Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd

Supreme Court of NSW|2022-11-30|Before: Rees J, Judge P, Mr J, Stevenson J

These proceedings

Returning to the "Mascot Square" development, in November 2016, Atlas issued a final payment claim to Fitz Jersey for some $10.75 million. In January 2017, an adjudication determination was issued in respect of the final payment claim and entered as a judgment. Fitz Jersey commenced proceedings to quash the adjudication determination. Atlas obtained a garnishee order, which was paid by the bank.
On 6 February 2017, McDougall J refused Fitz Jersey's application for an order that Atlas pay the garnisheed funds into Court: Atlas Construction Group Pty Ltd v Fitz Jersey Pty Ltd [2017] NSWSC 72.
Also on 6 February 2017, Mr Vartuli caused loans owed by Kebzay and Sweenham to Atlas to be written off: Fitz Jersey 2021 at [448]. Kebzay had been indebted to Atlas for $449,085, while Sweenham had owed $6,000: Fitz Jersey 2021 at [442].
On 8 February 2017, Atlas paid a dividend to its shareholders, Kebzay and Sweenham, of some $6.78 million.

Avalon Beach property

In September 2017, Mr and Mrs Yazbek purchased a property at Avalon Beach for some $13 million, of which $3.9 million came from the dividend paid by Atlas to Kebzay. No mortgages were registered on the title to the property.
The Yazbeks extensively renovated the Avalon Beach property at a cost of some $21 million. In part, these renovations were directed to modify the property to accommodate Mr Yazbek's emerging disability, resulting from a significant medical condition. Mr and Mrs Yazbek live at the Avalon Beach property. They also have a Porsche car valued at some $92,000 and a boat worth some $320,000.

Finance for Alexandria development

In July 2018, bridging finance of $18.25 million was obtained for the Alexandria development from Lord Asset Opportunity III Ltd. Mr and Mrs Yazbek were personal guarantors, but did not grant a mortgage over the Avalon Beach property. A mortgage was granted inter alia over the Rosebery property.
In February 2019, further finance of $90.906 million was obtained from Westpac, in two facilities. Facility A, in the sum of $69 million, was advanced to assist in construction costs. Facility B, in the sum of $21.906 million, was advanced to assist with the refinance of Facility A following completion of the development. Another mortgage was granted over the Rosebery property. The Avalon Beach property remained unencumbered.

Freezing order

In December 2019, the Court approved a Deed of Assignment, whereby Atlas (in liquidation) assigned its choses in action against directors, Mr Yazbek and Mr Sweeney, to Fitz Jersey. In April 2020, Fitz Jersey amended its claim against Atlas to add Mr Yazbek and Mr Sweeney as defendants. Fitz Jersey applied for a freezing order.
On 30 July 2020, Ball J heard Fitz Jersey's application for a freezing order. His Honour concluded that Fitz Jersey had a good arguable case and considered that a freezing order should be made in respect of Mr and Mrs Yazbek's Avalon Beach property, which was then unencumbered. His Honour observed at [45]: (emphasis added) … Mr and Mrs Yazbek engaged in a series of transactions which, absent some explanation, appear to have been designed to put the amount of the dividend out of the reach of Atlas or anyone claiming through it. As a result of this judgment, and absent any order, there is a danger that Mr and Mrs Yazbek will conclude that their efforts have not been wholly successful and that further steps should be taken to make it more difficult for the amount of any judgment obtained by Fitz Jersey to be recovered from the value of the Property. That does not necessarily involve a sale of the Property. It could involve encumbering the Property and taking steps to insulate any amount raised from a judgment.
By the freezing order, Mr and Mrs Yazbek were restrained from disposing of, dealing with or diminishing the value of their interest in the property to less than $8,103,973 (the Relevant Amount).
In January 2021, Mr and Mrs Yazbek granted a mortgage over the Avalon Beach property to Perpetual Corporate Trust Ltd to secure a $4 million loan from Perpetual to Kebzay No 2. It is not suggested that this breached the freezing order; the unencumbered equity exceeded the Relevant Amount.
In May 2021, the Alexandria development was completed. Sale of the apartments and shops was underway, with the proceeds of sale used inter alia to pay down construction finance.
In June 2021, the principal proceedings were fixed for hearing for four weeks commencing on 30 August 2021.

