CARR trading as FORSHAWS NEILL v SWART; LAWCOVER PTY LTD v SWART [2007] NSWCA 135 | Case summary

28 May 2007 MALCOLM DOUGLAS CARR t/as FORSHAWS NEILL v DANIEL FREDERICK VICTOR SWART & ANOR LAWCOVER PTY LTD v DANIEL FREDERICK VICTOR SWART & ANOR Judgment 1 BASTEN JA: LawCover and Malcolm Douglas Carr (a solicitor) are applicants for leave to appeal from a judgment of Palmer J in the Equity Division. That judgment covered two sets of proceedings brought by Mr Daniel Swart and his wife, the first being against the solicitor Mr Carr in which Mr Swart was successful. The second claim, in which Mr Swart was also successful, was against LawCover directly, in relation to the liability of Mr Carr. There is an appeal by LawCover in relation to so much of his Honour's judgment as found that the insurance policy held by Mr Carr, ultimately with it through circumstances which need not be recounted for present purposes, responded to the claim. The claim involved the deposit of moneys by Mr Swart with Mr Carr, for investment. 2 The present application, pursuant to s 135 of the Civil Procedure Act 2005 (NSW) seeks a stay of the judgment, which required the payment by Mr Carr of an amount in excess of $1 million, together with interest up until 12 February 2007, such stay being conditional upon the amount in question being paid either into court or into an interest bearing bank account operated jointly by the solicitors for LawCover and those acting for Mr Swart. The application is opposed by Mr Swart, whose wife has spoken on his behalf today, and has raised all of the matters which can be raised in response to the application, and with some eloquence. 3 The relevant issues for this Court involve the principles which, as both parties agree, were helpfully set out by McColl JA in Penrith Whitewater Stadium Ltd v Lesvos Pty Limited [2007] NSWCA 103 (23 April 2007). It must be accepted, as it is in this case, that the successful plaintiff in proceedings below has an entitlement to payment of the judgment, and that entitlement is one which is not stayed by the filing of an appeal in relation to that judgment. In the present case, there is a slight additional complication, in that the appeal filed by LawCover Pty Limited is against a declaration as to its liability to respond to the claim made by Mr Swart. There is no judgment against it for any amount but it may be assumed, for present purposes, that it will be required, if the judgment is enforced, to make a payment in the amount of the judgment obtained by Mr Swart against Mr Carr, assuming that that judgment stands, to the amount of the policy, which is $1.5 million in respect of each claim, including one described as "all costs and expenses incurred by the Insurer, in the investigation, defence or settlement of any claim and/or circumstance against the Assured". 4 These proceedings arise out of an investment which was made pursuant to a joint venture agreement dated 10 February 1998, as a result of which moneys were paid to Mr Carr, to be invested in the United Kingdom through another solicitor. On one view the moneys were lost, or, according to Mr Carr's evidence, in this Court, were misappropriated, but in circumstances where they may yet be capable of being recovered. 5 It is common ground between the parties that if Mr Swart is required to pursue Mr Carr, absent an indemnity from LawCover, Mr Carr is presently unable to make the requisite payment, and is unlikely to be able to do so, unless he is able to reactivate proceedings in the United Kingdom. He has had a number of setbacks in the UK, but he claims there are new matters which he seeks to draw to the attention of the Courts in that country. Mrs Swart, on behalf of her husband, has expressed scepticism as to those circumstances being correct in relation to Mr Carr's position. That is not a matter I intend to enquire into for the purposes of this application. 6 The main issue that is raised on behalf of Mr Swart is that the limited amount of the indemnity available from LawCover, will result in him being unable to recover his judgment debt if the debt is not paid forthwith and interest continues to run on the debt and further costs are incurred. On the other side of the record, the applicant, through Mr Davies QC, has contended that there is a real risk that if the appeal is successful, the benefit will be lost, because it will not be possible to recover from Mr Swart the amount paid to him by way of meeting Mr Carr's judgment debt. 7 There are a number of issues of disagreement between the parties. The first issue is the extent to which Mr Swart will be prejudiced by the money not being paid forthwith. This, in itself, involves a number of considerations: one is that the matter has been set down for hearing in approximately five months from today, and that to keep him out of his money for five months may be seen as prejudicial and inconvenient, but of a relatively minor order as the moneys were originally paid over pursuant to an agreement entered into in 1998. 8 Mr Swart says that the circumstances are such that if he continues not to have access to the money, he is incurring expenses and a requirement that he use moneys, perhaps from his businesses, which might otherwise be available for more productive use in his business activities. There is some merit in that complaint. 9 On the other hand, it must be said that there are issues which have been raised with respect to his business affairs and the likelihood that he will not be able to repay the amounts to LawCover, if they should now be paid to him. Evidence put on by LawCover, through two particular sources, suggests that the financial affairs of Mr and Mrs Swart, taken as a couple, are not as favourable as they once were. That is understandable, but nevertheless is a circumstance which must be taken into account in an objective appraisal of the situation. The evidence on which Mr Davies relies in that respect are an affidavit of Ms Osborne which was sworn and filed on 19 April of this year, and a number of financial records produced by Mr Swart in relation to his companies and, in relation to himself, his last filed tax return and the National Australia Bank account operated by Mr Swart and his wife, at least up until 16 April 2007. So far as his personal circumstances are concerned, his income tax statement indicates a taxable income in the last financial year of a little over $80,000. The joint bank account indicates that six weeks ago there was approximately $6,000 in the account and that the balance has been relatively stable for some months. 10 So far as assets are concerned, Ms Osborne noted in her affidavit that Mr and Mrs Swart had a property at Henstock Street, Arcadia, which had been placed on the market some months ago, and that the securities over the property included one in favour of one of their companies, suggested there might be very limited equity available were the property to be sold. Although the property had been put on the market for an amount originally in excess of $2 million, that amount had reduced over a period of months so that there is now an asking price of a little under $2 million. 