Aquaqueen International Pty Ltd v Titan National Pty Ltd

Court of Appeal (NSW)|2015-02-09|Before: McColl JA, Black J, Barrett JA, Coll JA

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

McCOLL JA: On 20 November 2014 his Honour Justice Black ordered that the applicant, Aquaqueen International Pty Ltd (ACN 094 129 389) ("Aquaqueen"), be wound up, appointed a liquidator to the company and ordered that the costs of the respondents, Titan National Pty Ltd and Kathryn Wood-Weber (including any reserved costs as agreed, assessed or otherwise fixed by the Court), be reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth): In the matter of Aquaqueen International Pty Ltd [2014] NSWSC 1645 (the "winding up judgment"). On the same day, in the circumstances detailed later in these reasons, his Honour stayed those orders until 10 December 2014. On 17 December 2014, Barrett JA, by consent, extended the stay of the winding up orders until 9 February 2015.

Background

Aquaqueen carries on a water bottling business. It has operated that business in premises leased from Titan National. Titan National gave Aquaqueen notice to quit those premises on the termination of the lease. Following receipt of the notice to quit, Aquaqueen commenced District Court proceedings in 2009 against Titan National, Mr Wolfgang Weber and Mrs Kathryn Wood-Weber. Those proceedings were dismissed on 6 June 2011.
On 24 June 2011 Aquaqueen and its director, Ms Shirley Penson, were ordered to pay the respondents' costs of the District Court proceedings on a joint and several basis including on an indemnity basis from 26 February 2010.
Consequent upon the making of the District Court costs order, Mr Weber had his costs assessed at $38,484.48. In 2013 he applied for an order that Aquaqueen be wound up pursuant to s 459P of the Corporations Act. The application was based on a creditor's statutory demand claiming the amount of the assessed District Court costs. As the primary judge recounted (winding up judgment at [4]), thereafter Titan National and Mrs Wood-Weber, who had also had their costs of the District Court proceedings assessed, in their case in the sum of $111,416.95 and associated costs, filed a notice of intention to appear in the winding up application.
On 25 March 2014 the primary judge ordered that Aquaqueen be wound up on Mr Weber's application and that liquidators be appointed. Those orders were set aside by consent in early April 2014, on which occasion Titan National and Mrs Wood-Weber applied to be substituted as plaintiffs for Mr Weber. Various other interlocutory applications were made as recounted by the primary judge: winding up judgment (at [8] - [10]). The winding up application was heard on 10 and 21 October 2014. Ms Penson was given leave to represent Aquaqueen at that hearing.
Titan National and Ms Wood-Weber gave evidence on the hearing of the winding up application that Aquaqueen was indebted to them in the amount of $189,590.77 comprising the original District Court costs order as assessed and costs of other proceedings both in the Supreme Court and District Court. There was also evidence that they had other costs orders against Aquaqueen, the quantum of which had not yet been assessed, and that they sought to recover pre- and post-judgment interest: winding up judgment (at [16]).
Aquaqueen sought to rebut the presumption of insolvency arising from the unsatisfied creditor's statutory demand issued by Mr Weber in reliance upon evidence from Ms Penson purporting to demonstrate that she intended to provide financial support to Aquaqueen to support its solvency. The primary judge accepted (winding up judgment at [29]) that, as a matter of law, in some circumstances "an undertaking by a director or third party to provide financial support to a company may support its solvency, even if it is not legally enforceable and possible even if that support is informal in character, provided the prospect of receipt of those funds is in fact sufficient to allow the company to meet its debts."
However his Honour also noted (at [29]) that in Re LJAC Energy Pty Ltd (in liq) [2013] NSWSC 1231, Lindsay J stated: 34 It is not enough that such a party state an intention to support the company financially, or logistically, in the future or, even to provide an assurance that such support will be forthcoming. Particularly is it not enough when a company's benefactor is under no contractual obligation to provide support or, for whatever reason, has failed in the past to provide timely support. 35 The Court generally needs to be satisfied that the company's ability to pay its debts as and when they fall due is grounded upon a foundation in net assets and a cash flow not contingent upon a promoter's discretion." (Emphasis added)