2021 refinance: breach of freezing order

On 30 July 2021, the Alexandria development was refinanced. As later explained by the defendants' solicitors in their letter of 8 September 2022, Grand Circle Opportunity II advanced $99.3 million in two tranches. Tranche A was $84.3 million, advanced for the purpose of refinancing the unsold apartments in the Alexandria development up to $79.3 million and a general purpose loan of up to $5 million. Tranche B was $15 million, "advanced with the purpose of re-financing the Avalon and [Rosebery] properties".
The borrower was Amara Living Finance Pty Ltd. Mr Yazbek said he had heard of the company but did not know anything about it. Mr Yazbek denied that he controlled the company, and said Mr Vartuli did so, but then agreed that Mr Vartuli did so subject to his directions. Mr Yazbek did not recall the loan of $99.3 million and thought it was between $55 and $60 million. It is difficult to believe that Mr Yazbek had so little knowledge or involvement in such a large financial transaction.
Of significance for present purposes, the Yazbeks granted a mortgage over the Avalon Beach property to Grand Circle Opportunity II. It is not necessary to set out the operation of the extensive transaction documents, suffice to say that the mortgage over the Avalon Beach property was not limited to a specific amount but secured the whole loan of $99.3 million.
Mr Yazbek said he did not know that he and his wife provided the mortgage at the time, "I thought it was just 620 Botany Road that was giving the mortgage." He said he did not know that this was part of the loan agreement. Although Mr Yazbek agreed that, on any view, he was borrowing a huge sum of money and gave considerable thought before doing so, he maintained that he did not recall giving a mortgage over the Avalon Beach property.
Mr Yazbek's evidence is difficult to believe. His signature appears on the Avalon Beach mortgage on two pages. Mr Yazbek agreed that he signed the mortgage on the first page but disclaimed the signature appearing on the last page. Also appearing on both pages is the signature of Mrs Yazbek; it was not suggested that she did not sign the document in both places. On the second page of signatures - being the one disclaimed by Mr Yazbek - the signatures of both Mr Yazbek and his wife are witnessed by Mr Vartuli. Whether or not Mr Yazbek's signature on the second page is his, there is no doubt that he signed the mortgage, at least on the first of the signature pages. I do not accept that Mr Yazbek did not then appreciate that the Avalon Beach property was being mortgaged as security for the Grand Circle Opportunity loan.
In addition to the mortgage, Mr and Mrs Yazbek each signed a Guarantee and Indemnity. Mr Yazbek agreed that he signed the execution page. This page contained the usual warnings that the guarantor should read the document, obtain independent legal advice and consider obtaining independent financial advice. Further, "If the Borrower does not pay you must pay. This could mean you lose everything you own including your home." Mr Yazbek said he did not read the document at all.
Mr Yazbek's signature was witnessed by solicitor, Scott Mort, who was "one of my solicitors in the construction arm". Whilst Mr Yazbek did not deny signing the Guarantee and Indemnity, he denied that his signature was in fact witnessed by Mr Mort. He did, however, accept that he was liable as a guarantor and understood that, as a consequence, he could lose the Avalon Beach property. I would expect an experienced businessperson such as Mr Yazbek to have well appreciated the implications of giving the guarantee.
Accompanying the Guarantee and Indemnity is a "Statutory declaration by guarantor". By this document, Mr Yazbek declared that he was the guarantor and mortgagor of the Avalon Beach property and had received independent legal and financial advice. Further: (emphasis in original) After receiving [independent legal and financial] advice I have freely and voluntarily signed the guarantee and indemnity (Guarantee) of the Borrower's obligations to the Lender, limited to a maximum of $99,300,00 plus interest, fees, costs and expenses (including enforcement costs) which may be payable under the Guarantee and the [Avalon Beach] Mortgage and I understand the nature and effect of the Guarantee and the [Avalon Beach] Mortgage and its provisions.
Mr Yazbek denied that he had signed the document or that Mr Mort had witnessed his signature. As to the reference in the statutory declaration to $99.3 million, Mr Yazbek said "I've never seen that figure before. This is the first time I've seen this figure, this page." Further, "This is the first time I've seen this document … I'm shocked, to tell you the truth, that it was [Mr Mort]." Mr Yazbek rightly perceived that, where the figure of $99,300,300 appeared just above his signature, it must have been perfectly apparent to him at the time that he was fully encumbering the Avalon Beach property for the new facility. As Mr Yazbek said, "If I would have seen this document I would have seen in bold that amount which I would have queried."
Whether or not a signature is genuine is a question of fact to be determined having regard to the evidence, both oral and documentary, lay and expert. The Court can make its own comparison of handwriting, albeit that particular attention should be paid to any expert evidence on this issue: Jeans v Cleary [2006] NSWSC 647 at [157] (per Johnson J) citing R v Doney [2001] NSWCCA 463; (2001) 126 A Crim R 271 at [59]-[64]; Tasoulas v Tasoulas [2018] NSWSC 861 at [30] (per Rein J); Lazarus v Director of Public Prosecutions (NSW) [2015] NSWSC 426 at [70]-[71] (per Garling J); Re Application of Sutherland and Arnautovic [2014] NSWSC 821 at [67] (per Kunc J).
Mr Yazbek's signatures on the two pages of the Avalon Beach mortgage do look a little different to each other. Mr Yazbek's signature on the execution page of the Guarantee and Indemnity is not exactly the same as his signature appearing two pages' later on the statutory declaration. Whether the signature was by the same hand is not something on which I am prepared to express a view. Mr Yazbek agreed that there was a bit of variability in his signature and, in recent times, his signature has changed "on occasions, not all the time" since the beginning of 2022.
However, it is inherently unlikely that a solicitor would purport to witness someone's signature when they, in fact, did not. Nor is there any suggestion in the affidavit of Mr Yazbek or the defendants' solicitors, or in the extensive correspondence exchanged between the parties, that Mr Yazbek's signature was forged or falsely witnessed. More likely, Mr Yazbek's evidence was an attempt to distance himself from documents which demonstrated his knowledge of the Avalon Beach mortgage and the size of the loan it secured.
Mr Yazbek maintained that he did not know that the amount of the mortgage was to a maximum of $99 million. Whether or not Mr Yazbek executed the statutory declaration - and I should not be taken as accepting that he did not - I expect that an experienced businessperson giving a personal guarantee in support of a $99.3 million loan would have been at pains to understand his and his wife's potential liability as guarantors. A cursory review of the Guarantee and Indemnity makes plain that they were guaranteeing the whole facility of $99.3 million. It would not have been necessary for Mr Yazbek to sign the statutory declaration immediately below a paragraph spelling this out in bold text for him to have been aware of this fact. Mr Yazbek's evidence to the contrary is wholly unlikely and I do not accept it.
It is also unclear why the Avalon Beach property was fully encumbered at this particular time, where it was the subject of a freezing order and where the final hearing in these proceedings was one month away. Until then, Mr and Mrs Yazbek had kept the Avalon Beach property out of the security arrangements for the Alexandria development finance, being both the Lord Asset Opportunity III finance in July 2018 and the Westpac finance in February 2019. The mortgage to secure a $4 million, granted in January 2021, appears unrelated to the Alexandria development, or at least as far as the evidence reveals. It is not necessary for me to answer all of these questions on this application, suffice to say that these events are concerning.
The Avalon Beach property was now fully encumbered. Clearly enough, the unencumbered value of the Yazbeks' interest in the property was less than the Relevant Amount. One month later, on 30 August 2021, the final hearing commenced before Stevenson J. The hearing concluded five weeks' later on 1 October 2021, followed by written submissions.

