CEG Direct Securities Pty Ltd v Shining Pty Ltd

Principles to be applied

1. The principles that apply to a stay application of this type are well known. They are referred to in the oft-cited case of Alexander v Cambridge Credit Corporation (Receivers Appointed) [2] .
2. The onus is on the applicant for a stay to demonstrate a proper basis for a stay which will be fair to all parties. The mere filing of an appeal does not give rise to some prima facie entitlement to a stay. The Court has a discretion whether to grant a stay. The Court will consider factors such as the balance of convenience and the competing rights of the parties before it.
3. In general terms, an applicant for a stay must establish that there is at least a reasonable basis or argument to pursue the appeal.
4. In this matter, the plaintiff has annexed to the affidavit of Mr Owens the summary of argument which it has filed or will be filing in the Court of Appeal. Mr Smallbone and Ms Douglas-Baker accept that there is at least a reasonable argument on the appeal.
5. I have read the summary of argument and accept that there is at least an arguable basis for the appeal. Ultimately, just as the outcome of this case turned upon the proper construction of the mortgage and collateral documents, so would the appeal. It could hardly be said that there is no alternative construction available to the plaintiff.
6. One reason why a stay may be granted is that without such a stay the appeal would be rendered futile, that is, the subject matter of the appeal may be dissipated or the right of recovery which may be available to an appellant, in practical terms, may no longer be available.
7. Again, as was said in Alexander v Cambridge Credit Corporation (Receivers Appointed) and indeed in a number of other cases, such as Dwyer v Craft Printing Pty Ltd, [3] where it is apparent that, unless a stay is granted, an appeal will be rendered nugatory, this may be a substantial factor in favour of the grant of a stay.

The plaintiff's position

1. It is the plaintiff's primary submission that if a stay is not granted in respect of order 5, the appeal will be rendered nugatory. This is because the plaintiff would be required to provide to the third and fourth defendants discharges of the mortgages which see they seek to enforce to recover the amounts said to be outstanding to the plaintiff.
2. Of course, I also accept the fact that an appeal may be rendered nugatory is not necessarily determinative. It is a fact to be considered in weighing up the competing interests of the parties or considering the balance of convenience.

The defendants' position

1. In the response to the application, the third and fourth defendants have adduced evidence of their difficult financial position. They are retired persons who find themselves in this position because powers of attorney were forged and mortgages were signed, having regard to those forged powers of attorney.
2. As set out in the affidavit of Hai Rong Li, the third and fourth defendants' assets are essentially three properties, being two at Marsfield and one at Hunters Hill.
3. As both the third and fourth defendants identify, their only other assets are said to be costs orders in their favour in these proceedings, a claim that might be pursued against the Torrens Insurance Fund, personal effects and household items. They have limited savings. Their primary source of income is rental income from the two Marsfield properties, but the rental income is not substantial and appears to have been reduced in recent times.
4. The defendants are in arrears in respect of fees owing to their legal representatives in respect of these proceedings and do not have the means to fund the appeal. An estimate of costs they might have to pay in respect of the appeal has been given in the sum of $60,000.
5. They submit that there should be no stay or that conditions would be imposed on the stay.