Black J continued (winding up judgment at [29]): "For present purposes, the latter observations by Lindsay J are of particular significance. The fact that the Judgment Debt and other costs orders against the Company have remained unpaid throughout the relevant period demonstrates that Ms Penson is unlikely to utilise personal funds to repay debts of the Company generally, but only such debts as she chooses to pay. A director's advancing personal funds to pay some, but not other, debts of a company does not establish its solvency."
Ms Penson also sought to rely upon her ownership of a property in Alexandria, which while subject to a first registered mortgage, she contended had a present market value which significantly exceeded the amount of the loan upon it, as indicating her capacity to meet her undertaking to provide financial support to Aquaqueen. For the reasons his Honour had already given, he was "not satisfied that [she] will take any steps to place [Aquaqueen] in funds to pay the judgment debt or other debts owing to the plaintiffs even if she has the personal means to do so": winding up judgment (at [30]).
The respondents led expert evidence before Black J as to Aquaqueen's solvency from Ms Kathleen Vouris, a registered and official liquidator and certified practising accountant. Ms Vouris opined that the amount of $111,416.95 recorded in the certificate of determination issued by the costs assessor in respect of the District Court proceedings had been due and payable at all times since at least 11 December 2013. Ms Vouris disputed, in a manner the primary judge accepted, the recording of the judgment debt in Aquaqueen's accounts as a contingent liability. When the judgment debt was treated as a liability, Ms Vouris calculated that Aquaqueen's liquid assets as at 30 June 2014 were negative $84,794.95: winding up judgment (at [35]). On that basis, which the primary judge generally accepted (winding up judgment at [37]), Ms Vouris opined that Aquaqueen had a negative net asset position as at June 2014 and that its net asset position was such that it did not have sufficient available liquid assets to discharge its due and payable debts: winding up judgment (at [37]).
The primary judge concluded (winding up judgment at [49]) that Aquaqueen had not rebutted the presumption of insolvency arising from the unsatisfied creditor's statutory demand served by Mr Weber and that Aquaqueen's insolvency had been established as a matter of fact. Accordingly he made the orders to which I have earlier referred.
Aquaqueen sought a stay of the winding up order to allow it to consider the winding up judgment and to make any application it saw fit in the Court of Appeal. His Honour invited Ms Penson to indicate the grounds upon which any such appeal might be brought, on the basis that it was necessary to consider the prospects of the success of such appeal on an application for a stay: (Supreme Court NSW, Black J, 20 November 2014, unreported (at [7] - [8]) (the "stay judgment")). Ms Penson was unable to identify any such grounds. His Honour hypothesised as to some issues which might be contestable, although to the extent he could make an assessment of the prospects of success in those respects, his Honour opined that those prospects were not strong: stay judgment (at [7]).
Nevertheless, his Honour concluded (stay judgment at [9]) that the "compelling factor in support of a stay is not … that any appeal has particularly strong prospects, but instead that it would be rendered nugatory if a stay was not granted for a short period to allow the Court of Appeal to consider whether it should be extended."
Accordingly, his Honour made the following orders: "Accordingly, I revoke the orders that I have made earlier, noting the Company's undertaking and granting a stay of paragraphs 1 to 3 of the orders I have made this morning and instead make the following orders: 1 Note the undertaking the Company, by its director, to the Plaintiffs and to the Court not to dispose, in any way, of assets of the Company other than in the course of arm's length transactions in the ordinary course of business not exceeding an amount of $7,500 in total, in the period to 10 December 2014. 2 Stay orders 1 - 3 made in the judgment of Black J delivered on 20 November 2014 to 4pm 10 December 2014. 3 In the event that the stay of orders 1 - 3 made in the judgment expires, without any further stay being granted by the Court of Appeal, the parties should notify the Associate to Black J forthwith so that the orders made in the judgment can be entered."
In fact, despite the observation in the last paragraph of those orders, it is apparent from JusticeLink that his Honour's orders made in the winding up application were entered on 20 December 2014, albeit that they have been stayed since in the circumstances I have outlined.

