Practice and procedure - Application for stay of enforcement of costs order pending appeal to the High Court - Special leave to appeal having been granted - Principles governing exercise of discretion to grant stay - Whether applicant must show exceptional circumstances.

Judiciary Act 1903 (Cth) s 77U.

McHUGH J. This is a notice of motion dated 12 June 1997 by which the applicant seeks to stay the enforcement by the respondent, Ramset Fasteners (Aust) Pty Limited, of orders of the Full Court of the Federal Court made on 26 April 1996. The notice of motion seeks the stay pending the determination of an appeal by the applicant to this Court, special leave having already been granted and the appeal being set down for hearing on 5 August of this year. The principal order sought is a stay of the enforcement of two costs orders. The costs in question relate to proceedings at first instance in the Federal Court and on appeal to the Full Court. The costs have been taxed. The total amount payable is $651,456, being $582,956 in respect of the proceedings at first instance and $68,500 in respect of the appeal.

The proceedings in the Federal Court arose out of a suit by the applicant, Advanced Building Systems Pty Limited, for patent infringement and for breach of the Trade Practices Act 1974 (Cth). At first instance, Justice Hill held that the patent was valid[1]. Later he gave judgment against Advanced in respect of the patent infringement claim but held that Ramset had engaged in misleading or deceptive conduct in breach of section 52 of the Trade Practices Act[2]. On 3 May 1995, his Honour made final orders granting Advanced injunctive relief in respect of the trade practices claim. On 26 April 1996, the Full Court of the Federal Court allowed Ramset's appeal against the judgment of Justice Hill[3]. The Full Court ordered that Advanced's patent be revoked and that Advanced pay Ramset's costs of the appeal and the proceedings at first instance. Advanced then filed an application in this Court for special leave to appeal. On 14 February 1997, the Court granted special leave to appeal from the whole of the judgment and orders of the Full Court.

On 29 November 1996, Justice Lockhart granted a stay of the enforcement of the costs order pending the determination of the special leave application in this Court. The matter came before his Honour again on 10 April 1997 when he rejected Advanced's application for a further stay of the enforcement of the costs order pending the determination of the appeal. His Honour was not satisfied that Advanced could not obtain funds to pay the costs order. Shortly after his Honour's decision, Ramset served Advanced with statutory demands under section 459E of the Corporations Law in respect of the costs orders. On 5 May 1997, Advanced filed a summons in the Supreme Court of New South Wales seeking orders setting aside the statutory demands. That came before Master Macready who gave judgment on 5 June. The Master refused to set aside the statutory demands. He was not satisfied that an offer made to secure the debt was a proper security. He also said that Advanced could apply for an adjournment on the hearing of any winding-up application.

Earlier this month Advanced sought undertakings that Ramset would not proceed with a winding-up application. That request for an undertaking was promptly rejected, causing Advanced to file the present notice of motion. Meanwhile, on 18 June of this year, Ramset filed an application to wind up Advanced. That is to be heard on 24 July of this year.

The lodging of an appeal in this Court does not stay the enforcement of orders obtained in the courts below. A successful party is presumed to be entitled to the benefits of the judgment obtained[4]. However, this Court has jurisdiction to grant a stay of the enforcement of such orders. The power arises from section 77U of the Judiciary Act 1903 (Cth) and from Order 63 rule 1 of the High Court Rules. The Court, in the exercise of its discretion, will not hesitate to stay proceedings when it is necessary to preserve the subject matter or integrity of the litigation[5]. Nor will the Court hesitate to grant a stay where the refusal of a stay could create practical difficulties in terms of the relief which this Court could grant[6].

However, the applicant for a stay has the burden of persuading the Court that it should be granted. It has been said in this Court that, where special leave to appeal has not yet been obtained, exceptional circumstances must be demonstrated in order to obtain a stay[7]. However, the burden on the applicant is less onerous when special leave has been obtained. As Mason CJ said in Smith v New South Wales Bar Association[8]:

"in a case such as the present when special leave has been granted and an appeal is pending ... the Court has a discretion to grant a stay unqualified by the restraint of exceptional circumstances."

The practice of the Court is that an application for a stay should first be made to the court below. The failure to do so may result in the Court refusing the application[9].

In this case, that condition has been met by the application to Justice Lockhart which was heard on 10 April 1997. Mr Grieve QC, who appears for Ramset, points out that no appeal was taken against his Honour's judgment. But it was a discretionary judgment. It would be difficult to have that judgment set aside on an appeal to the Full Court. So the fact that there has been no appeal against Lockhart J's order does not seem to me to be a ground for refusing to exercise the stay jurisdiction against Advanced.

However, as Brennan J pointed out in Sali v SPC Ltd[10], one has to identify what it is that it is necessary to preserve by granting the stay. In the present case, that subject matter is the right of appeal, but that right of appeal does not stand in need of any preservation. Whether or not a stay order is made, the appeal can be heard and determined. It can be heard and determined because it would be open to the liquidator on any winding up to pursue the appeal. However, I would not seek to deal with this case on that technical basis. As Justice Dawson pointed out in Federal Commissioner of Taxation v Myer Emporium Ltd [No 1][11], it is relevant in determining whether or not to grant a stay that:

"there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed."

No doubt it was for that reason that in Moulleux Pty Ltd v Girvan NSW Pty Ltd (Receiver and Manager Appointed)12, Justice Toohey ordered a stay, in circumstances where there was a possibility of a winding up, on the condition that the applicant deposited a certain sum in an agreed form. So the fact that the right of appeal will be preserved, even if the company goes into liquidation, is not a ground upon which I would refuse this application. When the facts are fully examined, however, I do not think that this is a case in which a stay should be granted.