Determination

1. I received helpful written and oral submissions from the parties.
2. The real issue between the parties is that the plaintiff submits that an unconditional stay should be granted, whereas the third and fourth defendants oppose a stay but have also suggested terms which might provide for conditions on the stay.
3. These conditions are set out in the proposed short minutes of order provided by the third and fourth defendants. The proposed orders include that: 1. Order 5 be stayed until determination of the appeal, on the basis that the plaintiff accept that a charge given by the third and fourth defendants on 19 November 2020 in favour of their solicitor, David Kam, secure the payment of costs and disbursements in these proceedings and in the appeal by way of a priority over the plaintiff's registered mortgages; and 2. Further, that the third and fourth defendants would undertake to the Court and to accept and submit it as a condition of a stay order that: 1. in the event that the result of the appeal is that there is a sum certain or ascertainable sum secured by the mortgages; and 2. in the further event that it is determined that those mortgages are valid, indefeasible and not liable to be set side and also through the offset extinguishing liability thereunder.
4. Then to the extent that, because of the charge in favour of Mr Kam in priority to the claims of the plaintiff, the plaintiff is prejudiced or disappointed in the recovering of the amount that it seeks, then the plaintiff shall have a first charge over so much of the of the claim that the third and fourth defendants would be pursuing against Sydney Law Practice or Dominic Carbone or the professional indemnity insurer or the Torrens Insurance Fund.
5. As I understand the effect of the position adopted by the third and fourth defendants, it is that should I accept that the plaintiff has a prima facie entitlement to a stay but I should impose the conditions sought by the third and fourth defendants. The effect of those conditions is to give priority to the charge given to the solicitor for the third and fourth defendants in respect of legal costs over the registered mortgages, but give some additional security to the plaintiff in the nature of some priority to it over any amounts that might be recovered by the third and fourth defendants from a solicitor who was formerly involved or the Torrens Insurance Fund.
6. Mr Smallbone submits that by the imposition of these conditions, the Court would be appropriately and fairly balancing the competing interests of the parties whilst, of course, ensuring that legal costs payable by the third and fourth defendants are properly secured.
7. In response to these proposed conditions, Mr Baird submits that: 1. the third and fourth defendants would in fact be improving their position rather than merely maintaining the status quo; 2. the proper approach for the third and fourth defendants is to make an application for security for costs as against the plaintiff, should they wish to secure the legal costs that would be payable by the plaintiff, should the plaintiff be unsuccessful on the appeal; 3. the effect of the conditions is to, in practical terms, require the plaintiff to pay the legal costs of the third and fourth defendants, irrespective of the outcome of the appeal; and 4. further, that the conditions, in particular the conditions relating to the charge on a claim against the former lawyer or the Torrens Fund, are so uncertain and complex that I should not have regard to them as a mechanism for balancing the competing interests of the parties.
8. Mr Smallbone emphasises that the issue of security for costs is in the nature of a red herring. It does not provide an answer to the resistance to the stay application and, further, that the plaintiff appears to be in some way confusing or inflating issues relating to charges and assignments and that the proposed conditions are not uncertain as submitted by the plaintiff.
9. Further, Mr Smallbone submits that the third and fourth defendants are merely seeking to maintain the status quo, being the status quo as it exists, which I take him to mean the status quo as it exists after my judgment.
10. Mr Smallbone did not submit that the third and fourth defendants would find themselves unrepresented on the appeal if a stay order was made. He appropriately and fairly indicated that he could not make that submission at this time but, of course, what may happen in the future is not something that he was required to guarantee or offer an opinion on.
11. As I have said, the third and fourth defendants find themselves in a very difficult position in that they have been involved in this litigation through no fault of their own, that they are retired and that they are living off income from their assets which are, of course, at risk in these proceedings.
12. However, I accept Mr Baird's submission that without a stay order, there is a real risk that the appeal will have no practical utility. Of course, once the mortgages are discharged, the third and fourth defendants must be free to do what they wish to do with their property.
13. These proceedings are being pursued by the plaintiff for the purposes of recovering amounts outstanding, having regard to the security over the properties which the plaintiff says it has.
14. In my view, the granting of a stay order merely preserves the status quo as it was prior to my decision, that is, it leaves the third and fourth defendants, in the same position as they were prior to my decision.
15. The conditions suggested by the third and fourth defendants do not preserve that status quo but rather put the third and fourth defendants in a better position.
16. I understand that the appeal is listed for directions on 7 December 2020. It may be dealt with urgently. It may be dealt with at the same time as an appeal which might be pursued in the matter of Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors (No 2) [4] . The appeal only involves a construction point. At least, in my view, it seems likely that it could be dealt with very efficiently.
17. I have considered the competing interests of the parties and the balance of convenience but, in my view, there is a real risk that without a stay order the appeal would be rendered futile or nugatory.
18. In the circumstances, I propose to grant a stay in accordance with the orders sought by the plaintiff.
19. I order that order 5 of the orders made on 11 September 2020 be stayed until the final determination of the plaintiff's appeal in the Supreme Court of NSW, Court of Appeal proceeding number 2020/285372.

Endnotes

1. CEG Direct Securities Pty Ltd v Shining Pty Ltd (No 2) [2020] NSWSC 1213.
2. (1985) 2 NSWLR 685 at 693-695 (Kirby P, Hope and McHugh JJA).
3. [2009] NSWCA 254 at [7] (Beazley JA).
4. [2020] NSWSC 586. 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: 05 March 2021