The Court of Appeal proceedings

On 9 December 2014 Aquaqueen purported to file a notice of appeal from Black J's winding up order. That notice of appeal was not competent as the orders below were interlocutory. That position was rectified in the events of 17 December 2014, to which I now turn.
On 17 December 2014 Aquaqueen sought an order continuing the stay granted by Black J on 20 November 2014 up to and including 9 February 2014. On the same day it filed in court a summons seeking leave to appeal from Black J's winding up order. On that day, on the giving of an undertaking by Ms Shirley Penson not to transfer, dispose or otherwise encumber the property at XXXX Alexandria (the "Alexandria property" - the street address of which has not been reproduced in accordance with Court's policy on identity theft prevention), Barrett JA, by consent, extended the stay of the order to wind up Aquaqueen ordered by Justice Black on 20 November 2014 until 9 February 2015 unless there was a further order of the Court.
Barrett JA also noted that Aquaqueen by its director Ms Penson renewed the undertaking given to Black J on 20 November 2014 in his Honour's stay judgment noted in paragraph 1 of the orders set out at [16] above.
Barrett JA also made orders requiring the respondents to file and serve any application for security for costs by 30 January 2015 and for the filing of evidence in reply by Aquaqueen, and listed the matter for further directions on 9 February 2015.

The Stay Motion

At the hearing of the stay motion on 9 February 2015 Mr Beazley, solicitor, appeared for Aquaqueen. Ms Perry, solicitor, appeared for Titan National and Ms Wood-Weber.
Mr Beazley relied on two affidavits sworn by Ms Penson, the first dated 9 December 2014 ("SP1"), the second dated 9 February 2015 ("SP2").
In SP1, Ms Penson acknowledged that Aquaqueen and herself jointly and severally owed various creditors, including Titan National and Ms Wood-Weber, $220,384.84. She asserted that she had an offsetting claim against Titan National and Ms Wood-Weber in the sum of $21,133.45, said to arise from a costs order made in District Court proceedings on 23 April 2010 in respect of which she and Aquaqueen had applied for a costs assessment in 2014.
Ms Penson also deposed in SP1 that until 5 December 2014 she had been unable to organise refinance because a judgment creditor had a caveat on her Alexandria property which had been released on payment of $31,076.57.
The Alexandria property is also subject to a mortgage to HSBC Bank Australia Ltd. As at 24 October 2015, Ms Penson asserted that mortgage secured an amount of $435,040. Ms Penson also asserted that the Alexandria property was worth $860,000, having regard to what she contended was a recent substantially comparable sale. She further asserted that her only source of income was Aquaqueen's bottling plant and that if the company was placed into liquidation she would be unable to refinance and pay her mortgage and would have to sell her home to meet the costs orders. Finally, Ms Penson deposed to having approached two financial institutions to seek finance and asserted that she believed that she would be able to obtain finance and settle by February 2015.
Annexed to SP1 was a document purporting to show the amount outstanding on the mortgage over the Alexandria property. That document had been substantially redacted so that it is not possible to see either Aquaqueen or Ms Penson's name upon it or the address of any property to which I have referred. It is only possible to see merely that it is on HSBC's letterhead, the loan amount and that no amount appears under the heading "Arrears". While pointing to the substantial redactions, Ms Perry did not challenge Ms Penson's statement concerning the mortgage debt.
In SP2, Ms Penson deposed that she had obtained conditional approval for a loan in the amount of $638,000 over three years subject to, relevantly, a satisfactory valuation being conducted acceptable to the financial institution prepared to advance that sum of money. She annexed a letter from a financial institution dated 15 January 2014 to that effect. According to SP2, the valuation was undertaken in mid-January 2015 but the loan approval was under review for "a slightly higher loan amount by about 5%" and, too, for reconsideration of the interest rate following the reduction of interest rates announced by the Reserve Bank of Australia on 3 February 2015. The conditional approval letter advised that once the conditions of the approval were met a loan approval and loan contract would be provided. There was no evidence of the latter documents.
Aquaqueen prepared the White Book required for a leave application in which it included as its draft notice of appeal the purported notice of appeal filed on 9 December 2014. As Mr Beazley acknowledged, the substantial appeal ground relied upon in the draft notice of appeal was that Black J did not either "appreciate or give any weight to the fact that each of the plaintiffs' judgments were joint and several with the director of the company, Shirley Penson". The draft notice of appeal also seeks to challenge the primary judge's finding that Ms Penson was unlikely to use personal funds to repay Aquaqueen's debts in circumstances where they were jointly owed by her. Accordingly, the draft notice of appeal contends that Black J's exercise of his discretion to order Aquaqueen be wound up miscarried.
Ms Perry relied on her affidavit of 15 December 2014, in which she contended that the issue of the joint and several nature of the costs orders was not argued by Ms Penson before Black J. Annexed to Ms Perry's affidavit was a property report from RP Data dated 9 October 2014, which estimated the Alexandria property as being in a valuation range of approximately $580,000 to $836,000, with an estimate value of $708,950. Mr Beazley objected to that document as not being a valuation. While I rejected that objection at the time, on closer perusal, it is apparent from the disclaimers to that document that the estimate it contains is "computer generated and is not a professional appraisal" and "should not be used in lieu of professional appraisal under any circumstances". In the light of those disclaimers, I would place little weight on the estimated value of the Alexandria property it contains, save to note that its upper limit is close to the value of the property for which Ms Penson contends.
Substantially the balance of Ms Perry's affidavit addressed outstanding costs orders against Aquaqueen to establish the extent of its outstanding debts, albeit that the quantum of many of those orders had not been the subject of either a costs assessment or a gross sum costs order. Ms Perry quantified the total of those amounts admitted, alleged or estimated as in the order of $328,960, which, when added to Ms Penson's mortgage liability, gave her actual or contingent liabilities of $764,000.
Finally, Ms Perry tendered a copy of a letter from MSB Lawyers, Mr Wolfgang Weber's solicitors, to Mr Beazley, seeking a copy of any application filed in the Court of Appeal relating to the winding up judgment. The letter also noted that Mr Weber was a creditor of Aquaqueen in relation to various amounts totalling $24,885.60 which were claimed against Aquaqueen as at 8 January 2015. The letter sought payment of those amounts no later than 5 February 2015. There was no evidence as to whether that claim had been met.

