Citrus Queensland Pty Ltd (ACN 110 855 359) v Sunstate Orchards Pty Ltd

BETWEEN: CITRUS QUEENSLAND PTY LTD (ACN 110 855 359)

SUNSTATE CITRUS PTY LTD (ACN 112 847 560) [SUBJECT TO DEED OF COMPANY ARRANGEMENT]

AND: SUNSTATE ORCHARDS PTY LTD (ACN 095 659 733)

Background and short synopsis of the principal judgment 1 There are two notices of motion before the Court filed in this appeal proceeding. By motion filed on 14 November 2008 the first and second respondents to the appeal ("Sunstate Orchards" and Mr Strahley) seek an order that the appellants (formerly the three applicants in the principal proceeding) provide security for the first and second respondents' costs of the appeal and an order for a stay of the appeal should any security so ordered not be provided within the time limited by any order. 2 By the second notice of motion filed on 12 November 2008, the applicant appellants seek an order that Order 2 of the Orders of the primary judge, Collier J, made on 5 September 2008 consequent upon an 18 day trial and an extensive judgment in the proceeding comprising 213 pages be stayed until the determination of the appeal filed on 7 November 2008 (time for filing and serving a notice of appeal having been extended by her Honour by 21 days). Order 2 is in these terms: 2. The Cross‑Claim [of the first respondent, Sunstate Orchards] filed 5 June 2007 be allowed as follows: (a) the Cross‑Respondent [Citrus Queensland] pay the Cross‑Claimant damages in the sum of $385,383.00 for breach of the Packing Shed Agreement; (b) the Cross‑Respondent pay the Cross‑Claimant the sum of $150,000.00 for a loan which remains due and owing; and (c) the Cross‑Respondent pay the Cross‑Claimant interest at the annual rate of 10% on the sums ordered to be paid in subparagraphs 2(a) and 2(b) herein pursuant to section 51A Federal Court of Australia Act 1976 (Cth) to be calculated from the date the relevant cause of action arose. 3 On 17 October 2008, Collier J ordered the cross‑respondent to pay the cross‑claimant interest up to the date of judgment on 5 September 2008 in an amount of $163,409.02, in substitution for Order 2(c). On 1 June 2006, the Full Court per Gray ACJ, Spender and Dowsett JJ ordered that the first and third applicants in the proceeding provide security for the costs of the first and second respondents of the proceeding up to the end of the first day of the trial in an amount of $150,000.00. On 5 December 2006, Collier J ordered the first and third applicants to pay a further sum of $75,000.00 by way of security for costs. On 17 October 2008, Collier J ordered the applicants to pay the first and second respondents' costs of the proceedings excluding certain interlocutory costs and gave liberty to the first and second respondents to apply to the Court for an order that monies provided by way of security for costs be released to them. 4 On 29 October 2008, Collier J ordered that an amount of $40,239.06 deposited with a real estate agent (and later paid into Court) be paid (together with accretions) to the first respondent. A part of the cross‑claim of the first respondent against the first applicant involved a claim for damages for contended breaches of an agreement between those parties, described as the Packing Shed Agreement. Under the agreement a deposit of $40,000.00 had been paid to a real estate agent as stakeholder. The first respondent determined the agreement for breach and elected to forfeit the deposit. In dismissing the claim of the applicants and finding for the first respondent on the cross‑claim, the primary judge made the order for release of the deposit monies and accretions to the first respondent's solicitors. Her Honour further ordered in effect that any payment of the deposit monies be stayed pending the first applicant filing a notice of appeal by 7 November 2008 and filing an application for a stay of her Honour's judgment and orders in respect of the cross‑claim by 14 November 2008. Both those steps have occurred and thus the deposit monies remain in Court. 5 Two questions now arise. First, whether and, if so, in what amount should the appellants be ordered to provide security for the costs to be incurred by the first and second respondents in the appeal. Secondly, whether the orders of the primary judge in relation to the cross‑claim ought to be stayed. At the outset, it should be noted that Mr Lynch, the solicitor for the appellants who appeared for them on both motions conceded that the appellants ought to provide security for the first and second respondents' costs of the appeal. The scope of the controversy is the amount of the security. The applicants on the motion for security principally rely upon the affidavit of Mr James Alexander McLelland, an expert costs assessor, filed 21 November 2008 to support the proposition that the reasonable and likely costs to be incurred by the first and second respondents in responding to the issues raised by the 63 grounds of appeal, amount to $198,240.00. The appellants rely upon the affidavit of Mr Michael Anthony Graham sworn 25 November 2008, an expert costs assessor, who says that the allowable items of party and party costs likely to be incurred by the first and second respondents in addressing the grounds of appeal amount to $50,000.00. 6 I will consider the scope of that controversy shortly. In doing so it is useful to identify the issues raised by the principal proceeding and her Honour's treatment of those issues. That background is more particularly relevant to the question of whether an order ought to be made staying her Honour's orders in respect of the cross‑claim. In relation to both motions however, the first and second respondents to the appeal contend that no arguable ground of appeal is raised by the notice of appeal and that circumstance is said to be persuasive in the exercise of the discretion with the result that an order ought to be made for security for costs for the full amount of what is said to be the realistic body of costs to be incurred. Further, the absence of any arguable ground of appeal ought to weigh persuasively in the balance, it is said, against making an order staying any of the orders on the cross‑claim.