To fully understand this point it is necessary to refer to the facts of the matter in a little detail. On the face of its accounts, the applicant is insolvent. It has current assets of $1,500,000 and current liabilities of about $5,415,000. However, much of what is described as current liabilities is a sum owed to a related company, M J Davis Holdings Pty Ltd. The sum owing is $4,822,687. The current liabilities of Advanced have varied over the years but the liabilities to related companies have not been enforced. To my mind, they appear more like non-current liabilities than current liabilities. If the debt to M J Davis Holdings Pty Ltd and the other related companies is eliminated, there is a substantial surplus of current assets over current liabilities, although the bulk of the current assets is the trading stock of the company. It is also relevant that there is a deficiency in shareholders' funds of about $3,800,000 and that the company has accumulated losses of about $3,800,000. The company also made a loss for the 11 months ended 31 May 1997 of $163,700, although there is an item of abnormal expenditure of about $250,100 for legal costs. If that sum is eliminated, the company has made a small profit during the 11 month period.

In paragraph 14 of the affidavit sworn on 20 June 1997 by Mr Davis, who is the controller and holder of all the issued ordinary shares in Advanced, is an offer made in support of the stay. On behalf of Advanced, he offers to give security over the company's trading stock, to undertake to maintain stock at current levels subject to normal trading, and to procure an undertaking from M J Davis Holdings Pty Ltd not to enforce its debt. However, it seems to me that notwithstanding this offer, this Court should not stay these proceedings, even by accepting the undertakings and the security offered.

Ramset has a debt owing to it which it has been kept out of for a considerable period of time. It is true that the Court has granted special leave to appeal. But, nevertheless, it needs to be understood that judgments given by courts are not provisional judgments until they are subsequently confirmed by appellate courts. They create legal rights and duties. A party which is entitled to the benefit of a judgment is also entitled to enforce it, even by winding up the debtor if it is necessary to do so.

Advanced claims that it is unable to borrow the funds necessary to meet its debt to Ramset. I am not satisfied that Advanced cannot raise the funds to pay the debt. The evidence on this subject is, as I described it in argument, rather cursory. A mortgage broker was asked to see if funds could be obtained. Four days later he wrote saying that they could not be obtained. He apparently approached two lending institutions whom he described as aggressive lenders. They refused to lend money to Advanced. It is hardly surprising that, on the bare accounts of Advanced, a commercial lender would not be prepared to lend money to pay this debt. It is insolvent. The principal asset is its trading stock. The company has no realty or appears to have none of any substance or significance. However, nothing has been put before me showing the relationship of the operations of Advanced to its related companies or that those companies could or would not lend moneys to pay the debt. Advanced has been able to generate funds over the years. It has, in fact, raised over $6 million to finance its operations, although admittedly most of it seems to have come from related companies. Notwithstanding its losses, it has reduced its current liabilities by over $800,000 in the last 11 months. Of that sum, $330,000 related to a bank overdraft. Mr Bannon SC, who appears for Advanced, says that the other $500,00 of the reduction was brought about by a book entry and not by the payment of cash. But, like Lockhart J, I am not satisfied that Advanced could not raise the money by using its trading stock as security.

In addition, there is another matter which makes me hesitate to grant the stay. That is that in 1996 the balance sheet showed an asset of about $934,000 being an interest in a property venture between Advanced and a related company. That interest was released by an agreement made on 4 December 1996. The agreement may be perfectly valid. But, on the other hand, it may be a matter that requires further investigation. If it does, it is in Ramset's interests that it be done sooner than later.

On the evidence, Ramset will have no difficulty in repaying the amount of the costs if the appeal by Advanced is allowed and Ramset is ordered to pay the costs of the proceedings to date.

When the matter comes before the company judge on 24 July, Advanced can ask the judge to adjourn the winding-up application. It can also, if it wishes, seek to borrow funds from related companies or from commercial lenders perhaps backed by guarantees of the directors or otherwise. But this is a commercial matter. On one view Ramset may be taking, to use Mr Bannon's phrase, a "hard ball" attitude. However, the two companies are competitors. Ramset is insisting on being paid the money which it is owed and which it has been kept out of for nearly 12 months. In these circumstances, it does not seem to me that this Court should seek to investigate the moral merits of the positions of these commercial rivals.

In all the circumstances, in the exercise of my discretion, I refuse the application for a stay.

HIS HONOUR: The motion is refused with costs. I certify for the attendance of counsel. Adjourn the Court.

[1] Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1993) 26 IPR 171.

[2] Unreported decision of 13 April 1995.

[3] Ramset Fasteners (Aust) Pty Ltd v Advanced Building Systems Pty Ltd (1996) 66 FCR 151.

[4] Hackney Tavern Nominees Pty Ltd v McLeod (1983) 33 SASR 590; Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 693.

[5] Jennings Construction Pty Ltd v Burgundy Royale Investments Pty Ltd [No 1] [1986] HCA 84; (1986) 161 CLR 681; Marconi's Wireless Telegraph Co Ltd v The Commonwealth [No 3] [1913] HCA 23; (1913) 16 CLR 384 at 386.

[6] Grassby v The Queen (1989) 63 ALJR 348; Re Moore; Ex parte Pillar (1991) 65 ALJR 683 at 685.

[7] Beljajev v Director of Public Prosecutions [1991] HCA 16; (1991) 65 ALJR 400 at 401.

[8] [1991] HCA 59; (1991) 66 ALJR 219 at 220.

[9] Jennings Construction Ltd v Burgundy Royale Investment Pty Ltd [No 1] [1986] HCA 84; (1986) 161 CLR 681.

[11] [1986] HCA 13; (1986) 160 CLR 220 at 223.