Submissions

Mr Beazley sought an extension of the stay granted by Barrett JA to 28 February 2015 to enable Aquaqueen on the basis that there was evidence it could pay its debts from the refinance proposed. He identified the significant argument on appeal, for which he contended there were reasonable prospects of success, as being Black J's failure to take into consideration the fact that the costs orders the subject of the judgment debt (and also that which founded the original creditor's statutory demand filed by Mr Weber) were joint and several obligations such that his Honour should have found that it was inevitable that Mrs Penson had to pay those debts in order to avoid her own bankruptcy. Accordingly, her professed support for Aquaqueen should have been taken into account to support the company's solvency.
Mr Beazley contended that taking into account only the quantified costs orders and the amount outstanding on the mortgage on the Alexandria property, Aquaqueen (and Ms Penson) owed their creditors $655,584.48. If the loan of $638,000 proceeded, that would lead to a shortfall of $17,584.48 which he contended Ms Penson could meet from other funds.
Mr Beazley said that Aquaqueen did not currently trade. Rather, he said it made bottled water as and when it has orders to fill. Accordingly, it was not a trading entity with current liabilities for staff and the like, although it employed Ms Penson. When she received an order, she filled it, paid for the raw materials and received a profit
Mr Beazley submitted that Ms Penson should be given the opportunity to inject money into Aquaqueen to enable it to pay its debts and avoid a winding up order and the correlative costs that order would entail.
Ms Perry submitted that although Ms Penson did not rely upon the argument concerning joint and several liability to resist the winding up order, Black J was aware that that was the nature of the costs order. She contended that the mooted appeal was wholly addressed to challenging an exercise of discretion and that Mr Beazley had not demonstrated any basis upon which the Court of Appeal would arguably interfere. Next, she submitted that at the time the matter was before Barrett JA, his Honour was informed that the loan Aquaqueen and Ms Penson was seeking would be sufficient to meet their joint and several liabilities in relation to costs orders. Instead, she contended, that the proposed loan was insufficient to meet those liabilities.
Ms Perry said that Ms Penson was 63 years of age based on an ASIC company search and that even though Aquaqueen was supposedly no longer trading, Ms Penson was on a wage of some $50,000 - an amount she contended was insufficient to service the existing mortgage over the Alexandria property, let alone that which was proposed. She submitted that the stay application was yet a further delaying tactic to be added to the many such stratagems Ms Penson had engaged in since the 2011 District Court costs orders, as was apparent from the winding up judgment, in the course of which Ms Penson had made no attempt to pay the District Court costs order. She also pointed out that there was no evidence as to the source of $17,000 to which Mr Beazley referred as being monies Ms Penson could contribute to meet any shortfall in payment of the amounts she acknowledged Aquaqueen and she owed various creditors.
Finally, Ms Perry expressed concern about Mr Beazley's statement that Aquaqueen was not trading, a matter which had not previously been stated. Even if it was not trading she submitted it would be accruing rent and other expenses apparently without any income, a matter which would be adverse to the creditors of the company as a whole.
At the conclusion of submissions, I reserved my judgment and extended the stay until 1pm on 11 February 2015.