Judgment

On 22 December 2021, his Honour delivered judgment in these and two related proceedings. Relevantly, Stevenson J concluded that the payment of dividends by Atlas contravened section 254T of the Corporations Act 2001 (Cth) and was an alienation of property intended to defraud creditors for the purposes of section 37A of the Conveyancing Act 1919 (NSW): at [40]. By resolving to declare the dividends, Mr Yazbek and Mr Sweeney acted in breach of their duties as directors: at [42].
As to the shareholders loans, Stevenson J concluded that there was no benefit to Atlas in writing off the shareholder loans. Rather, the company lost a chose in action against Kezbay and Sweenham of $449,085 and $6,000 respectively, with a corresponding benefit to Kebzay and Sweenham. His Honour concluded that a reasonable person would not have written off the loans which were, accordingly, unreasonable director-related transactions for the purposes of section 588FDA of the Corporations Act: at [1250]-[1251]. His Honour gave the parties an opportunity to consider his reasons and invited submissions on various matters, including the form of orders to finalise the proceedings: at [1255].
At about this time, it appears that Mr Vartuli left his position as Chief Financial Officer in the Yazbek Group. On 18 December 2021, Mr Vartuli ceased to be the secretary of 620 Botany Road. On 16 February 2022, Mr Vartuli ceased to be a director of 620 Botany Road.
On 10 February 2022, Stevenson J made orders for the parties to exchange lists of the issues on which they considered further submissions were warranted and to file and serve submissions, with a view to listing the matter for further hearing. The directions culminated in reply submissions from Fitz Jersey on 10 March 2022.

Preparing to refinance

In March 2022, the Yazbek parties obtained valuations on their properties for the purpose of refinancing their facilities with La Trobe Financial Services Pty Ltd. On 4 March 2022, a valuation was obtained for the Avalon Beach property. On 8 March 2022, valuations were obtained on the unsold apartments and shops in the Alexandria development, being some $90.7 million. The Rosebery property was valued at some $15.2 million.
Mr Yazbek agreed that it was his decision to refinance with La Trobe. As to why the Yazbeks chose this moment to refinance, the defendants' solicitor explained that La Trobe offered interest of 5.29% rather than the interest charged by Grand Circle of 10.5% on Tranche A and 8% on Tranche B. Grand Circle was then charging penalty interest at 15% on both Tranche A and Tranche B.
On 25 March 2022, Stevenson J heard further submissions in respect of outstanding issues in respect of his Honour's principal judgment. On 5 April 2022, Stevenson J delivered a second judgment. Relevantly, his Honour observed that he had not made findings as to whether Mr Yazbek and Mr Sweeney had breached their directors' duties in causing the shareholders' loans to be written off. His Honour concluded that it followed from his findings that the directors' actions in writing off the shareholders' loans were also a breach of their general duty of care to Atlas: Fitz Jersey 2022 at [31]. The parties were asked to confer and agree on the precise orders needed to give effect to his Honour's reasons.

Does the appeal regarding shareholder loan write off have prospects of success?

It is convenient at this juncture to consider whether the defendants' appeal has sufficient prospects of success in respect of the breach of directors' duties when writing-off the shareholders loans. Fitz Jersey otherwise accepts that the defendants' appeals are arguable. If I am satisfied that the appeal on this remaining issue reaches the necessary threshold, then the terms of a stay vis-à-vis Mr Sweeney are otherwise agreed. Orders have already been made, by consent, staying the proceedings against Mr Sweeney's corporate defendants, Sweenham and ninth defendant, Castlefield Corner Pty Ltd on payment of $650.530.87 into a trust account.
The applicant for a stay must show that it has an arguable case and that there are serious questions for the determination of the appellate court: Kalafair Pty Ltd v Digitec (Australia) Pty Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737 at [18] per McColl JA. The Court will not generally speculate upon the appellant's prospect of success but may make some preliminary assessment about whether the appellant has an arguable case, in order to exclude an appeal lodged without any real prospect of success simply to gain time: Port Macquarie Hastings Council v Diveva Pty Ltd [2017] NSWCA 4 at [29] (per Payne JA).
The plaintiff submitted that Mr Yazbek and Mr Sweeney lacked a prima facie case in their appeals against the shareholder loan write-off. The plaintiff submitted that Stevenson J's conclusions were obviously correct. It was an entirely conventional application of the rules regarding directors' duties to hold that, because of their conduct in causing the write-offs of the shareholder loans, each of Mr Yazbek and Mr Sweeney was liable to Fitz Jersey (as assignee of Atlas) for the amount of the written-off loans (plus pre-judgment interest). Mr Yazbek and Mr Sweeney had no real prospect of overturning these conclusions.
The defendants submitted that the loans written off were loans to Atlas' own shareholders. The duty of directors is to act in the interests of shareholders as a whole. That duty is modified where there is a 'real risk' that the company is or may become insolvent: Kensela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 729 (per Street CJ). Like the findings concerning the unreasonable director-related transactions, which Fitz Jersey accepted were reasonably arguable, the issue of whether the directors breached their duty was one involving an examination of the circumstances at the time of the write-offs. If the appeal was upheld in relation to section 254T of the Corporations Act such that the dividend payment was not a voidable transaction, it must follow that the directors did not breach their duties in authorising the write-offs. If Fitz Jersey was not a creditor and Atlas not at risk of insolvency, then the interests of creditors ought not intrude on those of the shareholders. The issue was tied in with the appeal concerning the dividend payments.
I consider that the directors' appeal in relation to the write-off of shareholder loans is arguable. If the defendants succeed in persuading the Court of Appeal that Fitz Jersey was not, in fact, a creditor of Atlas, then it is arguable that the decision to write-off monies owed by the shareholders to the company was not in breach of their duties as directors where the write-off appears to have taken place two days before payment of a substantial dividend to the same shareholders. Presumably, there was a connection between the loan write-off and calculation of the amount of the dividend. I consider it appropriate to grant a stay in respect of that portion of the appeal vis-à-vis Mr Sweeney such that the otherwise agreed terms on which the stay should be granted ought be given effect. Essentially, the submissions on remaining issues were made by the Yazbek parties.

