2016).

Black J in the Supreme Court of New South Wales held In the matter of FAL Healthy Beverages Pty Ltd and FAL Retail Pty Ltd [2017] NSWSC 476 that on the evidence, the defendant had, in breach of his duties, caused FAL HB and FAL Retail to make unauthorised payments to a number of unauthorised parties including a company controlled by the defendant and another company with which the defendant was pursuing other business opportunities. The defendant was ordered to pay the sum of $1,015,013.46 to FAL HB and FAL Retail.

In July 2017, the defendant appealed to the Court of Appeal on three grounds: that the primary judge reversed the legal onus of proof of the facts from FAL HB and FAL Retail to the defendant; that his Honour erred in taking into account section 286 of the Corporations Act 2001 (Cth); and that the evidence led by FAL HB and FAL Retail in relation to the impugned transactions was not sufficient to establish the basis of the claim against the defendant.

In August 2017, FAL HB and FAL Retail filed an application seeking security for costs of the appeal, which was heard in September 2017. The essential issue was whether FAL HB and FAL Retail had shown "special circumstances" giving rise to the discretion to order security for costs under the Uniform Civil Procedure Rules 2005 (NSW), r 51.50.

In finding for the respondents, Gleeson JA held that special circumstances were established and ordered that the defendant (now the appellant) provide security for costs of the appeal within 14 days and otherwise stayed the appeal pending provision of that security.

The relevant law

For an order for security for costs to be made under Rule 51.50(1), of the UCPR there must be, first, a determination that there are "special circumstances" (which may involve questions of fact or law) and, secondly, a discretionary decision to make such an order: Porter v Gordian Runoff Ltd [2004] NSWCA 171 at [6] per Bryson JA, Sheller and Giles JJA.

In Preston v Harbour Pacific Underwriting Management Pty Ltd [2007] NSWCA 247 at [18]-[19], Basten JA (Ipp JA and Hoeben J agreeing) summarised the relevant principles as follows:

The considerations engaged by the concept of "special circumstances" in relation to security for costs were considered by this Court in Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2004) 60 NSWLR 143 (Beazley, Santow and Ipp JJA), and in Porter v Gordian Runoff Ltd [2004] NSWCA 171 (Bryson JA, Sheller and Giles JJA agreeing). The following principles were identified:

1. no order for security should be made in the absence of "special circumstances";
2. consideration of what may constitute special circumstances should not be fettered by some general rule of practice;
3. impecuniosity, without more, will usually be insufficient;
4. an order may be appropriate if the appeal is shown to be hopeless, unreasonable or of an harassing nature;
5. where a bona fide and reasonably arguable appeal would be stifled by an order for security, such an order should usually not be made, and
6. the subject matter of the appeal, including an issue as to the liberty of the individual, or a public interest may provide a reason for not imposing a security order which would stifle the continuation of the appeal.

Other factors that are relevant to whether security for costs should be granted on appeal are the appellant's prospects of success, the amount of costs incurred (and likely to be incurred) and the amount of security sought.

Decision in this case   

In this case, Gleeson JA held that while impecuniosity alone is not sufficient to constitute special circumstances, it may do so combined with other factors.

The appellant was found to be of very limited means in the sense that he is not in a position to pay the judgment debt and costs below, or any costs order if the appeal is unsuccessful. Gleeson JA also held that the appellant bears an evidentiary onus of establishing that any order for security would stultify his appeal and he failed to do so in this case.

Gleeson JA held that he was satisfied that special circumstances existed to enliven the discretion to order security for costs. While mere impecuniosity will not ordinarily justify an order for security for costs, here there were additional matters which, in combination, were capable of constituting special circumstances including the appellant's very weak prospects of success in the appeal; the raising of new points on appeal which were not taken at trial; the wide ranging scope of the issues sought to be agitated on appeal; the absence of evidence that the appeal would be stultified if security were ordered; and the substantial risk that if successful, FAL HB and FAL Retail would not recover their costs of the appeal from the appellant.

The case serves as a reminder of the times when seeking security might be appropriate in appeals and provides useful guidance on the matters to be considered by the court when weighing its discretion to make such an order.

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