11 The registered addresses and places of business of the companies, two of which are no longer carrying on active business, had been moved to the Henstock Street address, and the web sites of the two companies which Ms Swart accepted were, if not being wound up, at least no longer operating, were no longer available. She said that she and her husband were attempting to rationalise their businesses. 12 The caveat which had been lodged over the Henstock Street property was for an amount of approximately $420,000. There was a mortgage in favour of the National Australia Bank for approximately $1.44 million and there was a further caveat in favour of a trust which related to the businesses being undertaken by Mr and Mrs Swart through their companies. 13 Although Ms Swart sought to rely upon financial material indicating that they were not without their resources, I note that the two main sources relied upon, apart from what may be seen as a dispute as to the equity in the company, were personal items and furniture which she suggested had an estimated value of at least $230,000. Secondly, it was said that the value of the net assets of the companies was slightly in excess of $2 million dollars. 14 There are difficulties in taking these figures at face value for the purposes for which they presently need to be considered. It is at least doubtful whether a successful appellant should be forced to recover money through sale of household contents and such items, even if that course were legally available to it. And in relation to the assets of the companies there is a significant proportion of those assets, indeed the bulk of them, which are loans said to have been made on the security of mortgages over real property, but as to the recoverability of which there must be significant doubts, especially when account is taken of what might be the costs of recovery through the companies. 15 The question of the prejudice which Mr Swart will undoubtedly suffer, albeit for a limited period, in foregoing immediate access to the proceeds of the judgment against Mr Carr must be offset by the fact that there is a real risk that if the payment is made in full the amount will not be recoverable in full. 16 I am conscious of the fact that there is a tension in the approach which this Court must take to these sorts of claims. If it can be shown that a plaintiff is in need of funds, then it is likely, especially in personal injury cases, that some amount of the judgment debt will be released. On the other hand, of course, the greater the need of the plaintiff for those funds, the less the likelihood that they will be recovered if the appellant is ultimately successful on the appeal. 17 In the present case I think it is fair to say that the appellant has not set out to demonstrate need for the cash in an immediate sense, but rather in a business and commercial sense has noted the injustice of being deprived of the cash for longer than the period which has already elapsed. 18 There is also an issue as to whether the interest which would be payable on the judgment debt if it remained in the plaintiff's favour would be recoverable under the policy or whether it would be within the cap on the policy, so that if the cap has already been reached it may not be payable by LawCover. 19 Ms Swart sought to argue that there was an amount of some $70,000 which would fall into that category of potential prejudice if the payment were not made forthwith. In my view that is an exaggeration, because one does need to take into account the proposal that the amount be deposited in an interest bearing account and that the account itself would bear interest for the benefit of the ultimate recipient of the judgment debt. That is, Mr Davies confirms, the intention of the proposed payment and I take that to be the ultimate result of the deposit which is proposed. 20 If in fact the cap has been reached, then the fact that there will be additional amounts expended which will not be recoverable either by way of costs or otherwise is not a matter which is going to be affected one way or the other by the time at which the payment is made. 21 I return to the circumstances involving Mr Carr. I am satisfied that Mr Carr will not be able to meet the judgment debt if it is to be enforced at the present time and that he will probably go into bankruptcy as a result of attempts to enforce it. Ultimately, of course, that makes the recovery from LawCover the critical issue so far as Mr Swart is concerned. There may be doubt as to the merit of the appeal brought by Mr Carr. I do not need to consider whether the claim in relation to Mr Carr was properly decided or whether his appeal has a real prospect of success. In the present circumstances the question, as I would understand it, is ultimately whether the appeal brought by LawCover is arguable. That turns upon a reasonably short question as to whether the policy responded to the circumstances of the claim. 22 In my view that point is arguable and hence, for that reason, it is correct to say that if the payment by LawCover at this stage runs a risk of being unrecoverable, then the purpose of the appeal runs the risk of being thwarted. 23 That being the case, and given my concerns in relation to the ability of Mr Swart ultimately to repay the money if it were paid now, I am of the view that the stay should be granted on the terms which LawCover proposes. 24 In saying that, I should make it clear that I do not intend to suggest any undue or inappropriate business conduct would be likely on the part of Mr Swart. The Court was taken to evidence concerning the movement of funds out of South Africa when Mr Swart and his wife came to this country, and the suggestion was implicit in the tender of that evidence that he might be willing to move funds out the country for his own financial benefit even if that might give rise to a risk that those who were properly entitled to those funds at a later date might not be paid. I do not draw that inference, nor do I draw the inference that Mr and Mrs Swart are so impecunious that the amount would not be capable of being repaid if it were provided to them, because they would dissipate. The basis of my conclusion is that they have demands, both of their companies and of the litigation itself, which might well give rise to a significant proportion of the money being put to other uses from which it might not be readily recoverable. It is for those reasons that I would grant the stay on the conditions that I have said.

CARR trading as FORSHAWS NEILL v SWART; LAWCOVER PTY LTD v SWART

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