Request for a stay

On 13 April 2022, the defendants' solicitors enquired whether they could reach agreement with the plaintiff to stay enforcement of the final orders until the determination of any appeal. The plaintiff's solicitor enquired what security would be offered by the defendants to support any stay. On 19 April 2022, the defendants' solicitor replied that the appeal would be stifled if no stay was granted, but was silent on the subject of security. On 20 April 2022, the plaintiff's solicitor advised that Fitz Jersey did not agree to a stay. There began six months of correspondence on the subject.
On 28 April 2022, the Yazbek parties received letters of offer from La Trobe. The letter of offer noted that La Trobe's solicitors would prepare a deed of cross collateralisation and cross-default between all associated borrowings and properties. Ultimately, this became a deed of priority between two financiers and the borrowing entities.
On 2 May 2022, the plaintiff's solicitor sent a follow-up letter. On 4 May 2022, the defendants' solicitor advised that they were still giving thought to the matter.

2022 refinance

On 5 May 2022, Mr and Mrs Yazbek executed security documents in respect of the La Trobe refinance. In particular, Mr and Mrs Yazbek executed a mortgage over the Avalon Beach property in favour of Perpetual Corporate Trust Ltd, being the funder of the La Trobe facility.
The next day, on 6 May 2022, Stevenson J made final orders, including an order that Mr Yazbek and Mr Sweeney pay equitable compensation $8,533,077 in respect of the dividend paid by Atlas and damages of $635,850 in respect of the shareholder loans written off, that is, a total of $9,168,927. Similar orders were made against the other defendants, specifically, $8,157,778 against Botany Road Project, $7,113,103 against Kebzay, $6,836,048 against 620 Botany Road, $6,054,993 against the eighth defendant, Kebzay Custodian No 2 Pty Ltd and $4,097,119 against Mrs Yazbek. (Kezbay Custodian No 2 is the trustee of the Kebzay Superannuation No 2 Fund. Mr Yazbek is the sole beneficiary of the fund and the sole director and shareholder of the custodian company.) Further orders were made preventing double recovery, with the consequence that the maximum amount that Fitz Jersey can collectively recover from all defendants is the sum ordered to be paid by Mr Yazbek and Mr Sweeney, that is, $9,168,927.
The final orders did not touch on the freezing order made by Ball J. On 9 May 2022, Stevenson J directed the parties to file and serve evidence and submissions on the question of costs.
On 10 May 2022, Mr and Mrs Yazbek executed a second mortgage over the Avalon Beach property in favour of Secured Lending 1 Pty Ltd. The purpose of the Secured Lending loan was to cover a shortfall between the Perpetual loan and the Grand Circle loan.
The La Trobe refinance was completed on 11 May 2022. Mr Yazbek agreed that Perpetual advanced $98,465,300 a few days later. Again, it is not necessary to set out the operation of the extensive transaction documents, suffice to say that the Avalon Beach property was mortgaged to secure the whole of the loan such that the Avalon Beach property was again fully encumbered. In addition to the Avalon Beach property, the incoming lender was granted security over the Rosebery property and the remaining unsold apartments and shops in the Alexandria Development. Mr and Mrs Yazbek also executed a Deed of Guarantee and Indemnity.

Another breach of the freezing order?

There was some debate as to whether the freezing order made by Ball J had continuing operation after the final orders made by Stevenson J on 6 May 2022 such that re-mortgaging the Avalon Beach property in May 2022 was a further breach of the freezing order. It does appear that the parties' solicitors understood that the freezing order remained in place, as revealed by their correspondence: see [70]-[71] and [73]. The suggestion that the freezing order was discharged by final orders appears to have arisen after the motion seeking a stay was filed: see [88].
The Yazbeks submitted that the freezing order was interlocutory and, unless otherwise stated in the order, came to an end on judgment: Attorney-General of the Commonwealth v Davids Holdings Pty Ltd (1993) ATPR 41-247 (per Drummond J); Fatimi Pty Ltd v Bryant & Ors [2002] NSWSC 750 at [230] (per Campbell J). The defendants submitted that Deputy Commissioner of Taxation v Cutili Invest 88 Pty Ltd [2020] FCA 47 was distinguishable and not binding on this Court.
In Fatimi and Davids Holdings, the interlocutory orders were each expressed as being binding "until further order", being the "classic formulation of an order intended to have interlocutory application only, ie intended to operate only until judgment is given": Davids Holdings at 41,349; Judge P Biscoe, Freezing & Search Orders: Mareva & Anton Piller Orders (2nd ed, 2008, LexisNexis) at [6.83] citing Fatimi at [228]. As Campbell J explained in Fatimi at [230]: (emphasis added) …if that were not so, it would be, potentially, an order which had perpetual effect. If a perpetual order is within the scope of the Court's power concerning the granting of Mareva Orders, it would only be in a rare case that it would be appropriate. There is nothing in the wording of this order to show it is perpetual. There is no other sensible end point for a non-perpetual order, which could be read into the order as a matter of implication, than the determination of the suit.
Where a freezing order is expressed as being binding "until further order", the Court will read into the form of order a "sensible end point", being the delivery of judgment in the proceedings to avoid the foreseeable harm arising from the operation of an order in perpetuity: Klewer v Official Trustee in Bankruptcy (No 2) [2010] NSWCA 258 at [6]; Maharajas Palace Pty Ltd v Raj & Jai Construction Pty Ltd [2018] NSWCA 191 at [7] (per Leeming JA). If the party enjoying the benefit of a freezing order expressed in such terms wishes for that order to extend beyond the disposal of the proceedings, such as where there is a risk that the assets of the judgment debtor may be dissipated, then that party should make an application - supported by the relevant evidence - to that effect immediately following the delivery of judgment: Fatimi at [233].
A different result pertained in DCT v Cutili, where a freezing order included a penal notice that provided that the orders would "cease to have effect on the payment of the stated indebtedness or on that amount being secured": at [6]. The freezing order was in place until a specified date, which was extended from time to time and then extended "until further order". After considering Fatimi and the cases which have followed it, Stewart J observed at [19]-[22]: [19] The position is that the orders in question must be construed in accordance with the ordinary rules for interpreting court orders in order to answer the question whether they come to an end on the happening of any particular event, in this case the making of final orders on the substantive claims. Whilst the usual position may be that the making of final orders on substantive claims brings any interlocutory orders that were made "until further order" to an end, that need not be the case. It will depend on the circumstances. [20] In any event, in Cardile v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380 at [43] per Gaudron, McHugh, Gummow and Callinan JJ, it was explained that freezing orders are not interlocutory as they may operate after the recovery of final judgment, yet they are impermanent in the sense that they preserve assets and assist and protect the use of methods of execution and do not substitute for them (see also Jackson v Sterling Industries at 626, 633 and 637 and Winter at 328-331). [21] … properly construed the freezing orders would continue after final orders on the substantive claims until further order expressly or impliedly causing them to be discharged or until, under the terms of the orders, the judgment debt up to the stated amount in the freezing orders is paid or secured. That is not only because that is the apparent purpose of the orders, but also because that is the most sensible way of giving effect to both the purpose of the orders and the terms of … the penal notice which, as I have indicated, distinguishes this case from Fatimi and hence from the cases "frequently" encountered.
To avoid any doubt, however, Stewart J extended the operation of the freezing orders: at [25].
Here, the freezing order included a penal notice and was not made "until further order". Rather, Order 7 was in the following terms: (a) This order will cease to have effect if you: (i) pay the sum of $8,103,973 into Court; or (ii) pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. … (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact. Further, Ball J His Honour ordered that Mr and Mrs Yazbek may apply to the Court at any time to vary or discharge the order: Order 1.
It is not necessary on this application to determine whether the freezing order had continuing operation after the orders made by Stevenson J. The freezing order had been breached on 30 July 2021, when the Avalon Beach property was fully encumbered. To the extent that breach of the freezing order is a relevant factor in exercising the Court's discretion to grant a stay, whether Mr and Mrs Yazbek breached the freezing order more than once does not enhance the discretionary factor greatly. I will treat the suggested second breach as a neutral consideration.

