Australian Executor Trustees Ltd v Provident Capital Ltd

Federal Court of Australia|2012-07-03|Before: Mr J, Mr P, Rares J

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 On Friday night, 29 June 2012 at the end of a three day trial I delivered ex tempore reasons for exercising the Court's power under s 283HB(1) of the Corporations Act 2001 (Cth) to appoint receivers to the defendant Provident Capital Limited but granted a stay on Friday up to and including today, so as to enable Provident to consider whether it wished to appeal from my decision. Provident has applied for an extension of the stay. It has reoffered three of the undertakings that it gave on Friday and a variation of the fourth. 2 Provident's in-house legal counsel and director, Malcolm Bersten, and its lawyers overlooked late on Friday, when offering it, the consequence of Provident giving an undertaking not to make any payment to any person or engage in any transaction up to and including 4.00 pm today. That caused its then lawyers to question its ability to instruct and remunerate them for the present application or any appeal. Had such an application been made on 29 June, I would have granted Provident reasonable access to its funds to enable it to consider and bring a further stay application pending an appeal, since that was the purpose for which I granted the short stay on that occasion. 3 Provident has engaged new lawyers, who have brought this application, with the disadvantages of not having themselves conducted the hearing or had available to them, except for a short time this afternoon, an unproofed draft of the ex tempore reasons that I delivered for some time on 29 June: Australian Trustee Executors Ltd v Provident Capital Ltd [2012] FCA 728.

The basis for the stay application 4 Provident has suggested that, on the information presently available to its lawyers, there are three substantive grounds of appeal it wishes to agitate. These are that: I mistook the facts that led to my adverse credit finding concerning Mr O'Sullivan and therefore, took into account irrelevant considerations; I mistook the facts as to Provident's financial position and solvency; and I failed to take into account the relevant consideration of the impact of an appointment of a receiver on Provident's members. 5 Provident argued that no substantive prejudice would occur were a stay granted for the short period in which it would be possible to convene a Full Court to hear an appeal. It said that this was likely to occur in the next two weeks. It contended these factors weighed in its favour for the grant of a stay. It argued that the factual errors that it had been able to identify in the limited time its new lawyers had had to come to grips with the proceedings, and my unproofed reasons, showed that it had a sufficiently arguable case to justify a stay. Provident also argued that its directors and shareholders did not stand to benefit from the grant of a stay. It made that retort in answer to a submission made by the trustee that the shareholders had not offered to provide security for costs of the appeal, where, so the trustee said, they stood to benefit from the successful conduct of the appeal. Provident contended that it was really the debenture holders who stood to benefit from the successful outcome of its proposed appeal. That was because, Provident argued, substantial costs would be saved by permitting the directors to continue to manage the process of realising its distressed security assets for its FTI portfolio as I had found they had done competently to date. It argued that the shareholders, or those that stood behind Provident, being principally Mr O'Sullivan, would only stand to gain if the debenture holders were paid out in full.

Principles for a stay 6 There are difficulties in applying to a judge who has granted or refused to grant relief such as an injunction or the appointment of a receiver, to make or stay the order so as to maintain the position of the party before the order was made or refused. As Mason CJ, Brennan and Gaudron JJ explained in Paringa Mining & Exploration Co plc v North Flinders Mines Ltd (1988) 165 CLR 452 at 459: "The judge appealed from is necessarily disadvantaged when it comes to an evaluation of the strength of the appellant's attack on the judge's original exercise of his discretion." 7 Their Honours held that on such an application, "the judge must be concerned to evaluate not only the argument against the original decision but also to inquire whether refusal of interim relief or a stay would have rendered an appeal nugatory" (165 CLR at 460). 8 The other principles upon which the Court will stay a judgment pending an appeal are well-known. The bringing of an appeal does not itself operate as a ground for a stay. In Australian Workers' Union v Pilkington (Aust) Ltd (2000) 101 FCR 35 at 38-39 [9]-[12] Goldberg and Weinberg JJ discussed those principles noting that the decision of the Court of Appeal of the Supreme Court of New South Wales in Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 had been followed in Full Courts of this Court. Essentially the issue of whether or not to grant a stay involves the exercise of the Court's discretion in weighing considerations such as the balance of convenience, the competing rights of the parties and, in particular, whether prejudice (such as rendering any appeal nugatory) will be caused by reason of the grant or withholding the stay: AWU 101 FCR at 39 [11], applying Philip Morris (Aust) Ltd v Nixon [1999] FCA 1281 at [17] per Sackville, Hely and Gyles JJ.