The claims 7 The appellants brought original proceedings for relief pursuant to the Trade Practices Act 1974 (Cth) ("the Act") arising out of contended contraventions of that Act. The appellants contended that in reliance upon a number of representations made by the first respondent, Sunstate Orchards, to the first and second applicant appellants ("Citrus Queensland" and Mr Tracy), including a contended failure to disclose particular matters, Citrus Queensland entered into a contract with the first respondent (as vendor) to purchase land and fruit trees and a fruit crop standing on the land (i.e. two citrus orchards: one described as the Tiaro Orchard and the other as the Bundaberg Orchard); particular chattels; and, in addition, a contract to purchase land located at Maryborough containing a fruit packing shed. 8 The appellants as applicants also contended that Citrus Queensland undertook a series of implementation steps in reliance upon the representations such as entering into particular financial facilities, raising loans and executing securities so as to effect settlement of the citrus orchard(s) purchase. Additionally, it was said that Mr Tracy caused the third applicant (Sunstate Citrus) to be incorporated so as to commence conducting the business of a fruit orchardist on and from the two citrus orchards including the packing shed land. Sunstate Citrus also, it was said, undertook a series of implementation steps in reliance upon the same representations including such steps as executing a guarantee and indemnity in favour of the National Australia Bank and entering into a lease with Citrus Queensland to occupy and use the land in conducting its orchard business. Sunstate Citrus contended it incurred trading losses in undertaking its business. 9 The representations were said to consist of representations as to matters of existing fact such as a representation that in the 2001 crop year the orchard land had produced 109,314 cartons of fruit with a particular yield; representations as to future matters such as representations as to proceeds of sale, costs of production, net profit and production pack‑out rates that would be realised in respect of particular fruit crops that would be grown on the orchard lands in the period 1 January 2005 to 31 December 2005 (and other periods); and projected bin yields (i.e. production capacity), cartons packed, yield rates and average carton prices for particular fruit, for particular projected periods, among other matters. These are simply illustrative examples drawn from the applicants' further amended statement of claim in the proceeding. As to silence, the appellants contended that the first respondent had failed to disclose a range of matters such as nominated farm management reports, particular emails, pesticide spray reports and extensive other information as pleaded. The representations relied upon by the applicants are extensive and set out at paras 11, 12, 13, 14, 15, 16, 17 and 17A of the amended statement of claim. Each factual contention and the legal analytical framework for the resolution of each aspect of the controversy was comprehensively dealt with in her Honour's reasons. 10 All of these representations (conduct) were said to be misleading when made either because the contended facts were not so; the first respondent knew certain matters not to be so; the first respondent had no reasonable grounds (and, it was said, knew that it had no reasonable grounds) for any of the predictions as to future matters and, as to the non‑disclosed matters, they were said to be misleading on the footing that having regard to the field of contended representations, Mr Tracy and thus Citrus Queensland had a reasonable expectation that the identified matters, documents and information would be disclosed to them. 11 The appellants contended that Mr Strahley and Mr Breed (the third respondent) aided, abetted, counselled or procured or were knowingly concerned in and a party to the contraventions on the part of Sunstate Orchards (the first respondent). 12 The appellants contended that loss and damage had been suffered in reliance upon the representations. The purchase price paid under the agreements by Citrus Queensland for the acquisition of the properties, crops, chattels and packing shed was $4,500,000.00. Particular fees, expenses and outgoings were also incurred by Citrus Queensland in connection with the acquisition amounting in all (including the lands) to $4,663,904.08. The third respondent, Sunstate Citrus, incurred trading losses of $544,801.12 constituting total loss and damage of $5,208,705.20 less what was described as the "current value of the land" acquired, of $2,000,000.00 resulting in an amount claimed of $3,208,705.20. By particulars, the applicants identified their distributed losses in this way. Citrus Queensland identified its loss arising directly out of the acquisition of "the lands" (taking account of the current value calculation). Mr Tracy identified his loss as "fees and maintenance payments" of $25,207.78 and Sunstate Citrus identified its "trading losses" as $544,801.12. In the aggregate, $3,208,705.20. 13 The first and second respondents took issue with the content of all of these contentions. In addition, Sunstate Orchards (the first respondent) brought a cross‑claim against Citrus Queensland on the footing that Citrus Queensland had failed to settle the contract for the acquisition of the packing shed land, had repudiated the contract and had caused Sunstate Orchards to suffer loss and damage. That claim resulted in judgment for damages on that part of the cross‑claim of $385,383.00. In addition, the first respondent cross‑claimed against Citrus Queensland for payment of an unpaid loan of $150,000.00 plus interest.

