Blue Visions Management Pty Limited v Chidiac

Supreme Court of NSW|2017-06-09|Before: Ball J

Introduction

By a notice of motion filed on 2 June 2017, the second defendant, Mr Gunasegaram, seeks orders: 1. discharging a freezing order made against him on 4 April 2017 as varied by orders made on 21 April 2017. 2. staying the judgment entered against him on 10 May 2017 in the sum of $1,443,709.67 for a period of 28 days.
Those orders are sought upon Mr Gunasegaram giving the following undertakings: (a) That he will not in any way dispose of, deal with or diminish the value of his assets in Australia up to the unencumbered value of $1,450,000 (the Relevant Sum) other than for the purpose of: (i) paying his ordinary living expenses; (ii) paying his reasonable legal expenses; (iii) dealing with or disposing of any of his assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; (iv) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of his assets in discharging obligations bona fide and properly incurred under a contract entered into before 4 April 2017, provided that before doing so he gives the Plaintiff, if possible, at least two working days written notice of the particulars of the obligation; and (v) securing, or taking any step to secure, the amount of the judgment entered against him in favour of the Plaintiff in this proceeding on 10 May 2017 (the Judgment Debt); … (c) That he will conduct the foreshadowed appeal in the New South Wales Court of Appeal from the judgment and orders made in this proceeding on 10 May 2017, with expedition and without unreasonable delay; and (d) That he will promptly take all reasonable steps to offer a form of security for the Judgment Debt,
The stay of the judgment for 28 days is sought to give Mr Gunasegaram an opportunity to provide security in respect of the judgment amount pending determination of an appeal that he lodged on 5 June 2017. It appears that Mr Gunasegaram anticipates that, if he is able to offer security, the plaintiff, Blue Visions, will either agree to a continuation of the stay pending the appeal or that his case for a continuation of the stay beyond the 28 days will be strengthened. The precise form of security that Mr Gunasegaram proposes to offer is unclear. However, the most likely form is a mortgage that Mr Gunasegaram proposes to procure from his parents over an unencumbered investment property they own in Kingsford (said to have a current value of $1,175,000) and a loan from his mother of $275,000 to be held in a controlled moneys account.

The freezing order

The freezing order was originally made by Hammerschlag J on 4 April 2017. It was granted ex parte after a request from Blue Visions' solicitors that Mr Gunasegaram undertake not to remove from Australia or in any way dispose of or deal with his assets up to the unencumbered value of $2,200,000 and the failure of Mr Gunasegaram to provide a substantive response to that request. The freezing order was in the form set out in Practice Note SC Gen 14 and originally specified the amount of $1,710,000 as the subject of the order. Consistently with the practice note, paragraph 10 of the order was in the following terms: This order does not prohibit you from: (a) paying your ordinary living expenses; (b) paying your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
The order was originally expressed to expire on 7 April 2017. On that day, it was extended by consent until 13 April 2017. At the time the order was extended, Mr Gunasegaram served an affidavit from his then solicitor, Mr Bishop, deposing on information and belief to the fact that Mr Gunasegaram owned a property in Joondalup, Western Australia with an unencumbered value of $1 million to $1.2 million and a property in East Perth with a value of $1.2 million to $1.4 million that was encumbered to the value of $565,350.
On 12 April 2017, the freezing order was extended until 21 April 2017 to give Blue Visions an opportunity to respond to the evidence given by Mr Bishop. In response to that evidence, Blue Visions obtained valuations of the two properties referred to by Mr Bishop. According to those valuations, the property at Joondalup was valued at $615,000. It turns out that it is the subject of a mortgage which in April 2017 stood at $453,550. The property at East Perth was valued at $640,000. The result was that, according to information obtained by Blue Visions, Mr Gunasegaram's net equity in the two properties was $236,100.
On 21 April 2017, the freezing order was varied by consent by reducing the amount the subject of the order to $1,450,000 and extending the order to 4.00 pm on 5 May 2017 to allow Mr Gunasegaram to respond to the expert valuation evidence that had been obtained by Blue Visions. On 5 May 2017, the order was extended by consent until 19 May 2017 to give Mr Gunasegaram further time to obtain expert evidence. On 19 May 2017, following correspondence between the solicitors for the parties, the order was extended by consent until the judgment amount was fully satisfied or until further order of the court.
The onus is on Mr Gunasegaram to satisfy the court that there has been a sufficient change in circumstances to justify discharge of the freezing order: see Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44. Although that case was concerned with an application to vary interlocutory orders following a contested hearing, in my opinion, the same principle applies where the parties have been given an opportunity to prepare for a contested hearing and have chosen before the application is heard to agree to orders by consent: Abraham v Abraham [2012] NSWSC 254. It would be inconsistent with the case management principles stated in ss 56-60 of the Civil Procedure Act 2005 (NSW) to permit a party to apply to vary orders made by consent following preparation for a contested hearing absent a change in circumstances.
Mr Gunasegaram points to two matters which he submits justifies a discharge of the order. First, notwithstanding paragraph 10 of the order, he submits that initially all his bank accounts were frozen and now all but one is, all his credit cards were frozen and now all but one is, he cannot view online the accounts that are frozen, all but one joint account remains frozen and a number of direct debits were dishonoured. Second, Mr Gunasegaram submits that the undertaking he has now proffered provides Blue Visions with adequate protection.
In my opinion, neither of those matters provides sufficient grounds for discharging the freezing order.
The evidence does not identify with any precision which accounts Mr Gunasegaram has in his own name or which he holds jointly, why he needs access to accounts that remain frozen and which direct debits, if any, continue to be dishonoured. The initial problems that Mr Gunasegaram points to appear largely to have been resolved as a result of correspondence between his solicitors and the Commonwealth Bank and its solicitors. Mr Gunasegaram submits that he does not have online access to all the bank accounts which he controls so he does not know what payments, if any, have been made from those accounts. However, there is no evidence that he has asked or been refused bank statements for those accounts; and it is not clear why he needs continuous access to the accounts, particularly when they have been frozen. To the extent that problems continue, they can be dealt with by varying the orders that have been made. So, for example, it would be possible to vary the orders to permit specific direct debits to be made on the date that they are payable and to permit a specific amount to be withdrawn each week to cover living expenses if for some reason the arrangements he has now agreed with his bank are unworkable. However, the evidence given on Mr Gunasegaram's behalf is inadequate to form any view that specific problems continue to exist or what variations in the orders may be appropriate to address those problems.
In my opinion, the fact that Mr Gunasegaram is now willing to offer an undertaking in place of the freezing order is not a relevant change in circumstance. Mr Gunasegaram was given an opportunity to give an undertaking. For whatever reason, he chose not to accept that proposal or offer any counter-proposal. Instead, it appears that he prepared evidence with the intention of resisting a continuation of the freezing order or seeking a variation of it. On the face of it, that evidence appears to give a quite misleading picture of his financial position. Ultimately, he chose to consent to the freezing order. Apart from adjustments to the freezing order to deal with particular problems that may have arisen, there is no reason why he should not continue to be bound by that consent.