Consideration of additional relief for the trustee 9 When I exercised the discretion to make orders under s 283HB(1) of the Corporations Act 2001 (Cth) on 29 June 2010, I concluded that the circumstances that had been established before me warranted the appointment of a receiver for reasons that I gave. I rejected the application of the trustee to make an order under s 283HB(1)(c) on that occasion. That was because it seemed to me that, having exercised the power to appoint a receiver under s 283HB(1)(d), it was not necessary or useful to do so. 10 I explained why I was satisfied that Provident was not able to pay the amounts deposited or lent to it as and when they became due in the next 12 months. That was based on Provident's own assertion that it needed an immediate moratorium in order to suspend its liability to pay its debenture holders their debts as and when they fell due. It seemed to me then, and seems to me now, that, had I not decided to appoint a receiver, this assertion would have been a good reason to make an order that the security for debenture holders be enforceable immediately, as Lindgren J had done in Perpetual Trustees WA Ltd v Elderslie Finance Corporation Ltd [2008] FCA 1068: Provident [2012] FCA 728 at [75]-[76]. 11 I inquired of counsel for Provident who appeared today if, whether or not I were to be satisfied that I should grant a stay, it would also be appropriate to exercise my discretion under s 283HB(1)(c) to make an order that the debentures be immediately enforceable because of Provident's assertion that an order for a moratorium for the next 12 months was necessary. Provident argued today that its senior counsel who had conducted the trial had only advanced that assertion conditionally. 12 I had not understood Provident to have done so conditionally during the course of the three day hearing last week. I had put to senior counsel during the course of argument last week that Provident's application, made in draft short minutes of order and its written submissions filed immediately prior to the hearing, seeking a moratorium amounted to an admission by it that there was a need for the Court to intervene at that point under s 283HB(1)(b). Senior counsel then appearing for Provident accepted that this was its position. In my opinion, that was a proper concession and reflected the reality of Provident's financial position.

Consideration of the stay application 13 The undertakings given by Provident, that it continues to proffer, would only allow Provident's money to be used in the prosecution of the appeal but would otherwise leave the company unable to transact any business or incur any other liabilities. I said in my earlier reasons it was a difficult task to weigh the competing factors so as to arrive at the orders that I made. 14 In my opinion, if I granted the application for a further stay by Provident the effect of that would be to leave the company in a paralysed position until such time, at least, as an appeal could be argued. Only after the argument and the views of the Full Court had crystallised, would a decision then be made as to who should take charge of Provident's business. 15 Provident has not given any evidence that an appeal would be rendered nugatory without the stay, if a Full Court later determined that the orders appointing a receiver had been wrongly made. There is no doubt that the Court could undo any harm caused and order, so far as was necessary, that the trustee give restitution if those orders had been wrongly made at the trustee's behest: Commonwealth v McCormack (1984) 155 CLR 273 at 276-277 per Murphy, Wilson, Brennan, Deane and Dawson JJ. 16 I have, of course, given as objective consideration as I am able bearing in mind the disadvantage I am at in evaluating the strength of Provident's proposed, if not yet exhaustive grounds of appeal. I am not persuaded that they sufficiently raise any argument that has any substantial prospects of success. The first ground contended that, among other things, Mr O'Sullivan's credit was not sufficiently put in issue to justify my finding that he deliberately omitted to put matters before the Court. Having regard to counsels' and my own review of the transcript today, my recollection of his evidence and the attack made on him in cross-examination, I am not satisfied that that ground is sufficiently arguable. 17 The second ground contended that I mistook Provident's financial position. The ground singularly omitted to deal with PPB's supplementary report of 8 June 2012. There PPB opined that, based on the three recent valuations to which I referred in my earlier reasons, Provident would be required to raise provisions and/or expense impairment charges in a substantial sum against the FTI portfolio for the financial year ended last Saturday, 30 June 2012. I did not come to the same ultimate valuation of those provisions or expense impairment charges as PPB. However, I made findings that some significant provisions were likely to be required. Importantly, I found that it was likely that Provident would not be able to meet its debts as and when they fell due. The application made at the trial by Provident for the moratorium reinforced that finding: Provident [2012] FCA 728 at [52]-[57], [68], [83]-[84]. 18 The third ground contended that I failed to take into account the impact of the appointment of a receiver on Provident's members. I do not consider that ground to be arguable. I adverted to that issue in considering the position under s 283HB(2)(c). In the result, however, I weighed the interests of the debenture holders as substantively the critical feature in favour of the grant of relief that I ordered in of the proceedings: Provident [2012] FCA 728 at [79], [85]. 19 I accept that the failure to grant a stay pending an appeal will mean, as I found in my earlier reasons, that it is likely that other creditors will exercise their rights under securities to treat the Court's appointment of a receiver as an event of default by Provident under their securities, given that these would contain usual standard form provisions. Once again, if the order to appoint receivers were found by a Full Court to be wrong, if the other creditors concerned were not willing to undo that consequence, the Court could. 20 Provident's evidence on this application did not reveal that it or its shareholders would be without the ability to conduct an appeal unless a stay were granted. I do not consider that the failure to continue the stay would render an appeal nugatory. I see no reason why, if Provident's shareholders were willing to finance an appeal, that could not be conducted with appropriate expedition.

Conclusion 21 For these reasons, on reflection and for more abundant caution I am satisfied that I should make an order under s 283HB(1)(c) that the security for debentures be enforceable immediately. I refuse the application for a stay. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Corporations Act 2001(Cth)ss 283HB(1), 283HB(1)(c), 283HB(1)(d), 283HB(2)(c)

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