Offers of security

On 13 May 2022, the defendants' solicitor provided a substantive response to the plaintiff's solicitor in respect of the stay of enforcement of the orders made by Stevenson J. The solicitors advised that the defendants would be unable to pay the judgment sums. The Yazbeks would have to sell the Avalon Beach home. Undertakings were offered. No mention was made of the recent refinance by the Yazbek parties nor, for that matter, the 2021 refinance. The plaintiff's solicitors promptly replied, expressing concern that the freezing order made by Ball J appeared to have been breached. An explanation was sought. The proffered undertakings were said to be insufficient. General disbelief was expressed as to the defendants' asserted financial position. Affidavits of asset disclosure were sought.
On 17 May 2022, the defendants' solicitors responded, noting that the freezing order prohibited Mr and Mrs Yazbek from disposing of, dealing with or diminishing their interest in the Avalon Beach property subject to a 'carve out' which permitted them to do so as long as they retained a total unencumbered interest of $8,103,973. Further: We are instructed as follows: (a) the Freezing Order was, at all relevant times, complied with given that the total unencumbered value of Mr and Mrs Yazbek's interest in the Avalon Property exceeded the Relevant Amount; and (b) the total unencumbered value of Mr and Mrs Yazbek's interest in the Avalon Property continues to exceed the Relevant Amount, and Mr and Mrs Yazbek do not have any present intention to further encumber the Avalon Property such that the total unencumbered value of their interest in the Avalon Property falls below the Relevant Amount.
The defendants' solicitor provided a valuation of the Avalon Beach property and advised that the property was subject to a first registered mortgage in favour of Perpetual in the sum of $22.1 million. Accordingly, it was said that the unencumbered equity in the Avalon Beach property continued to exceed the value required by the freezing order. Mr and Mrs Yazbek offered an undertaking not to further encumber the property in the absence of agreement with the plaintiff or further order of the Court. It is apparent from the defendants' solicitor's letter that they then understood that the freezing order continued to operate.
The next day, on 18 May 2022, the plaintiff's solicitor undertook title searches which revealed that the Avalon Beach property had recently been encumbered with mortgages to Perpetual and Secured Lending. The results of the title search were provided to the defendants' solicitors, along with a letter expressing serious concerns that there was not one, but two, mortgages recently registered on the title to the property such that the unencumbered equity did not meet the required figure and, further, the instructions provided to the defendants' solicitor in respect of the matter were wrong. Given how recently the mortgages had been registered, it was said to be difficult to see how the omission in those instructions could have been inadvertent. There was said to be a real question as to whether Mr and Mrs Yazbek had breached, or would soon breach, the freezing order. Details of the defendants' financial position were said to be inadequate. The plaintiff required security or affidavits of asset disclosure.
On 19 May 2022, the defendants' solicitor responded, acknowledging that the contents of the earlier letter were, regrettably, incorrect. In fact, two mortgages had been registered on the Avalon Beach property. The mortgage in favour of Secured Lending was said to have a facility limit of $3,118,000. The Yazbeks were said to be in the process of negotiating with Secured Lending to discharge its mortgage over the Avalon Beach property. Further, Mr and Mrs Yazbek maintained that there had been no breach of the freezing order where the total unencumbered value of the Avalon Beach property "is (and has always been) more than the Relevant Amount." Further, Mr and Mrs Yazbek had no present intention to further encumber the property such that the total unencumbered value "shall remain more than the Relevant Amount." Again, the defendants' solicitors appear to have understood that the freezing order had continuing operation. The defendants agreed to provide a proposal regarding security by 23 May 2022.
On 23 May 2022, Mr and Mrs Yazbek offered a charge over the Avalon Beach property pending discharge of the Secured Lending mortgage. Following discharge, Mr and Mrs Yazbek were prepared to grant Fitz Jersey an unregistered second mortgage over the Avalon Beach property, to be held in escrow pending the outcome of any appeal. If the Secured Lending mortgage was not discharged before 31 August 2022, Botany Road Project was prepared to arrange for the discharge of a mortgage and grant Fitz Jersey an unregistered second mortgage over the Rosebery property on the proviso that Fitz Jersey did not register the executed second mortgage pending the outcome of the appeal.
On 25 May 2022, the plaintiff's solicitor maintained their concern that there was a very real likelihood that Mr and Mrs Yazbek had breached the freezing order. Further financial information was requested in order to consider the proposal for security. The defendants' solicitor maintained that there had been no breach of the freezing order and, by a series of letters, gradually provided further financial information including letters of offer, mortgages and the like.
