Dierickx v HP Mercantile Pty Ltd [2014] NSWCA 21 | Case summary

Judgment 1BASTEN JA: Judgment in this matter was handed down in this Court on 23 December 2013. The effect of the judgment was to overturn orders made by White J at the trial. 2This Court was divided in that the President would have dismissed the appeal for reasons given by White J in respect of particular aspects in dispute. The majority, Meagher and Emmett JJA, allowed the appeal and set aside the orders made by the primary judge, giving judgment in place of those orders, against the present applicants for the amounts sought to be recovered from them. 3The applicants have sought special leave to appeal to the High Court of Australia. They now seek a stay of the enforcement of the judgment in this Court. 4The Court was taken to authorities with respect to the correct approach to be adopted in considering the question of a stay pending a special leave application in the High Court. The relevant earlier authorities were considered in some detail in Rinehart v Welker [2012] NSWCA 1; 83 NSWLR 347. In particular, as counsel for the respondent noted, the Court accepted and applied the reasoning of Brennan J in Jennings Constructions Ltd v Burgundy Royale Pty Ltd (No 1) [1986] HCA 84; 161 CLR 681. Counsel for the respondent emphasised that this was an "extraordinary jurisdiction" and that it was necessary for an applicant to show "exceptional circumstances" to warrant its exercise. 5To the extent that this Court had earlier, although after the judgment in Jennings v Burgundy Royale, adopted what appeared to be a less demanding approach, Rinehart stated that that approach should no longer be followed. (There may be some doubt as to whether a less demanding approach had been intended, but there is no doubt about the proper approach to be adopted in the present case.) 6That said, the jurisdiction is one which is properly invoked by an applicant who is subject to orders, the enforcement of which may involve potential prejudice, namely the loss of the subject matter of the appeal, if the judgment is later set aside. 7The nature of the circumstances to be considered in each case will depend upon the proceedings and the subject matter in issue. In the present case the subject matter is the debt which is payable by the applicants to the respondent under the judgment of this Court. They submit that there is a reasonable likelihood that if the moneys are paid they will not be recoverable from the respondent in the event that the judgment of this Court is set aside in the High Court. 8They also accept that it is necessary to establish that there are reasonable prospects of success in the High Court, both in obtaining special leave to appeal and, in the event that special leave be granted, in the appeal. It may be accepted that should there be reasonable prospects of obtaining special leave, there would also be reasonable prospects of success on the appeal. (Special leave is usually refused if the correctness of the judgment below is 'not attended by sufficient doubt'.) 9So far as the first question is concerned, the possibility that the funds will not be recoverable if they are paid over to the respondent is one which is somewhat fraught on the material before this Court. The applicant placed significant weight on two factors which follow from steps taken in earlier proceedings involving the same respondent. The respondent seeks to rely upon its financial accounts to demonstrate that it is a viable corporate entity with substantial resources from which to meet any order for repayment of the amount due under the judgment, if the judgment were to be set aside. 10The first of two documents relied upon by the applicants is a judgment of Ward JA ordering that security be provided for the purposes of the appeal in this Court between the same parties, a decision delivered on 8 April 2013. For the purposes of that application, Ward JA had more evidence before her than I have as to the financial viability of the respondent and the meaning of the accounts. The applicants emphasise that, despite having financial statements not dissimilar in substance to those tendered before me, Ward JA was satisfied that it was appropriate to order security for costs. 11There is no material before me which would lead one to doubt that the manner in which the company has conducted its business has not changed significantly since the evidence given before Ward JA and accepted by her. 12On the other hand, the respondent noted that there is a lower threshold to be satisfied in respect of an application for security for costs against a corporate appellant in an appeal pending in this Court. I accept that that is so. However, it is not so much the fact of the order as the state of satisfaction of the judge as to the financial circumstances of the company which is significant. 13Secondly, the applicants rely upon a letter in proceedings involving the same company but another borrower, which came before Robb J in October 2013 when again the company was ordered to provide security for costs. It is not the fact of the order which is relied upon, but the letter in response from the solicitor for the respondent, noting his instructions that the company "is presently unable to provide security in accordance with the orders." 14That letter was tendered as further evidence that the orders for security were properly made on the basis of an accurate assessment of the company's financial circumstances. 15The respondent says that the letter was written when the present matter was pending in the Court of Appeal and before judgment had been delivered. The statement that the company was then "investigating other means by which it will be in a position to comply with the orders", does not self-evidently imply that it was merely unwilling to invest further funds until the result of the appeal was known. Rather, the available inference and the one that I draw is that it was unable to comply, although no doubt there may have been a somewhat greater chance of obtaining assistance from third party funders and equity investors once the decision in this Court was known. Accepting that, the need for such assistance is not contradicted. 