[1984] HCA 81
Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278
Source
Original judgment source is linked above.
Catchwords
[1984] HCA 81
Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278
Judgment (3 paragraphs)
[1]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment (ex tempore)
HIS HONOUR: On 9 February 2023, Stevenson J in the Commercial List of the Equity Division gave reasons for judgment holding that the present first respondent Alamdo Holdings Pty Ltd was entitled to succeed in its claim against the present appellants Croc's Franchising Pty Ltd, Mr Aldons and Mr Cusdin, for damages in connection with the termination of a lease by Alamdo to Croc's of premises in Castle Hill, of which Mr Aldons and Mr Cusdin, who were directors of Croc's, were guarantors. [1] Judgment was formally given, pursuant to the reasons given on 9 February 2023, on 28 February 2023, for a total amount of $1,076,869.33 and included rental arrears, loss of bargain damages associated with the delay in finding a replacement tenant, certain additional expenses associated with termination, and pre-judgment interest. Of it, the sum of $180,588.28 related to arrears of rent and outgoings during the period of Croc's occupation of the subject premises and pre-judgment interest thereon.
At trial, and at the risk of oversimplification, the principal issue was whether Alamdo was precluded from re-entering and/or recovering the rental arrears by a regulation, made pursuant to s 87 of the Retail Leases Act 1994 (NSW), comprising schedule 5 to the Conveyancing (General) Regulation 2018 (NSW) entitled "Commercial Leases - COVID-19 Pandemic Special Provisions" ("the COVID Regulation"). Ultimately, the primary judge held that Alamdo was not so precluded. In addition, Mr Aldons and Mr Cusdin contended that the terms of the guarantee they had given, properly construed, did not render them liable in the circumstances. That was a question of construction of the guarantee, on which they ultimately failed. There was also a cross-claim by Croc's for damages, essentially for wrongful termination of the lease, in which Croc's essentially relied on the same provisions and alleged effect of the COVID-19 Regulation.
By notice of appeal filed on 20 March 2023, Croc's, Mr Aldons and Mr Cusdin appeal to this Court. Essentially, the issues on the appeal are those same issues to which I have referred concerning the interpretation, effect and application in the circumstances of the COVID-19 Regulation, and the construction of the guarantee. Croc's also appeals from the dismissal of its cross-claim. The appeal has been fixed for hearing on 14 and 15 August 2023, that is to say, in almost exactly four months hence.
By motion filed on 4 April 2023, the appellants apply for a stay of execution of the judgment pending the outcome of their appeal. Ultimately, although not initially, they proffer a condition in the nature of a Mareva undertaking. Alamdo opposes the application for a stay and submits that, if a stay be granted, it should be conditioned inter alia on partial payment of the judgment debt, being the arrears (and interest) component of $180,000 approximately to which I have referred.
By motion filed on 11 April 2023, Alamdo applies for security for costs of the appeal. That application has been resolved upon terms that the appellants give security to a total amount of $110,000 in five tranches payable between now and 11 August 2023. The only outstanding question on that motion is the question of costs.
On an application for a stay of execution under a judgment pending appeal, the relevant considerations, at least in the circumstances of this case, include the arguability of the grounds of appeal, whether in the absence of a stay the right of appeal would be rendered nugatory, the balance of prejudice between the parties if a stay be granted and if a stay be refused, all in the context of the prima facie right of the respondent to the fruits of its judgment and therefore, implicitly, the onus borne by the appellant to make out a case for a stay.
I am satisfied that the appeal is not unarguable. On the application, this was largely not in issue, save as to the arrears component. As to the arrears component, it seems to me that the argument that the transitional provision in s 88(2) of the Retail Leases Act has the effect of preserving any right or immunity that had accrued during the currency of the COVID-19 Regulation and before its repeal is not unarguable. The result that the rent for the relevant period would be rendered permanently irrecoverable would certainly be a curious one but, in the context of the intent of the COVID-19 Regulation to provide relief to lessees during the period of the pandemic, it would not be entirely remarkable.
Likewise, I do not think it can be said that the cross-claim for damages for wrongful termination is unarguable. Although it may be that it is not a repudiation of the lease, because it did not involve repudiation of any contractual term, express or implied,framed as a claim for damages for wrongful termination, it seems to me that it is nonetheless not unarguable.