Consideration

The following uncontroversial principles apply to the decision whether to grant a stay.
First, there is no automatic right to a stay of execution as, prima facie, the judgment appealed from is correct and the court should not deprive a party of the fruits of victory: Network Ten Pty Ltd v Rowe [2006] NSWCA 4.
Secondly, the court is not constrained by the outcome of an application for a stay at first instance: Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 (at 692) ("Alexander").
Thirdly, the overriding principle to apply when determining an application for a stay is to ask what the interests of justice require: NSW Bar Association v Stevens [2003] NSWCA 95 (at [83]) per Spigelman CJ.
Fourthly, it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour: Alexander (at 694). The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties: Alexander (at 694).
Before a stay of a judgment pending appeal is granted it is necessary for the court to make a preliminary assessment about whether the appellant has an arguable case: Alexander (at 695). The applicant must show that there are serious questions for the determination of the appellate court: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737 (at [18]) ("Kalifair").
In granting the stay below, Black J was substantially influenced by the fact that in Kalifair (at [18]), the Court (Handley, Sheller and Ipp JJA) accepted the significance, in considering an application for a stay, that if a stay were not granted, an appeal would be rendered nugatory. In this respect, the Court in Kalifair said: "[18] Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience."
As is apparent, it is not sufficient to order a stay that otherwise the appeal would be nugatory. The applicant for a stay must first demonstrate "that the appeal raises serious issues for the determination of the appellate court ".
In my view, Aquaqueen has not demonstrated that the proposed appeal raises such issues for determination as would even attract a grant of leave to appeal. First, Aquaqueen did not contest the proposition that before Black J it did not rely upon the argument that its liability was joint and several with Ms Penson's as a factor relevant to his Honour's consideration of the likelihood of her providing financial support to the company to support its solvency. It is improbable in those circumstances that this Court would conclude his Honour erred in the exercise of his discretion: cf Republic of Croatia v Snedden [2010] HCA 14; (2010) 241 CLR 461 (at [88]) per Heydon J.
Secondly, in any event, Black J carefully considered Ms Penson's submissions concerning the likelihood of her providing such financial support and rejected it: winding up judgment (at [28] - [30]). His Honour provided cogent reasons (winding up judgment at [29]) as to why he could not accept her contention that she would put Aquaqueen in funds to meet its debts. Those reasons were based on a long history of her failing to do so generally, but merely on a selective basis. That conclusion was clearly open to his Honour having regard to the many quantified costs orders which had been made against Aquaqueen over the years prior to the winding up application, none of which Ms Penson had paid, but rather, had gone to great lengths to resist.
Mr Beazley did not advance any arguable reason why this Court might hold that Black J's finding in this respect was one which was glaringly improbable or contrary to compelling inference such as to attract this Court's intervention either within the principles enunciated in Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at [29]), let alone those relating to interference with the exercise of a discretion: House v R [1936] HCA 40; (1936) 55 CLR 499.
I appreciate that the extension of the stay Aquaqueen seeks is for a short period. Nevertheless there is no evidence before the Court that any loan can be advanced by 28 February 2015. The conditional loan approval letter is almost a month old and the only evidence as to its current status is that it is being renegotiated. There is no evidence as to Ms Penson's ability to service a loan of the amount proposed. Even if it might be inferred that the offeror would have satisfied itself in this respect, some evidence to this effect should have been placed before the Court. Even if I had formed the view that the application for leave to appeal and appeal had some prospects of success, I would be of the view that Aquaqueen had not established a basis for a stay which would be fair to all parties.
In my view the interests of justice do not warrant granting Aquaqueen an extension of the stay granted by Black J.
I make the following orders: 1. Dismiss the notice of motion filed in Court on 9 February 2015 with costs. 2. Discharge the stay granted by Black J on 20 November 2014 and extended by Barrett JA on 17 December 2014. 3. Note Mr Beazley's undertaking to pay the filing fees associated with filing the notice of motion.

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: 12 February 2015

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