On 10 June 2022, Stevenson J made costs orders. The plaintiff's solicitor also advised the defendants' solicitors that, from their preliminary review of the materials supplied, 620 Botany Road borrowed some $100 million in May 2022 secured by any substantial assets available to Mr and Mrs Yazbek and their companies. At the time, it would have been apparent to Mr and Mrs Yazbek that substantial judgments were about to be, or had already been, entered against them. Information was sought as to the purpose of these loans. To this, the defendants' solicitor advised that the loans were for refinance only and the proceeds of the loan were used to pay out Grand Circle. The plaintiff pressed for further financial information.
On 24 June 2022, the plaintiff's solicitor responded to the defendants' proposal for security and undertakings, advising that Fitz Jersey did not accept the Yazbeks' proposal as it did not provide "sufficient (or, in practical terms, any) security for the judgments against the persons to whom that proposal relates". In order for the proposal to provide any meaningful security, the existing encumbrances over the Avalon Beach property, or perhaps the Avalon Beach and Rosebery properties together, would need to be limited such that Fitz Jersey could be confident that, in the event that those properties were sold to satisfy the existing incumbrances, there would likely be a sufficient surplus of funds available to satisfy the judgment debts. However, that was not the case as security had already been granted over those properties for the full amount borrowed by 620 Botany Road, being $98,465,308 as at 5 May 2022. The Avalon Beach property was not mortgaged in respect of the borrowings identified by the letter from the defendants' solicitor of 17 May 2022, being limited to $22.1 million, but in respect of the full $98 million. As such, it was open to Perpetual to enforce its mortgage over the Avalon Beach property without first enforcing any of the other security granted by entities associated with Mr and Mrs Yazbek. Perpetual was entitled to sell the Avalon Beach property and apply the whole of the proceeds of sale towards the borrowings of 620 Botany Road, "leaving nothing for our client".
Further, the plaintiff's solicitors observed that, by a General Security Deed, Mr and Mrs Yazbek had already granted a fixed charge over the Avalon Beach property to secure repayment of $98 million borrowed by 620 Botany Road such that any charge granted to Fitz Jersey would rank behind Perpetual's charge and be "effectively worthless". Indeed, the Yazbek parties were likely already in default under the Perpetual mortgage and permitting the plaintiff to lodge a caveat over the Avalon Beach property, absent Perpetual's consent, would constitute a further event of default. Further: … the loan of approximately $98,000,000 from Perpetual was taken out one day before the Court made orders against your clients on 6 May 2022. At the time of that hearing with Perpetual, your clients would have known that those judgments would shortly be entered against them, and that they would be seeking to appeal against those judgments. To the extent that your clients are now unable to offer security because of their dealings with Perpetual, that is a problem of their own making, and not one that will assist them should they bring a stay application.
The defendants' solicitors proposed to put forward a further proposal in two weeks and the plaintiff agreed to give them this time to do so. On 14 July 2022, the defendants offered security over the Avalon Beach, Rosebery and Alexandria properties in the form of unregistered third mortgages to be held in escrow, together with monthly statements and updates on the sale of apartments in the Alexandria Development. Valuations were provided in respect of the properties. On 26 July 2022, the plaintiff rejected the defendants' proposal, noting that the material supplied did not support the defendants' contention that there was sufficient equity to provide real security to the plaintiff such that, if enforced, would produce sufficient funds to satisfy the Court's orders.
It appears that, at about this time, Mr and Mrs Yazbek decided to sell the Avalon Beach property. Agents came to view the property on 29 July 2022. On 18 August 2022, Mr and Mrs Yazbek signed an agency agreement.
On 24 August 2022, the plaintiff's solicitors wrote again, setting out in detail why they did not accept the defendants' proposal in respect of the Yazbek parties. While it appeared that the Yazbek parties had received some $111 million from the sale of apartments in the Alexandria Development, as well as some $98 million from La Trobe by way of refinance in May 2022, "Our client has no knowledge of where all this money has gone". Further, it was said to be unsatisfactory that Fitz Jersey would be granted security behind other lenders in circumstances where it was supposed to have the benefit of a freezing order over the Avalon Beach property. The plaintiff should not suffer because of the Yazbeks' choice, when they knew that substantial orders would soon be made against them, to enter into the arrangements with La Trobe. It was said to be "far from clear … that the offer of security made by your clients is the best offer that they can truly make." Further documentation was sought to support how the defendants said they had used the money
On 8 September 2022, the defendants' solicitor provided details of how proceeds of sale of 123 apartments in the Alexandria Development had been used, together with details of the financing arrangements for the development. Having read all the correspondence, I regard this letter to be the first serious and detailed attempt to tell the plaintiff what had gone on. Further correspondence ensued, by which the plaintiff sought further financial information, which requests were eventually declined.