That is not to say that the appeal, in respect of the arrears and/or the cross-claim, is prima facie a strong one; but in circumstances where, as I will indicate in a moment, I am satisfied that the appeal would be rendered nugatory in the absence of a stay, it suffices to conclude that it is not unarguable.
As I have foreshadowed, I am also satisfied that the absence of a stay would render the appellant's right of appeal practically nugatory. I think it is practically inevitable that if a stay were not granted, Croc's would be wound up, and Mr Aldons and Mr Cusdin bankrupted. Even if Croc's, in the interim, has some ability to raise funds for costs and working capital, that is far from an ability to raise a million dollars to pay the judgment sum. If Croc's were wound up, then even if a liquidator elected to prosecute the appeal, the winding up would trigger events of default under various franchise agreements and other leases to which it is a party, effectively destroying its business. Accordingly, as I have indicated, I am satisfied that failure to grant a stay would render nugatory a right of appeal, which is not unarguable.
That then requires the Court to consider the balance of prejudice. The prejudice to the appellants, if a stay not be granted, is straightforward and substantial. They will be deprived of a right to prosecute an arguable appeal in this Court which potentially could result in it being exonerated from the substantial liability that the judgment visits on them.
The prejudice to the respondent requires closer consideration. Essentially, granting a stay would prevent the respondent from exercising its right of enforcement for at least four months until the hearing of the appeal, but potentially, for eight to ten months until judgment is delivered. Although the question of a stay could be revisited at the hearing of the appeal by a Court far more familiar with the arguments and apprised of their relative strength, courts nevertheless tend to be reluctant to review applications for stays at the hearing of an appeal, and I proceed on the basis that a stay would likely be in force for eight to ten months - say, to the end of this year or early next year.
If the appellants were solvent, the prejudice involved in that would be slight, due to the accrual of interest on the judgment in the meantime; but there is a real question as to the solvency of the appellants. Even apart from the judgment debt, so far as the corporate appellant Croc's is concerned, it has a very substantial deficiency of total assets against liabilities, and of current assets against current liabilities. In very approximate terms, it has current liabilities of about $2 million and current assets of about $700,000. The trade creditors, which comprise some $380,000 of its current liabilities, have all been due for more than 90 days. It has only about $50 cash at bank. It is borrowing working capital from a related company, and it is on an instalment plan with the Australian Taxation Office for a substantial taxation debt in excess of $100,000, having already, apparently, defaulted on an earlier instalment plan. It is true that most of Croc's debts appear to be due to related companies and that, even as to trade creditors, most if not all appear to be related companies. It is also true that it appears presently to be trading profitably and no other indicia of insolvency have been identified; but the very fact that it is on an instalment plan and has defaulted previously in respect of an instalment plan, and has so substantial a deficiency of total and current assets, point strongly to it being presently insolvent. In any event, what matters is that it is clearly and admittedly insolvent unless the appeal succeeds.
The current circumstances of the guarantors, Mr Aldons and Mr Cusdin, are more opaque, though it is clear that their assets are insufficient to satisfy the judgment debt. Although they may have some assets which have not been disclosed, those are likely to be represented directly or indirectly, in debt of the company, which itself is of limited value due to the company's apparent insolvency. At least assuming the current judgment debt, it seems to me that they too would be insolvent.
Given the time frame in which the stay application has proceeded, having been instituted on 4 April and it now being only a fortnight later, I am generally unpersuaded that the appellants have been less than forthcoming in respect of financial disclosure. A substantial amount of information has been provided, although, as is not uncommonly the case, the more that is provided, the more questions can be asked. There is one aspect, however, about which it seems to me that they have been somewhat coy and requires particular mention. Neither Mr Aldons nor Mr Cusdin own the home in which they reside and to the mortgage instalments in respect of which they contribute. Prior to 2017, Mr Aldons and his wife were joint registered proprietors of their home, and Mr Cusdin was the sole registered proprietor of his. In 2017, both transferred their interests to their respective wives and since then, their wives have remained the sole registered proprietors. The husbands, however, have continued to fund the mortgage payments, although they deny that they have any equitable interest in the properties. As to that denial, a question will no doubt arise in due course as to whether, on the principles discussed by the High Court in Calverley v Green, [2] the husbands or their trustees in bankruptcy would be entitled to an accounting against the wives in respect of the contributions they have made.