The resolution by the primary judge 14 In dealing with that controversy, the primary judge dismissed all claims of all applicants. No contended misrepresentation was established on the evidence before her Honour. There was no finding of misleading or deceptive conduct. Her Honour concluded that there was no reliance upon the contended conduct of the respondents, by any of the appellants. Her Honour determined that no case was made out against Mr Strahley under s 75B of the Act and nor was such a case properly pleaded against Mr Strahley. The amended application was dismissed and the cross‑claim upheld by Order 2, ultimately in an amount of $698,792.02 having regard to the orders of 5 September 2008 and 17 October 2008 (made up of principal claim $385,383.00; loan monies $150,000.00; and interest $163,409.02). 15 In so deciding, the primary judge was called upon to comprehensively examine a substantial body of evidence going to each of the representations. The primary judge described Mr Strahley and Mr Tracy as the two key witnesses in the proceeding. Her Honour concluded that Mr Strahley was an impressive witness who clearly had a thorough knowledge of the citrus industry, the operation of the relevant properties as a business and issues relevant to the operation of those properties. Mr Strahley, in her Honour's view, gave responsive and frank answers in the course of rigorous cross‑examination over several days. Her Honour concluded that Mr Tracy was a witness who endeavoured to be truthful although his demeanour in Court and his manner of giving evidence suggested to the primary judge that Mr Tracy was a man of considerable determination who once having formed a view was loathe to relinquish it or even modify his view in the light of emergent evidence. Mr Tracy struck her Honour as a man who was looking for traps in questions put to him with the result that his evidence was on occasion characterised by an absence of genuine responsiveness. 16 The point of these illustrations is simply to note the importance of the evidence of both witnesses and her Honour's conclusion that where there was a conflict between the evidence of Mr Strahley and that of Mr Tracy tested against all the evidence as to events, the primary judge on balance preferred the evidence of Mr Strahley. The appellants contend that her Honour's findings on these questions are unsound as against the weight of evidence particularly having regard to some of the illustrations upon which the primary judge relied in reaching those conclusions and unsound in the application of that view in the fact‑finding process on each of the contended misrepresentations. 17 Apart from those questions of credit and emphasis, the primary judge considered an issue concerning the evidence of Mr Breed which is said to give rise to an error of law in her Honour's treatment of the issue which has also been influential on her Honour's view of credit and thus fact‑finding. Mr Breed is the third respondent. He is not represented by the lawyers for the first and second respondents. He was not represented at the trial. He was formerly the general manager of the business conducted at the orchards. He swore an affidavit on 14 July 2006 concerning matters including the nature of the records system and the reliability of information produced by that system. The affidavit was tendered in evidence by the first and second respondents. Annexed to Mr Breed's affidavit was an unsigned statement containing statements about pack‑out rates and the nature of information contained in particular computer records. Her Honour observed that Mr Breed had sworn in his affidavit that the unsigned statement had been prepared by the solicitor for the appellants on or about 31 May 2005 following discussions between Mr Lynch, Mr Tracy and Mr Breed. Her Honour notes that Mr Breed swore that he refused to sign the statement prepared by Mr Lynch subsequently annexed to his affidavit because the unsigned statement was not accurate. Mr Breed's unsigned statement was filed by the appellants on 21 June 2006 and he was subpoenaed by the appellants on that date to appear as a witness in the proceeding. He was neither called by the appellants nor the respondents who tendered his affidavit. The respondents gave the appellants notice seven days prior to the commencement of the trial that they would not be calling Mr Breed. Her Honour concluded that "no weight" ought to be given to Mr Breed's unsigned statement and nor should any adverse inference be drawn against the respondents in failing to call Mr Breed as a witness. As to Mr Breed's affidavit, her Honour concluded that since the affidavit was untested "little weight" should be attributed to it in respect of any matter in controversy and the "practical approach" to adopt was that since neither party was prepared to call Mr Breed as a witness in the proceedings no inferences ought to be drawn against either party on that account. 18 The appellants contend that the primary judge has mis‑applied the rule in Jones v Dunkel (1959) 101 CLR 298 and that the primary judge has relied upon the evidence of Mr Breed in reaching conclusions about the evidence of Mr Tracy and matters going to Mr Tracy's credit. Further, the appellants say that they have been denied procedural fairness as they were not provided with an opportunity to cross‑examine Mr Breed in respect of his affidavit tendered in evidence by the respondents. These matters concerning Mr Breed are said to involve errors of law affecting fact‑finding and give rise to arguable grounds of appeal. Mr Lynch gives emphasis to these matters particularly the contended denial of procedural fairness in the opportunity to cross‑examine Mr Breed, in his oral submissions in support of the stay application. Mr Lynch says that the appeal is not frivolous and raises arguable grounds. He says that if the first and second respondents resist the stay of the orders on the cross‑claim on the ground fundamentally that the appellants have failed to reach the threshold of an arguable ground of appeal, the challenge to the findings on credit and their relationship with the evidence of Mr Breed raises at least an arguable ground of appeal.