Motion for a stay

On 19 September 2022, the defendants filed a motion seeking a stay. In support of the application, Mr de la Hoyde said that Mr and Mrs Yazbek and their corporate entities could not pay the judgment "in full". If Fitz Jersey proceeded to issue a statutory demand, this would be an event of default on the finance for the Alexandria development, which may lead to the sale of the Avalon Beach property at an undervalue. Further, the appeal would be stifled. Undertakings were offered, together with unregistered third ranking mortgages and monthly statements of apartment sales.
In addition, Ms Gurumahan said that if no stay was granted and Fitz Jersey proceeded to issue bankruptcy notices and statutory demands, any application to oppose the bankruptcy notice or to set aside the statutory demand would need to be filed in late December 2022, when the Federal Court's bankruptcy list would be closed. According to her inquiries of the Federal Court registry, the bankruptcy list would list creditors' petitions in late January 2023 or early February 2023. The likely return of an application opposing a bankruptcy notice was mid to late February 2023, when the application would likely be adjourned to shortly prior to or following the appeal on 31 March 2023. Ms Gurumahan estimated that the likely hearing of any application to set aside any statutory demand would be early May 2023. As I understood it, this evidence was relied upon to support a submission that nothing was to be gained by refusing a stay.
On 30 September 2022, Stevenson J made directions in respect of the motion and also noted that there was an issue between the parties as to whether Mr and Mrs Yazbek remained bound by the freezing order made on 30 July 2020 following the entry of judgment. Mr and Mrs Yazbek gave an undertaking to the Court not to execute a contract for sale or otherwise deal with the Avalon Beach property until 5.00 pm on 20 October 2022, nor to engage in any act or omission that would breach the freezing order if it remained binding on them. In turn, Fitz Jersey undertook not to enforce the orders made against Mr and Mrs Yazbek or their corporate entities, or Mr Sweeney, until that date.
On 21 October 2022, Stevenson J again noted the potential dispute between the parties as to whether the freezing order remained binding on Mr and Mrs Yazbek. Further undertakings by Mr and Mrs Yazbek were noted in respect of the proposed sale of the Avalon Beach property. His Honour ordered that the freezing order made on 30 July 2022 was amended to the extent necessary to allow them to sell the property in accordance with their undertakings.
Mr Yazbek said that 620 Botany Road has now sold 130 apartments and two shops and continues to own 61 apartments and four shops with an estimated value of $59.76 million. 620 Botany Road presently owes $74,371,900 to Perpetual, secured against the apartments and shops together with the Rosebery property and the Avalon Beach property. In addition, 620 Botany Road owes $3,603,260 to Secured Lending, secured by a second registered mortgage over these properties. Under its loan facility, Secured Lending agreed to release its second mortgage over the Avalon Beach property once Perpetual's facility is at a loan to value (LVR) ratio of 70% or below. Mr Yazbek is informed by his broker that he is liaising with Secured Lending to facilitate the release of the Avalon Beach property from the securities, but this might be subject to updated valuations being obtained for the security properties.
In the absence of any correspondence between Mr Yazbek and the broker, I am reluctant to place much weight on Mr Yazbek's evidence that the broker is in the process of arranging for Secured Lending to remove its mortgage on the Avalon Beach property. The correspondence suggests that the Yazbeks have been asking Secured Lending to discharge its mortgage over the Avalon Beach property since May 2022: see [66]. Where they have been unable to achieve this result in seven months, I infer that this is unlikely to be achieved in the near future.
Mr Yazbek said the total assets of himself and his wife, together with their corporate defendants, total $110,307,586, with liabilities of $93,960,721. Neither he nor his wife presently have the required cash to pay the judgment debt "in full", nor do any of the other corporate defendants, that is, 620 Botany Road, Botany Road Project, Kebzay or Kebzay Custodian No 2. Mr Yazbek also said that, if no stay was granted and Fitz Jersey issued a bankruptcy notice and statutory demands prompting the secured lenders to exercise their right to seek power of sale orders or to appoint a receiver, then the Yazbek parties would be unable to fund the appeal.

Dividends and loans

After the motion for a stay was filed, the plaintiff issued subpoenas and notices to produce. In producing documents in answer to the notices to produce, the financial statements and tax returns for the Yazbek corporate entities were provided, which reported that substantial dividends had been paid by these companies to the Yazbeks in recent years.
On 22 and 23 June 2022, financial statements and tax returns were prepared for Botany Road Project and 620 Botany Road Unit Trust for the 2020 and 2021 financial years. Mr Yazbek said that he had never seen the minutes of meeting of Botany Road Project declaring a dividend for the 2020 financial year, "First time I seen it on Monday." Although the minutes bear his electronic signature, Mr Yazbek said he did not authorise his signature to be used and, of course, nor was he a director of the company. Likewise, Mr Yazbek's electronic signature on the tax return for Botany Road Project was disclaimed by Mr Yazbek as used without his permission and where he had not been taken through the tax return by Ernst & Young.
It is unlikely that Ernst & Young would have proceeded in the manner described by Mr Yazbek. More likely, it was necessary to bring the companies' financial statements and tax returns up to date in order, at least, to address the plaintiff's requests for information and, hopefully, agree upon a stay of the orders made in these proceedings: see [72]-[79]. I expect that Mr Yazbek would have been interested in this task and informed of the results of Ernst & Young's work.
Further, on 20 October 2022, the defendants' solicitors provided the draft financial statements and tax returns for the 2022 financial year. These documents were said to have been prepared "in reliance of proposed minutes that are currently awaiting our clients' approval and execution." The draft documents indicated that some $6 million in dividends would be, or had been, paid by Botany Road Project. Notwithstanding the terms of the solicitor's letter, Mr Yazbek said he did not know anything about these documents and the cross-examiner should ask his wife.
The significance of the tax returns and minutes of meeting declaring dividends is that, from 2020 to 2022, substantial payments were made from 620 Botany Road to Botany Road Project, being loan repayments, from which dividends were declared and paid by Botany Road Project to Kebzay No 2 ($10,917,557 in 2020, $2,751,321 in 2021 and a proposed dividend of $6,096,830 in 2022). In addition, Botany Road Project made loans to Mr and Mrs Yazbek ($5,803,468 in 2021 and a further $861,994 in 2022.)