In those circumstances, the real practical prejudice to the respondents from a stay would be that the commencement of any winding up of Croc's and bankruptcy of Mr Aldons and Mr Cusdin would be deferred and with it, the commencement of any period in which voidable transactions might be impugned. Moreover, the financial position of Croc's and the guarantors might deteriorate further, due to expenditure incurred in the meantime.
So far as potential voidable transactions are concerned, it would be highly relevant if some relevant period were impending. However, the transfer of the two houses in 2017 is already outside the five-year period referred to in the Bankruptcy Act 1966 (Cth) s 120(1), though the mortgage payments in respect of it would be, to a large extent though not exclusively, within it, or even within shorter periods referred to in other subsections. In those circumstances it seems that the house could be recoverable by a trustee in bankruptcy if the transfers came within s 121, as a transaction to defeat creditors. That section is not subject to any time limit - although the passage of time may make it increasingly difficult, though not impossible, to establish the requisite intent. [3] As the expiry of no relevant time period is apparently impending, the deferral of the commencement of any winding up or bankruptcy is of less significance than it would have been had the position in that respect been otherwise.
So far as concerns the deterioration of the financial circumstances of the appellants, pending the outcome of any appeal, first, it seems that the company is presently trading profitably. However, so far as the guarantors are concerned, they continue to incur personal expenditure and, since the judgment was delivered, some of that expenditure has been of a significantly discretionary character, including on gambling. Moreover, that expenditure continues to include the payment of the mortgages on the properties that are held in their respective wives' names. The undertaking they proffer does not preclude the ongoing diversion of their income to the benefit of their wives in that manner.
Thus, it seems to me that the real prejudice, which it is unreasonable to expect the respondents to incur, is the ongoing payments for the benefit of the wives' equity in the homes in which the guarantors reside. The respondent suggested that the ordinary expenditure which should be permitted in exception to the Mareva undertaking that the appellants proffer should be limited to $5,000 per month, on the basis that it excluded payments of the wives' mortgages. I am unpersuaded that this is a satisfactory, attractive or beneficial approach: first, because were they not residing in their wives' homes, it would be necessary for the guarantors to pay rent for alternative premises; and secondly, because were they paying rent and not contributing to their wives' equities in their respective homes, the argument that the rent would be traceable or accountable would be far weaker than in the case of the mortgage payments, and accordingly, less advantageous to the respondents.
It is commonplace on stay applications to require the appellant to give security, in one form or another, for the whole of the judgment debt. In this case, that would be of slight benefit as, if the appeal fails, and given the insolvency status of the appellants, such security would almost certainly be a voidable preference.
It is also commonplace to require a partial payment of the judgment as a condition. The respondent submitted that, in this case, it would be appropriate to require a partial payment, being of the arrears component of approximately $180,588.28. They argued, reasonably, that on the judgment below they are prima facie entitled to that sum; that no rent at all was paid by Croc's for its occupation during the relevant period; and, in addition, such a payment would provide some measure of protection against deterioration in the appellant's position pending the hearing of an appeal. To that they add that the appeal, in respect of that component of the judgment, is on weaker ground than that in respect of the balance.
The problem with such a condition is that it is likely to be one that the appellants are unable to satisfy, given their financial circumstances. For that reason, it seems to me that they should be given the alternative opportunity, at their election, of providing security over the homes that are in their wives' names, limited to the arrears component of the judgment. The attraction of this course is that while it does not compel them to procure a mortgage from their wives, it offers them that alternative option. The amount involved of approximately $180,588.28 is unlikely to exceed the amounts which the husbands have paid and will pay towards the mortgage since 2017 and continuing while the stay remains in force. It minimises the detriment to the respondents from ongoing payments for the benefit of the property. Moreover, the wives are beneficiaries of discretionary trusts, of which the corporate shareholders in Croc's are the trustees and of which the husbands are the effective practical controllers, so that in a practical sense, the wives are amongst those who stand to benefit from any success of the appeal.
Although I have considered whether such security should be conditioned on failure of the guarantor's appeal, so that it would bite only if the guarantors as well as Croc's failed, I have decided that that should not be so, essentially because of the wives' practical, if indirect, interest in the outcome of the appeal, and the manner in which their husbands the guarantors have structured their affairs. To my mind, such a course provides a means by which the appellants may, if they wish, continue to prosecute their appeal; and the giving of such security is an appropriate price for the indulgence the appellants seek.