The appeal 19 The notice of appeal recites 63 grounds of appeal. It is not useful in these reasons to recite all of the grounds of appeal nor is it useful to undertake an analysis of the merits of any of them. It is useful however to identify the focus of the grounds of challenge in exercising the discretion in relation to the stay of the orders on the cross‑claim, in particular. 20 By grounds 1, 2, 7, 14, 17, 18, 21, 23, [23 again], 26, 27, 28, 31, 32, 34, 37, 38, 43, 44, 45, 46, 49, 52, 54, 55, 58 and 60, the appellants contend that the primary judge reached findings which are against the weight of evidence. By grounds 5, 7, 8, 9, 10, 12, 13, 20, 25, 30 and 36, the appellants contend for errors of law in the reception into evidence of Mr Breed's affidavit, the denial of an opportunity to cross‑examine Mr Breed (procedural unfairness), the refusal to draw an adverse inference against the first and second respondents in accordance with Jones v Dunkel and errors of law in reliance upon the affidavit in relation to particular findings. By ground 3, the appellants say that the adverse finding on credit based upon a failure to adduce evidence of a serious accusation is unreliable because the appellants did not plead such an allegation and were not obliged to adduce evidence of it. By ground 4, the appellants say that credit findings concerning Mr Tracy which rely upon allegations by him of the use by the first respondent of a particular pesticide are unreliable and made in error as the particular allegation was not pleaded against the first respondent. 21 By grounds 15 and 15A, the appellants say that the primary judge erred in law by finding that the first respondent when authorising the provision of a valuation dated 1 June 2004 to Mr Tracy, did not contravene s 52 of the Act on the basis that the valuation mentioned financial years not crop years. 22 By grounds 22 and 23, the appellants contend that the primary judge erred in law in concluding that the contended failure to disclose particular matters was misleading or deceptive. 23 By ground 29, the appellants challenge a finding of the primary judge concerning the importance of particular conduct contended against Mr Strahley in relation to access to packing shed records, as those matters were not pleaded against the first and second respondents. Grounds 31, 32, 33, 34, 35 and 36 contend for findings said to be against the weight of evidence and errors of law concerning a document described as the "most likely scenario". By ground 40, findings inconsistent with earlier findings are asserted. A number of the grounds of appeal attack findings on the footing of errors of law in reaching those findings. Ground 48 for example contends that a finding that a particular document was not an unqualified representation as to yield figures was wrong in law. 24 These illustrations of some of the grounds of appeal go to four criticisms made of the grounds of appeal by the respondents so as to make good their contention that no arguable ground of appeal is raised by the notice of appeal and thus no stay ought to be ordered. First, the primary judge found that from an early date Mr Tracy was intent upon acquiring the orchards and packing shed (through the relevant corporate vehicles and trusts); no reliance on any contended representation was made out; the evidence of reliance was examined comprehensively; the correct legal tests were applied and the appellants simply seek to substitute a different view of the facts and of the witnesses to that of the primary judge, by way of an appeal. Such an approach denies the trial judge's assessment of demeanour and fails to give due weight to the forensic advantage of the primary judge in assessing each witness against the background of the documents and other evidence put to the witnesses. The respondents were put to their trial and were successful on the facts and the law. They ought to have, it is said, the benefit of the remedies they have obtained as a matter of law. 25 The appellants, apart from these challenges to the findings, contend for errors of law in the analysis of reliance (see grounds 52, 53, 54, 56, 57, 58, 59 and 60). The respondents say that there is no demonstrated legal error on the part of the primary judge in the analysis or method applied by her Honour in reaching the conclusions on reliance. The respondents say that since there is no legal or analytical error and the challenge is to questions of credit and findings said to be against the weight of evidence, an Appeal Court would not disturb the findings. In approaching the exercise of the discretion in relation to a stay, the gravity of the task confronting the appellants in setting aside such findings ought to weigh heavily, it is said, against making a stay order. 26 The second criticism is this. The respondents say the appellants have not established that any loss or damage was suffered and thus the cause of action fails. The criticism is put on this basis. In the action, each applicant claimed loss particular to that applicant ([12] herein). Oddly, the appellants by Order 3 of the notice of appeal all seek judgment against the first and second respondents for the aggregate damage of $3,208,705.20. That seems to be an inconsistent position. The respondents say that there was no dispute on the evidence that the first appellant completed the orchard purchase contract (i.e. the Tiaro and Bundaberg Orchards), paid $3.1 million on settlement and borrowed $150,000.00 from the vendor (as part vendor finance) to complete settlement. The contract was signed by Mr Tracy on 16 January 2005 and completed by Citrus Queensland on 21 March 2005. The appellants as applicants at trial sought to establish, it is said, the "current value" of the orchards rather than the value at the date of contract or perhaps settlement. Thus, the appellants failed to strike the difference between the reliance price paid under the contract and the Kizbeau "real" or "true" or "intrinsic" value of the orchards at acquisition (Kizbeau Pty Ltd v W G & B Pty Limited (1995) 184 CLR 281; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640) taking account of all known matters relevant to that comparison at the date the assessment was carried out (HTW Valuers [39]‑[41], Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 27 The respondents say that the evidence established a valuation report completed by Mr Bailey on 17 January 2005 which assessed the relevant properties plus the crop as $4.5 million comprising the orchard lands and packing shed ($3,638,923.00), plant and equipment ($450,000.00) and crop ($410,000.00). However, a further version of the valuation report dated 17 February 2005 was provided to the National Australia Bank which at the request of Mr Tracy, excluded the packing shed. That report valued the remaining items at $4,050,000.00 which on the evidence at the date of acquisition exceeded the price paid by the first appellant for those assets. Thus no loss arises. Further, the respondents say that the valuer called by the first appellant took into account in determining marketability and value, the proposed damming of the Mary River and the affect of that event upon water licences. The respondents say that the valuer simply failed to identify the affect of that extrinsic factor upon market value and thus the method of determining value is flawed. Moreover, the first appellant's valuer, Mr Green, is said to have adopted a flawed method by focusing upon the notion of current market value rather than the relevant comparative value and he too failed to take into account intervening events affecting value and thus the true measure of loss or damage. For these reasons, no loss or damage is demonstrated, it is said, with the result that the appellants must necessarily fail in their appeal. 