16On the basis of this material, and despite the inference as to financial soundness which may be drawn from the company's accounts, I am satisfied that there is a reasonable likelihood that the payment of the judgment debt will not be recoverable in the event that the application for special leave is successful and the High Court sets aside the judgment of this Court. 17The second matter which needs to be addressed is the reasonable likelihood of success in proceedings in the High Court. This matter is not readily assessable and must, somewhat impertinently, involve a judicial prediction as to how the High Court will deal with a pending case. As the respondent noted, Rinehart said that unless the Court were satisfied that the case had reasonable prospects of success it would be rare that it would nevertheless think fit to grant a stay: at [49]. 18In the present case, as in Rinehart, the Court does not have the benefit of a summary of argument which might have demonstrated the strength or weakness of the proposed appeal. The respondent stated that that is a problem for the applicants: while the time for filing such a summary has not yet arrived, the applicants face an additional hurdle (which they could have surmounted) by inviting this Court to find a reasonable likelihood of success in the absence of a statement of the arguments to support the proposed appeal. That being said, the propositions in support of some, at least, of the grounds may be divined from the reasoning of the Court of Appeal and the trial judge in proceedings which have already been heard and determined at those two levels. 19The applicants noted that there were a number of issues before the Court of Appeal, including as to reliance upon an estoppel, whether misleading and deceptive statements had been made, and whether there was a breach of fiduciary duty owed by the company or the original lender in failing to disclose certain arrangements with respect to the funding of the business. The Court may be satisfied that there was a reasonably arguable case in respect of at least one of the grounds, based upon the fact that both White J and the President thought that the ground should succeed. 20Special leave also requires an element of public importance to satisfy s 35A of the Judiciary Act 1903 (Cth). The arrangements made by the respondent and the original borrower related to over 100 investors (lenders), and the written material was in all probability the same with respect to each. There would therefore be common issues affecting a significant class of lenders. There would, of course, be additional issues in respect of misleading and deceptive conduct claims, such as reliance, to be separately determined with respect to the various lenders, but any error on the part of this Court will probably affect a large number of persons in the same position as the present applicants. 21Insofar as these things can be judged, there is an element of public importance and there is a reasonably arguable case, indeed a reasonably arguable case either way, on at least some of the grounds set out in the special leave application. I am satisfied that there is a reasonable prospect of success on the application for special leave to appeal. 22The question is then whether a stay should be granted. The case in favour of a stay is reasonable but not overwhelming. Had it been necessary to consider the matter on the basis of the original application that there be an unconditional stay, there might well have been concerns as to the propriety of making such an order, given the expression of the test in Jennings v Burgundy Royale and in Rinehart. 23However, the applicants now propose an alternative order in the following terms: order that within 60 days of the date of these orders the judgment sum in the amount of $273,721.52 be paid by the first and second applicants into court or into a controlled moneys account to be administered by Piper Alderman and Versace Mackenzie Lawyers jointly and that those moneys be held in Court or in such account until further order. 24The respondent said that such a conditional stay would be unsatisfactory for two reasons: first, it would ignore the element of post-judgment interest; secondly, the respondent said that it is entitled to reject it because it is entitled to the fruits of the litigation. 25The latter argument may be put to one side; it merely re-states the starting point from which the circumstances required to make an order derive. In respect of the first objection, it should be accepted, as I understand the calculation of the amount (although no figures were provided as to the present amount), that there is no allowance for post-judgment interest. No doubt there is an element of compromise in the alternative order proposed by the applicants; nevertheless once the money is placed in an appropriate account it would earn interest. 26In the circumstances it is appropriate to make an order in the terms proposed, with the additional element for further order "of a judge of this Court or the High Court". That leaves open the question as to whether or not the moneys should be held by the Court or by the lawyers jointly. It would be preferable if an arrangement could be made for the account to be established and administered by the two firms of solicitors involved. An order should be made which allowed for that to occur, subject to liberty to apply in the event that any difficulty arose with respect to those arrangements. 27With respect to the costs of the application today, I would have hesitated in making the order sought in unconditional terms. The alternative was only proffered by the applicants to the respondent yesterday afternoon and it has only been made available to the Court today. In those circumstances, and given that the applicants are seeking an indulgence, the proper order should depend upon the outcome of the special leave application. These costs cannot be costs in that application, but I propose that they should follow the outcome of that application. 28Accordingly, I order that the costs of the applicants' motion for a stay, including the amended motion filed this morning, be the respondent's - that is the company's - costs to follow the order made in the special leave application.

Dierickx v HP Mercantile Pty Ltd

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