Before the Court is 183 Eastwood Pty Ltd's Notice of Motion dated 31 August 2022 seeking a stay of execution of orders I made in this matter on 6 July 2022 and 27 July 2022 until the final determination by the Court of Appeal of the defendant's appeal against my orders or until further order. The defendant also seeks its costs on an indemnity basis.
The motion first came before me on 6 September 2022 and the parties sought time to attempt to resolve the matter. Those attempts were unsuccessful and the motion was listed before me this morning. The parties provided written and oral submissions.
The defendant submitted in writing that the "plaintiff forthwith return the sum of $47,045.99", which was the recent subject of a garnishee order, although no such order was included in the Notice of Motion or pressed in oral submissions. The only orders sought concerned a stay and costs.
Senior Counsel for the plaintiff opposed the motion and, submitted that if the stay were granted, it should be conditional on terms that the defendant pay into the court several sums, being the outstanding judgment sum pending determination of appeal ($1,624,954), the outstanding costs sum from the primary proceedings (approximately $147,777.27) and security for costs for the appeal ($50,000).
The background facts of this matter are set out at [1]-[26] in Dragon Property Development & Investment Pty Ltd v 183 Eastwood Pty Ltd [2022] NSWSC 910.
On 6 July 2022, I made the following orders:
1. The Defendant is to pay the Plaintiff the sum of $1,672,000.
2. The Defendant is to pay the Plaintiff's costs as agreed or assessed.
On 27 July 2022, I made the following orders in relation to costs:
1. The order made as to costs in the principal judgment is set aside.
2. The Defendant is to pay the Plaintiff's costs on the ordinary basis as agreed or assessed up to 13 January 2022 and on an indemnity basis thereafter.
On 18 August 2022, the plaintiff's solicitors emailed the defendant's solicitors a Creditor's Statutory Demand for payment of the sum of $1,672,000 within 21 days. The defendant does not appear to have initiated any steps to set aside the demand under s 459G of the Corporations Act 2001 (Cth) or otherwise respond to it.
On 29 August 2022, the defendant filed its notice of appeal against Order 1 from my judgment of 6 July 2022 and Order 2 of my judgment of 27 July 2022.
On 6 September 2022, the plaintiff's solicitors wrote to the defendant's solicitors to indicate it was prepared to consent to a stay on one of the following alternative conditions:
1. The defendant pays the judgment sum into Court; or
2. The defendant pays the judgment sum into a nominated trust account with an undertaking that the funds will not be distributed from that account without order of the Court or by consent of the parties; or
3. The defendant provides an adequate form of security for the judgment debt (e.g. a guarantee from the defendant's directors); or
4. The defendant demonstrates to the reasonable satisfaction of the plaintiff that it has the assets available to it to meet the judgment debt in full.
The plaintiff's letter also offered to provide an undertaking to the Court that any part of the judgment sum recovered will be placed in the plaintiff's solicitors' trust account and will not be distributed until after determination of the appeal. An application for security for costs on appeal was also foreshadowed.
No response was received by the plaintiff's solicitors.
Mr Steve Ju, the secretary of the defendant company, said by way of submission in his affidavit that the defendant has several arguable grounds of appeal, and its appeal would be rendered abortive or nugatory if the stay of execution were not granted. Mr Ju further stated that, absent a stay, he expects that the plaintiff would seek to wind up the defendant and the defendant's appeal would be stayed automatically unless an appointed liquidator elects to prosecute the appeal. Such an election, Mr Ju said, would be outside the control of the defendant's directors.
Mr Ju also noted concerns that if the judgment sum is paid, it will encounter "significant difficulty" in recovering the sum because the plaintiff's sole director, Mr Feng, has resided in China since March 2020 and will remit the amount to China. Mr Ju also noted the plaintiff company owns no real property in Australia.
The plaintiff's offer of an undertaking on 6 September 2022 was further repeated in an affidavit of Mr Feng affirmed on 12 September 2022. Mr Feng said he will not transfer any judgment sum received by the plaintiff out of the jurisdiction and has instructed his solicitors to hold any funds recovered from the defendant in its trust account, including the $47,045.99 obtained to date.
In Mr Ju's affidavit in reply, he stated that the defendant and some of its unit holders are seeking substantial damages against a number of private lenders and other persons, including an accounting firm and a law firm, for the lost opportunity to develop land ("Lost Opportunity Proceedings"). He indicated that in June 2021 $6,725,000 representing the proceeds of the sale of lands was recovered in a judgment against the private lenders (Winau Aust Pty Ltd v LCC Property Development Pty Ltd [2020] NSWSC 434; appeal dismissed in [2021] NSWCA 9). That money has been entirely distributed at dates unspecified to repay debts and loans owing to unit holders. Mr Ju noted that the defendant owes further debts to unit holders in the sum of approximately $2,236,254.