28 The third appellant also claimed trading losses as damages. The respondents say that there are two fatal problems with that claim. First, the evidence did not establish that the claimed trading losses were suffered as a direct consequence of contravening conduct in the sense contemplated by Sheppard,Wilcox and Pincus JJ in Netaf Pty Ltd & Anor v Bikane Pty Ltd (1990) 92 ALR 490 at 494 and secondly, the third appellant was in any event insolvent from incorporation and its guiding mind, Mr Tracy, had little experience in the industry on the evidence and findings at trial. 29 The appellants say that these observations about damages and evidence going to true value or otherwise at a relevant date were ultimately not the subject of thorough analysis by her Honour as her Honour elected not to deal with damages having made findings on other matters with the result that the application was to be dismissed. 30 The third criticism is this. The respondents say that the appellants cannot succeed in the claim against Mr Strahley based upon s 75B of the Act because the relevant integers were not properly pleaded and thus the claim failed at the threshold. The respondents say the appellants failed to formulate a case which met the requirements of the section as understood and explained in Yorke & Anor v Lucas (1985) 158 CLR 661 per Mason ACJ, Wilson, Deane and Dawson JJ and Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 per Heerey, Sundberg and Dowsett JJ. Nothing can now remedy that difficulty. 31 The fourth criticism is a restatement of the earlier propositions that because the grounds of challenge to the judgment are fundamentally directed to a challenge to findings of credit and findings of fact said to be against the weight of evidence, the grounds of appeal deny the importance of the assessments and forensic analysis of the facts undertaken by the primary judge and simply seek to substitute the Court's view on appeal for that of the primary judge. 32 I have examined these contentions in relation to the grounds of appeal in a little detail as the respondents urge upon the Court the notion that there is simply no arguable ground of appeal raised by the appellants. Because the respondents have been put to trial, resisted the appellant's claims and demonstrated a right at law to be paid the amount of the cross‑claim, the respondents say they are entitled to the unconstrained benefit of the judgment and orders. To do otherwise is to put the trial process to the position of simply a provisional judgment. 33 It seems to me that the motions should be determined on the following basis.

The motion for security for costs 34 Section 56 of the Federal Court of Australia Act 1976 confers a broad discretion on the Court to make an order for security for costs (Bell Wholesale Co. Pty Ltd v Gates Export Corporation (1984) 2 FCR 1 per Sheppard, Morling and Neaves JJ; Cameron's Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46 per Burchett J; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 per French J at 515) including an order for security in an appeal. The appellants concede that an order for security ought properly be made requiring the appellants to provide security. The appellants further concede that there is a jurisdiction to order security for costs prospectively and also power to order security for costs already incurred such as costs associated with the making of the application for security for costs. Having said that, the appellants contend that any order for security ought, in this case, to operate only prospectively. The first and third appellants are not in a position to be able to pay the first and second respondents' costs of the appeal if they are unsuccessful on appeal. On 9 August 2005, Sunstate Citrus (the third appellant) entered into a Deed of Company Arrangement. Recital A of the Deed records that on 23 June 2005, Mr Tracy [the director] resolved to the effect that in his opinion the company was insolvent or likely to become insolvent at some time in the future and that Mr Hambleton be appointed as administrator under Part 5.3A of the Corporations Act 2001 (Cth). Moreover, on 8 November 2006, Mr Tracy swore an affidavit in the respondents' application for security for costs in relation to the principal proceeding in which he said that neither the first nor third applicants [appellants] "has sufficient funds to provide that security either by 4pm tomorrow or at all". In the course of evidence during the trial, Mr Tracy conceded that the first applicant [appellant] did not have sufficient assets to meet any judgment ordered against it. Mr Tracy also conceded that as to the third applicant "it too has no assets". At trial, Mr Hambleton gave evidence that in his view there was "a strong prospect" that the third appellant had been "insolvent from incorporation". Plainly enough, there is no prospect of the third appellant paying any orders for costs against it and there seems little likelihood of any satisfaction from the first appellant. The respondents inevitably look to the individual, Mr Tracy, the second appellant for their costs should they be successful in the appeal. The second appellant is already subject to a substantial order for costs and neither the first nor the second appellant will be able to discharge those orders. Mr Tracy has not filed an affidavit in the proceeding by which he seeks to establish his capacity to satisfy existing costs orders or costs to be incurred except to say this. The appellants contend that $50,000.00 should be provided by way of security. Presumably, the appellants are in a position to provide that amount and will do so quickly in order to enable the appeal to proceed. The real question is what is the appropriate amount to properly secure the interests of the respondents? 