The application for a stay

Before dealing with the application for a stay, it is necessary to say something about the case against Mr Gunasegaram and the issues raised on appeal.
Mr Gunasegaram was a senior employee with Blue Visions. Blue Visions carries on the business of providing project management and specialised project planning services to clients in the construction, mining, civil engineering and infrastructure, defence, communications and health industries. It was established by Mr Adel Khreich, who is its managing director. It now has approximately 70 employees in Australia.
Relevantly, Blue Visions' principal case against Mr Gunasegaram was that he made a number of representations to Mr Khreich concerning Blue Visions' likelihood and success in obtaining a major contract from Woolworths to project manage the rollout of its Masters chain of hardware stores throughout Australia and that, on the faith of those representations, Blue Visions hired and retained staff that it otherwise would not have hired or retained. Blue Visions claimed that the representations were false and that Mr Gunasegaram was liable in the tort of deceit for the damages it suffered as a consequence of hiring and retaining the additional employees. That case succeeded at trial. I also expressed the opinion that Mr Gunasegaram owed Blue Visions a duty of care in making the representations he made, that he breached that duty and that he had breached his duties under s 181(1) of the Corporations Act 2001 (Cth): see Blue Visions Management Pty Limited v Chidiac [2017] NSWSC 255.
By his notice of appeal filed on 5 June 2017, Mr Gunasegaram only appeals in relation to my findings of liability in relation to the torts of deceit and negligence. There is no appeal in relation to my finding that Mr Gunasegaram breached s 181(1) of the Corporations Act. Mr Gunasegaram also raises a number of issues in relation to my conclusions on quantum. If all those grounds were to succeed, that would reduce the damages payable by Mr Gunasegaram very substantially, although precisely by how much is unclear. Even if damages are reduced substantially, it is likely that Mr Gunasegaram will still have to bear a substantial proportion of Blue Visions' legal costs, which themselves are likely to be substantial. It is no doubt for that reason that Mr Gunasegaram recognises the importance of being able to offer security before applying for a stay until the determination of an appeal.
The relevant legal principles relating to a stay are not in dispute. Generally, a successful party is entitled to the fruits of the party's victory notwithstanding an appeal: Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184. However, a stay may be granted where required by the interests of justice: BM Sydney Building Materials Pty Ltd v AWT Building Pty Ltd [2017] NSWCA 67 at [14] per McColl JA. The existence of arguable grounds of appeal is normally necessary, but not sufficient for the granting of a stay: Chen v Lym International Pty Ltd [2009] NSWCA 121 at [15] per Beazley JA. Mr Gunasegaram referred to two other considerations which are often of particular relevance in considering the question of a stay, although their relevance in the present context is less clear. The first of those considerations is whether the appeal will be rendered futile because, absent a stay, the appellant will not have the financial resources to pursue the appeal: Kalifair Pty Ltd v Digi-Tech (Aust) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383. The second is whether there is a risk that money paid to the successful plaintiff will be irrecoverable if the appeal is successful: Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 103.
In the present case, as I have said, Mr Gunasegaram only seeks a stay for 28 days. It is difficult to see how the appeal could be rendered futile in that time. No bankruptcy notice has yet been served on Mr Gunasegaram. Consequently, there is no prospect that the appeal will be rendered futile within the 28 days. It is, of course, possible that if a stay is not granted pending the appeal that Mr Gunasegaram could be made bankrupt before the appeal is heard. However, there are a number of points to be made about that.
First, as I have said, Mr Gunasegaram does not seek a stay pending the appeal. He only seeks a stay for 28 days.