Mr Ju indicated that some unidentified unit holders have told him that they will not lend the sum of $1,672,000 to the defendant or any other money and that the defendant is now impecunious. Mr Lim for the defendant submitted that the defendant company only has a "few hundred dollars in its bank account", paid-up capital of $100 and does not have any assets.
[2]
Legal principles relating to stay pending appeal
The principles governing the determination of stay applications has been summarised in several cases: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 693-695 (Kirby P, Hope and McHugh JJA); Port Macquarie Hastings Council v Diveva Pty Ltd t/a Midcoast Road Services [2017] NSWCA 4 at [29] (Payne JA); Hickey v Land Enviro Corp Pty Ltd [2014] NSWSC 472 at [16]-[20] (Harrison J); Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 103 at [18]-[20] (McColl JA). I note the following:
1. An appellant does not have an automatic right to a stay of execution pending an appeal. The starting point is that a respondent to an application for such a stay ought not be deprived of the fruits of its victory.
2. The onus is upon the applicant to demonstrate a proper basis for a stay which will be fair to all parties.
3. The Court has a discretion involving the weighing of considerations such as balance of convenience and the competing rights of the parties.
4. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may refuse a stay.
5. The Court will undertake a preliminary assessment about whether the appellant has an arguable case.
6. Where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay.
7. As a condition of a stay the Court may require payment of the whole or part of the judgment sum or the provision of security. It is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties.
In McLean Tecnic v Digi-Tech (2002) 55 NSWLR 77 at [17]-[18] (McLean Tecnic), Handley, Sheller and Ipp JJA observed that to succeed in an application for a stay pending appeal, an applicant must show that:
1. The appeal raises serious issues or arguable grounds for the determination of the appellate court; and
2. There is a real risk that the applicant will suffer prejudice or damage if a stay is not granted, which will not be redressed by a successful appeal.
If these conditions are established, the Court will then consider the balance of convenience. There is no need for the defendant to establish special or exceptional circumstances: Yolarno Pty Ltd v Shandong Delisi Food Co Ltd [2022] NSWCA 30 at [4] (Macfarlan JA).
[3]
Are there serious issues for determination by the Appellate Court?
The defendant submitted that there are many serious issues or arguable grounds for determination of the Court of Appeal, which it set out in its 12 grounds of appeal and developed in written and oral submissions. Those issues can be broadly summarised as follows:
1. Whether the evidence allowed a finding that no legal advice had been sought by the defendant's true officers before the defendant entered the deed with the plaintiff on 24 April 2018;
2. The plaintiff's reliance on the false information on the ASIC record was contrary to the indoor management rules expressed in ss 128-129 of the Corporations Act 2001 (Cth) which had been disavowed;
3. The false information changed by the rogue on the ASIC register was not a relevant representation to the plaintiff by the defendant through its failure to correct the register;
4. There is no duty on the true directors to monitor the correctness of ASIC's register outside of the circumstances of ASIC's annual review of the company;
5. Any detriment or loss the plaintiff suffered was not caused by its reliance on the false information on the ASIC register; and
6. No expectation damages could be awarded in circumstances where only reliance damages was pleaded.
The plaintiff submitted that the defendant has no arguable case on appeal and none of its grounds of appeal had any reasonable prospects of success, suggesting that various grounds were "plainly misconceived" and were a "scattergun approach".
For example, it was said that:
1. the defendant's submissions fail to identify how the finding that no legal advice was sought by the defendant's directors prior to June 2018 would have any material bearing on the disposition of the case;
2. it is "plainly wrong" to say that a finding of ostensible authority was not available if relevant assumptions in ss 128 and 129 of the Corporations Act 2001 (Cth) were not engaged; and
3. it was not correct to require the finding of a "duty" to correct the ASIC register before a relevant representation could be found.
I note that I am required to consider whether there are arguable grounds only on the basis of "judicial impression" Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460 at 463 (Kirby J).
While there is no suggestion that the grounds of appeal are other than bona fides, I am not satisfied that the grounds of appeal raise "serious issues" or "arguable grounds".
For that reason, I am not prepared to grant a stay of the kind sought by the defendant.
However, I appreciate that minds may differ on this issue and for that reason I will grant an interim stay for 14 days to allow the defendant to approach the Court of Appeal for a stay should it wish to do so.
[4]
Orders
I make the following orders:
1. Stay the execution of Order 1 made on 6 July 2022 and Order 2 made on 27 July 2022 until 5pm on 4 October 2022.
2. Costs of the applicant's motion are costs in the appeal.
The Court also notes the undertaking of the plaintiff that:
1. It will hold the sum of $47,045.99 recovered as part of the judgment debt in the trust account of Lexsons Law Firm, with such funds not to be dispersed or transferred out of that account without further order of the Court or consent of the parties.
2. Any further amount of the judgment sum paid to or received by the plaintiff will be held in the trust account of Lexsons Law Firm and will not be dispersed or transferred out of that account without further order of the Court or consent of the parties.
[5]
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Decision last updated: 20 September 2022