35 As to that matter, Mr McLelland has prepared an item by item estimate of the likely costs. He says that the professional costs likely to be incurred by the solicitors for the first and second respondents are $53,240.00 and the likely outlays including counsels' fees are $145,000.00 resulting in total costs of and incidental to the appeal of $198,240.00. The appellants, aided by the analysis of that estimate by Mr Graham, raise a number of objections to the formulation of the estimate. First, the estimate has been prepared on the footing of an assumption, wrongly made, that the appeal will engage the Court for five days. Secondly, the estimate has been prepared on the basis of a full indemnity of the costs the first and second respondents would be likely to incur rather than an assessment of the likely party and party items recoverable pursuant to a costs order. Thirdly, the order ought to be confined to costs to be incurred prospectively and thus ought to exclude any costs included in the estimate relating to the application for security. Fourthly, Mr McLelland's estimate allows items in relation to both senior and junior counsel on the appeal and items relating to conferences and consultations between senior and junior counsel and instructing solicitors. The appellants say that a number of those conferences and the degree of engagement between senior and junior counsel and instructing solicitors is not necessary in order to properly respond to the appeal. Criticism is made of senior and junior counsels' role in the preparation and settling of submissions on appeal. The appellants say that the respondents' submissions ought to be principally prepared by junior counsel. Finally, Mr Graham exercised his judgment as to the likely length of the appeal on the basis of matters identified in the letter of instruction to him whereas Mr McLelland proceeded on the footing that the appeal would engage the Court for five days. 36 The primary proceeding involved substantial proceedings which occupied 18 sitting days of trial. There was a substantial body of evidence and the primary judge in analysing the material prepared reasons for judgment of 213 pages. Senior and junior counsel were retained on the trial and the issues involved assets of some millions of dollars. There are many grounds of appeal although it is true that a number of the grounds may be clustered around common themes. Nevertheless, each contention must be examined properly. Since the grounds in many respects involve challenges to the reception and treatment of evidence and challenges to findings, the appeal is likely to take some considerable time. Although of course Mr Lynch is not held to any ultimate view about the length of the appeal, he thinks that should the appeal address each of the grounds of appeal, the likely sitting days will be three and a half days. Mr Lynch believes that there is a possibility that the appellants' arguments in relation to the procedural unfairness points (and related matters) may be treated as preliminary grounds and if the Full Court is persuaded by those grounds, the remaining grounds may not be reached. In that event, the appeal would take one day. However, there is no order for bifurcation of the appeal and all grounds will be dealt with together. It is only sensible to proceed on the footing that the appeal will take between three and potentially five days. The appeal record is likely to be substantial (perhaps 2,500 pages) and both senior and junior counsel will be retained by the respondents on the appeal. I am satisfied that it is appropriate as a matter of party and party costs to retain senior and junior counsel on the appeal. That engagement will necessarily involve consultation between senior and junior counsel on the questions raised on appeal and consultation between counsel and their instructing solicitors. Senior and junior counsel and instructing solicitors will necessarily be engaged in formulating and settling the respondents' submissions. In Mr Graham's review, he has eliminated all costs in relation to the motion for security for costs. He has also made reductions to items of cost related to dealing with the outline of submissions of the appellants and items involving any engagement on those matters between the solicitors for the respondents and their senior counsel. The substantial items of reduction involve differences of opinion between Mr McLelland and Mr Graham as to the allowable counsels' fees either in terms of the amount or as a recoverable item at all on the footing that some steps taken by senior counsel are not necessary and other steps taken by junior counsel are either to be reduced or not allowed. Other reductions have been made to transcript items and care and consideration on the part of the solicitors. Similarly, Mr Graham's assessment does not take account properly of the prospect of a longer hearing. The respondents also observe that Mr Graham's analysis does not take account of a notice of contention the respondents propose to file in order to support the judgment in relation to the contention that no demonstrated loss or damage has been suffered by the appellants. 37 Having regard to the field of issues, the substantial body of material likely to comprise the appeal books, the retainer of senior and junior counsel on the appeal, the likely preparation time and number of likely sitting days (say three and one half days, i.e. four fee days), I propose to discount Mr McLelland's estimate of $198,240.00 and order the appellants to provide security for the first and second respondents costs of the appeal and the notice of motion for security for costs, in an amount of $105,000.00. I am satisfied that the application for security was made promptly and was reasonable in all the circumstances. I am satisfied that it is appropriate to provide security for the costs of the motion. Such an application is not uncommon and if promptly made an applicant for security is reasonably entitled to the costs incurred in making the application. A respondent to an appeal confronting at least two parties with no capacity to meet the costs a respondent will incur, will quite understandably seek to protect its position by making an application for security. The quantum of the security to be provided is ultimately a matter for the exercise of discretion (Bruce Pie & Sons Pty Ltd v Mainwaring (1985) 1 Qd R 401 per McPherson J; Procon (GB) Ltd v Provincial Building Co. Ltd (1984) 2 All ER 368; see generally Sagacious Procurement Pty Ltd v Symbion Health Ltd [2007] NSWCA 205). Having reviewed the schedule of items annexed to the affidavit of Mr McLelland and the commentary prepared by Mr Graham, I am satisfied that the discount applied to the costs Mr McLelland assesses as likely to be incurred is appropriate notwithstanding that it represents a discount of 45% of the claimed costs.