Second, there is inadequate evidence concerning Mr Gunasegaram's financial position in order to form an opinion that Mr Gunasegaram will be unable to meet the judgment debt. He has given inconsistent evidence on that matter. He now says that he cannot currently pay the judgment debt. However, he anticipates being able to raise security to secure the amount of the debt; and the information he has given in relation to his own financial position is so scant that it is not possible to form any concluded view on what is likely to happen if a more permanent stay is refused.
Third, it is far from clear that Mr Gunasegaram would be made bankrupt if he offered to provide security for the judgment debt pending an appeal or that he would be made bankrupt pending the appeal even if no security is provided.
Fourth, in considering the question of a stay pending an appeal, it would be necessary to consider what security, if any, had been proffered by Mr Gunasegaram and the impact on Blue Visions if it were prevented from enforcing the judgment it has obtained in circumstances where Mr Gunasegaram's appeal ultimately only goes to quantum. In that context, it is doubtful that the security currently proposed by Mr Gunasegaram would provide an adequate basis for granting a stay, since it would place Blue Visions in the difficult position of having to enforce its judgment debt against Mr Gunasegaram's parents.
Similarly, it is difficult to understand the significance of Blue Visions' ability to repay any judgment amount when it is unlikely on Mr Gunasegaram's evidence that it will be able to recover the judgment amount within the 28 days that the stay would operate.
In any event, I do not accept that the evidence establishes that Blue Visions would be unable to repay any judgment debt. Mr Gunasegaram submits that there is a risk that Blue Visions will not be able to repay any judgment in its favour, since it has paid up capital of $1 and searches disclose that it owns no real property and no personal property that has been registered. However, it is important to bear in mind that it is a consulting firm. It is unlikely to own real property or significant tangible assets. Its principal assets are likely to be receivables in the form of money owed by clients, work-in-progress and the value attaching to the consulting contracts it has with clients. It was open to Mr Gunasegaram to serve a notice to produce seeking Blue Visions' accounts. However, he chose not to do so. The evidence is that Blue Visions faced financial difficulties at the time of the events giving rise to these proceedings, largely brought about by Mr Gunasegaram's conduct. However, the evidence is that it remains a successful consulting firm which currently employs approximately 70 employees. I am not satisfied on the basis of the current evidence before me that it would be unable to repay any amount paid to it by Mr Gunasegaram. Again, it also needs to be borne in mind that it will not have to repay the full amount recovered from Mr Gunasegaram even if Mr Gunasegaram is wholly successful in his appeal. And, as I have said, it is also relevant that whatever the outcome of the appeal, Mr Gunasegaram is still likely to be liable for a substantial proportion of Blue Visions' legal costs at first instance.
The question remains whether it would be in the interests of justice to grant Mr Gunasegaram a stay of 28 days. I am not satisfied that it would be. I delivered reasons for judgment on 17 March 2017 and final orders were made on 10 May 2017. It was apparent from my reasons for judgment that a substantial judgment would be entered against Mr Gunasegaram. Mr Gunasegaram has had ample opportunity to consider whether to lodge an appeal and, if so, whether to make an application for a stay and to offer security in support of that application. He has offered no explanation for why he needs an additional 28 days to consider whether he can make an appropriate offer for security. Indeed, as I have said, his initial approach appears to have been that he had ample assets to enable him to meet any judgment.
In any event, there is nothing to prevent Mr Gunasegaram from taking steps to raise security and from offering that security to Blue Visions as a condition of a stay. He does not require a stay now to do that.

Orders

The orders of the court are: 1. The second defendant's notice of motion filed on 2 June 2017 should be dismissed with costs. 2. The stay of the judgment against the second defendant which was granted on 10 June 2017 be revoked.

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: 14 June 2017

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