So far as concerns the question of costs, a stay is an indulgence and the opposition to it was far from unreasonable. The applicant must pay the costs of the stay application, at least unless the appeal succeeds. In my view, if the appeal were to succeed, it would be unreasonable that the applicants should have to bear the costs of obtaining a stay, and in that event, the parties should bear their own costs. Accordingly, costs of the motion for a stay should be the respondent's costs in the appeal.
In respect of the application for security of costs, the application substantially succeeded. Again, the appellants must pay the costs of that application, at least unless the appeal succeeds, in which case, again, and for the same reasons, each party should bear their own costs; thus, costs of that application also should be the respondent's costs in the appeal.
The orders which I propose and which I shall afford the parties an opportunity to address after I have announced them, if they wish, are as follows:
1. Upon the appellants giving to the Court the usual undertaking as to damages and upon their further undertaking, and subject to the conditions, that:
1. the first appellant not remove from Australia, alienate or encumber or further encumber any assets owned by it without the prior written consent of the first respondent, except:
1. in the ordinary course of business (which for the avoidance of doubt does not involve repaying loans to any related party); or
2. for the purposes of paying the appellants' reasonable legal expenses of this appeal;
1. that the second and third appellants not remove from Australia, alienate, encumber or further encumber any assets owned by them without the prior written consent of the first respondent, except for the purposes of paying their ordinary household and living expenses (which for the avoidance of doubt do not include any expenses related to gambling activities);
2. that the appellants use their best endeavours to expedite the preparation and hearing of the appeal; and
3. that the appellants provide to the first respondent's solicitors within seven (7) days after the end of the monthly accounting period to which each statement relates, copies of bank statements for
1. The first appellant's account ending 9457.
2. The second appellant's account ending 1521; and
3. the third appellant's account ending 0340.
AND upon the further condition that by 18 May 2023 the appellants, as security pro tanto for the judgment in the event and to the extent that it is not disturbed on appeal, either:
1. pay into court to the credit of these proceedings the sum of $180,588.28, and post judgment interest accrued thereon, or
2. deposit with the Registrar mortgages in registrable form of the properties situate at and known as 49 Kilcunda Drive Rowville in the State of Victoria being the land comprised in Certificate of Title Volume 10644 Folio 826 and at 11 Elaroo Street, Chadstone in the State of Victoria being the land comprised in Certificate of Title Volume 8489 Folio 070, securing the said sum and interest;
Execution of the judgment delivered on 28 February 2023 and the costs order made on 8 March 2023 be stayed until the hearing of the appeal or further order.
1. The form of the mortgages be settled, if not agreed by the parties, by the Registrar.
2. Liberty to apply:
1. in the event of any difficulty arising in respect of the form of the mortgages; and
2. to dissolve the stay, in the event that any of the above conditions is not satisfied.
1. The costs of the appellant's motion filed 4 April 2023 be the respondents' costs in the appeal.
2. By consent, the appellants provide security for the first respondent's costs in the amount of $110,000, such security to be paid into Court to the credit of these proceedings, by way of instalments as follows:
1. $30,000 by 19 April 2023;
2. $20,000 by 19 May 2023;
3. $20,000 by 19 June 2023;
4. $20,000 by 19 July 2023; and
5. $20,000 by 20 August 2023.
1. In the event that any tranche of security required to be given under Order 5 is not paid into Court by the time required under Order 5 the appeal be stayed until further order.
2. The costs of the respondent's motion filed 11 April 2023 be the respondent's costs in the appeal.
[3]
Endnotes
Alamdo Holdings Pty Ltd v Croc's Franchising Pty Ltd (No 2) [2023] NSWSC 60.
(1984) 155 CLR 242; [1984] HCA 81.
See, for example, Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278; [2006] HCA 6.
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: 03 May 2023
Parties
Applicant/Plaintiff:
Croc's Franchising Pty Ltd
Respondent/Defendant:
Alamdo Holdings Pty Limited
Legislation Cited (4)
COVID-19 Pandemic Special Provisions Retail Leases Act 1994(NSW)ss 87, 88(2)