The motion for a stay 38 A preliminary question has arisen in relation to the stay motion. The motion was filed on 12 November 2008 and like the security for costs motion was returnable before the Court on 28 November 2008. However, the motion was not served by the appellants upon the respondents until shortly before 28 November 2008. The respondents to the motion prepared an affidavit on behalf of Mr Strahley sworn and served on 27 November 2008 that sought to address a contention that the first respondent had not lodged an annual return with the Australian Securities and Investments Commission ("ASIC") since 2003. The appellants objected to the reception of the affidavit into evidence. However, leave was given to read and file the affidavit. The appellants urged that little weight be given to the affidavit as the appellants had not had an opportunity to respond to it and it "raises more questions than it answers". Mr Strahley says that he is a director of the first respondent which is a wholly owned subsidiary of Hancock Farm Company Pty Ltd ("Hancock"). Mr Strahley annexes to his affidavit ASIC searches for the first respondent and Hancock dated 21 November 2008 and 27 November 2008 respectively. Mr Strahley says that as at 25 November 2008, Hancock had in its National Australia Bank Account, a credit balance of $1,502,859.73. As at June 2008, Hancock's fixed asset portfolio included property valued by external valuers at $6 million. By para 6 of his affidavit, Mr Strahley proffered this undertaking on behalf of Hancock: 6. Hancock undertakes to pay to the first and third appellants any money or damages received by the first respondent pursuant to the Court's judgment dated 5 September 2008, including the packing shed deposit of $40,000.00 and any accruals in the event that the appellants' appeal is successful and if the first respondent is unable to repay any such amounts to the appellants. 39 The principles influencing the exercise of the discretion are these. Order 52, r 17(1) suggests by its language a broad discretion, unlimited, in the Court to order a stay notwithstanding that an appeal shall not operate as a stay of execution or of proceedings under the judgment appealed from (Powerflex Services Pty Ltd v Data Access Corporation (1996) 137 ALR 498, Burchett J). The starting point however, is to recognise that the discretion, although importantly broad, is a true exception, conditioned by demonstrated circumstances, to the general proposition that an appeal does not operate as a stay. That is because the judgment appealed from is prima facie assumed to be correct and a person put to trial in a controversy rather than enjoying the benefit of performance or settlement is entitled to enforce the orders which when made reflect the position inter‑parties according to law. However, consistent with Powerflex and Alexander v Cambridge Credit Corp. Ltd (receivers apptd) [1985] 2 NSWLR 685 per Kirby P, Hope and McHugh JJ at 694, it is sufficient but also necessary that the applicant for a stay demonstrate "a reason" or an "appropriate case" to warrant the exercise of discretion in the applicant's favour. Otherwise, judgments of the Court in its original jurisdiction might be treated as merely provisional. A reason tipping the balance in favour of an applicant in an appropriate case will take account of whether the applicant has discharged an onus of demonstrating that a stay order, in the terms proposed, is "fair to all parties" (Alexander v Cambridge Credit at 694F) having regard to the balance of convenience (i.e. the balance of risks and irremediable harm) and the competing rights of the parties (Alexander v Cambridge Credit at 694G). For example, is there a risk that should a stay be ordered, the appellants will dissipate or transfer assets that might otherwise have answered the judgment? Should a stay be conditioned on the payment of money into Court, a payment of some monies to the judgment creditor or the provision of security for the judgment debt? 40 "Fairness" will be, in part assessed, by an applicant demonstrating that the benefit of a successful appeal will be taken away in every practical sense or rendered nugatory, if no stay of the primary order(s) is granted. Such a consideration has been described as a "substantial factor" influencing the discretion to order a stay (Alexander v Cambridge Credit at 695D). Weighed in the balance is a preliminary non‑speculative assessment of whether the appellant by the grounds of appeal has raised an arguable case. Such an assessment however is designed to be "protective" of the judgment creditor in the sense of being undertaken to test whether the appeal has "been lodged without any real prospect of success and simply in the hope of granting a respite against immediate execution upon the judgment" (Alexander v Cambridge Credit at 695F). These principles have been applied in Powerflex v Data Access Corporation; Starborne Holdings Pty Ltd v Radferry Pty Ltd & Ors [1998] FCA 548; Henderson v Amadio Pty Ltd (No. 3) (1996) 65 FCR 66 and other cases in this Court. The assessment of the prospects of success of the appeal by reference to such a test reflects a low threshold of arguability. In Sevenhill Holdings Pty Ltd v Musovic [1992] FCA 372, French J put the notion of an appeal reflecting an arguable prospect of success in these terms: In saying so, I accept that the very findings which underpin [it] are under challenge in an appeal which is not frivolous, that is to say, an appeal which has an arguable prospect of success. 41 In exercising the discretion to grant a stay or fashion the particular terms of intervention, the Court would ordinarily only impede the enforcement of its orders pending appeal so far as is necessary to ensure that orders which might ultimately be made by the Court on appeal can be given effect without leaving residual injustice in the hands of the party ultimately successful, as a residue of the first instance orders being performed, absent a stay. That is why the Court gives particular attention to whether an appeal might be rendered nugatory by the refusal of a stay and whether an appellant would be irremediably prejudiced if the stay were not granted yet its appeal ultimately upheld (Cook's Construction Proprietary Limited v Stork Food Systems Australasia Pty Ltd [2008] QCA 322). The risk that an appeal may be nugatory must be balanced against the risk of prejudice to the party who succeeded at first instance if execution of the judgment is stayed (Sevenhill Holdings Pty Ltd v Musovic per French J). On the question of a nugatory appeal, the Queensland Court of Appeal (Keane JA; McMurdo P and White AJA agreeing) in Cook's Construction v Stork Food Systems considered that even if the refusal of a stay were, in the circumstances of that case, to lead to the receivership or liquidation of the appellant, substantive rights could nevertheless be pursued by the receiver or the liquidator. 42 The appellants say the exercise of the discretion in this case is influenced by these considerations. An appeal will be rendered nugatory where because of the financial status of a party there is no reasonable prospect of recovering money paid pursuant to the judgment. The appellants say that the first respondent's financial status is uncertain as ASIC searches reveal that no annual return has been lodged since 2003, that is, a period of five years. Because Mr Lynch has not been able to respond to the facts deposed by Mr Strahley in his affidavit of 27 November 2008 and the attached ASIC search of the first respondent dated 21 November 2008, Mr Lynch urges that no regard be had to that affidavit. As to the deposit monies, the appellants say that the respondents did not seek a specific order for the payment of the deposit as part of its cross‑claim but rather brought a general claim for damages. Since the appeal has an arguable prospect of success and any prejudice to the respondents from the granting of the stay can be ameliorated by the investment of that sum, retained in the McCullough Robertson Trust Account pending the outcome of the appeal, no stay order, it is said, ought to be made. 43 The respondents say that Citrus Queensland has not demonstrated circumstances sufficient to warrant a stay, for these reasons. First, the prospects on appeal fail to reflect an arguable ground of appeal. Secondly, no undertaking has been given by Citrus Queensland not to dispose of or further encumber its assets pending appeal. Thirdly, no security is offered to the first respondent for the judgment sum and the first appellant has not offered to pay the judgment sum into Court or into an interest bearing account pending the determination of the appeal. Fourthly, the refusal of a stay will not render the appellants' appeal nugatory. The respondents say that there is no evidence that the first respondent, Sunstate Orchards, could not pay any sum received in satisfaction of the judgment to the first appellant should the appeal be successful. In any event, the respondents point to the undertaking offered by Hancock to pay to the first appellant any money received by the first respondent pursuant to the judgment of 5 September 2008 including the deposit monies together with accretions in relation to the Packing Shed Contract, should the first respondent be unable to repay the judgment sum, upon the first appellant being successful. The respondents say that the evidence of Mr Strahley demonstrates that Hancock has sufficient assets to support that undertaking. Further, the respondents say that having regard to the findings, the deposit monies paid into Court by the agent in connection with the Packing Shed Contract ought to be paid to the first respondent. Finally, the respondents say that the appellants have been unable to point to any irremediable harm to the first appellant if the stay is refused and the appeal is ultimately successful. 44 Although the respondents contend that four grounds of criticism of the appeal ([24]‑[32]) demonstrate that the appeal can not succeed and no arguable ground of appeal has been articulated, the grounds of appeal do not fall into the class of case described in Alexander v Cambridge Credit Corporation or Sevenhill Holdings v Musovic, notwithstanding the difficulties the appellants confront. In other words, the appellants have raised contentions that are other than frivolous. It is true that many of the grounds of appeal challenge findings of fact as against the weight of evidence. Similarly, the grounds of appeal call into question the findings of the primary judge on questions of credit in circumstances where the primary judge had the benefit of assessing the evidence of Mr Tracy and Mr Strahley in the context of all the evidence. Nevertheless, the appellants are entitled to seek to persuade the Court on appeal, that the various challenged findings ought not to have been made or that errors of law were made in the treatment of particular topics such as reliance or any of the other matters framed by the notice of appeal. In so observing, of course, I make no comment about the merits or otherwise of any particular matter raised by any of the grounds of appeal. 45 However, the first appellant has no capacity to pay the judgment debt or costs. No protective mechanism has been put forward by Mr Tracy or the first appellant to ensure that any stay order is "fair to all parties". Mr Tracy has not offered any undertaking on behalf of the first appellant not to charge or encumber any of its assets pending appeal and no security is offered over any assets of Mr Tracy. There is no proposal to pay the judgment sum or any part of it into Court. The absence of any such proposal is no doubt due to the incapacity of the first appellant to be able to do so and a disinclination in Mr Tracy to suggest any other mechanism for a supervised investment account. 46 The appellants' principal discretionary consideration urged upon the Court is that a refusal of a stay with any consequential payment of monies (particularly the deposit monies) to the first respondent would occur in circumstances where the first appellant has no reasonable confidence of repayment if ultimately successful. The appellants however have not demonstrated that residual injustice will arise by complying with the orders at first instance should the appeal be successful. In that sense, the appellant has not demonstrated that the appeal will be rendered nugatory by a refusal of a stay. Inconvenience in satisfying the judgment debt or, alternatively, the prospect of changes in the administration of the first appellant either by reason of receivership or liquidation does not of itself render an appeal nugatory. 47 The underlying question is what is fair in striking a balance between the interests of the successful party entitled to its judgment and the risk of irremediable harm to a party should it be successful in the absence of a stay. 48 Having regard to all of these considerations, it seems to me that a middle course should be adopted. I propose to order a stay of the orders of Collier J made on 5 September 2008 as amended by the order of 17 October 2008 on condition that the first appellant pay into Court an amount representing the loan monies of $150,000.00 and that portion of the interest of $163,409.02 referable to the loan monies for the relevant period, as determined by the primary judge for the purposes of the order of 17 October 2008, namely $45,782.83 constituting an amount of $195,782.83, by 9 January 2009. The interest calculation recognises that the primary judge ordered interest of $163,409.02 calculated for the relevant period on $535,383.00 representing the amounts referred to at paras (a) and (b) of Order 2 of 5 September 2008. $150,000.00 divided by $535,383.00 and multiplied by $163,409.02 derives a proportionate interest calculation of $45,782.83. I propose to direct that the deposit monies and accretions presently in Court remain in Court pending the determination of the appeal. 49 The costs of the motion in relation to the stay are reserved. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate: Dated: 10 December 2008 Counsel for the Appellants: Appellants represented by their solicitors

Solicitor for the Appellants: Lynch Morgan Lawyers (Mr Lynch)

Solicitor for the Respondents: McCullough Robertson, Lawyers