Whether to stay enforcement against the Yazbeks

The Yazbek parties submitted that they were "asset rich" but "cash poor" and did not presently have the required cash to pay the judgment in full or to pay the judgment into Court pending the determination of the appeals. It was submitted that the Yazbeks were plainly in a positive net asset position for some $20 million. In contrast, Fitz Jersey will suffer no prejudice by being required to wait until the appeals have been determined. Indeed, Fitz Jersey will be worse off as doing so will trigger events of default which will diminish the equity available in the secured properties for distribution to the creditors, including Fitz Jersey. To this, the plaintiff submitted that it was best placed to assess where its interests lay and wished to maintain its opposition to the stay.
The defendants considered that a judgment from the Court of Appeal would not be forthcoming until mid-2023. Where Fitz Jersey gave no undertaking that it would not seek to wind up the corporate Yazbek parties (c.f. Gunasegaram v Blue Visions Management Pty Ltd [2017] NSWCA 187 at [10] (per Leeming JA)), it was likely that Fitz Jersey would likely do just that. The appointment of liquidators or bankruptcy trustees would render the appeal abortive. In these circumstances, the Court would normally exercise its discretion to grant a stay: Gunasegaram at 26. Mr Yazbek's evidence that he did not have cash to pay the judgment debt nor other assets should be accepted. The defendants submitted, in the alternative, that the Court could order a stay conditional on a much smaller sum of money than the judgment debt, having regard to the extent of Mrs Yazbek's liability and the absence of any proprietary interest being found to exist in the Avalon Property.
The Yazbeks submitted that the absence of stay would render the appeal nugatory where they would be exposed to bankruptcy notices and statutory demands. This would trigger events of default under existing loan facilities, potentially resulting in sale of assets by secured creditors. The Yazbeks financial position will continue to improve as they sell down apartments in the Alexandria development. By reason of the Deed of Assignment, which requires Fitz Jersey to apply money it received according to a cascading clause, any money received could not be used in any event until costs were finalised and potentially assessed. Fitz Jersey could not identify that its position will worsen between now and the appeal. Further, a 'fire sale' of assets by lenders would deplete the available equity in the Yazbeks' assets and harm both parties; it was hardly in Fitz Jersey's interests for this to occur.
The Yazbek parties submitted that the risk of asset disposal was negligible. The applicants have offered detailed undertakings. The appeal was four months away. The primary assets were real property which could not be sold without Fitz Jersey being alerted. The Yazbeks were in a net positive asset position in excess of the judgment amount and offered undertakings not to encumber those assets. The Yazbeks submitted that there was nothing wrong with declaring dividends. Nor should the Court make findings in respect of any breach of the freezing order in the absence of a motion for contempt. In any event, the mortgages in respect of the 2022 refinancing were made after final orders were made by Stevenson J. Even if the Yazbeks had breached the freezing order, the Court should not impose a punishment of "extermination" by refusing a stay.
The plaintiff submitted that the defendants offered no meaningful security and had failed to prove that any refusal by the Court to order a stay would be abortive of the appeal. Alternatively, if the defendants are unable provide meaningful security, this was a situation of their own making, having disposed of, or encumbered, assets of significant value in breach of the freezing order. The defendants knew they were sued for many millions of dollars but chose to dispose of or encumber significant assets. It should be left to the defendants to remedy that problem by procuring funds to pay into Court.
The plaintiff submitted that the thesis behind the defendants' application was that, if a stay was not ordered, they would become bankrupt or insolvent and will thus be unable to prosecute their appeal or would suffer other irremediable prejudice. The defendants have not discharged their onus of proving that their financial position is such that they cannot pay the judgments debts or any substantial part thereof. Nor have the defendants shown that they cannot provide some meaningful security to Fitz Jersey pending their appeal. Rather, the defendants appear to have proceeded on the basis that, if funds or valuable assets can be placed in a discretionary trust, or in the hands of entities other than the defendants, then those funds can be ignored for the purposes of the application.
Further, while the defendants now say that Botany Road Project lacks funds to pay the judgment against it, that company paid substantial dividends in 2020 and 2021, largely funded by payments from 620 Botany Road. The dividends paid by Botany Road Project went to Kebzay No 2, being a company of which Mrs Yazbek is sole director and shareholder. The defendants have not sought to explain what became of the significant funds paid to Kebzay No 2. Also in 2021, Botany Road Project made a loan or loans totalling $5,803,468 to Mr and Mrs Yazbek. Botany Road Project's draft 2022 financial report records that $5,080,207 of that loan remained outstanding as at 30 June 2022, with a further loan or loans of $861,994 made to Mr and Mrs Yazbek in that year. Where the defendants had not explained where these substantial dividend payments had gone, the Court ought not accept that, absent a stay, there was going to be an act of insolvency or a fire sale.

Conclusion

As Campbell AJA explained in Penson v Titan (No 2) National Pty Ltd [2015] NSWCA 120 at [44]-[49], the lodging of an appeal does not operate as a stay; a successful party is prima facie entitled to the fruits of a judgment in their favour; and it is for the applicant to demonstrate a proper basis for a stay that will be fair to all parties: see likewise Gunasegaram at [37] (per Leeming JA); UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd (No 2) [2015] NSWSC 23 at [10]; Uniform Civil Procedure Rules 2005 (NSW), rule 51.44. The question for the court is to ask what the interests of justice require. As McColl JA explained in Kalafair at [18]: Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court and that there is a real risk that he will suffer prejudice or damage if a stay is not granted which will be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience.
There is no need for the applicant to demonstrate any special or exceptional circumstances: Yolarno Pty Ltd v Shandong Delisi Food Co Ltd [2022] NSWCA 30 at [4] (per Macfarlan JA).
A stay may be granted 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: Alexander v Cambridge Credit Corporation (1985) 2 NSWLR 685 at 697. As Campbell AJA summarised the position in Penson v Titan (No 2) at [45]-[46]: [45] When a stay is granted the court should endeavour to preserve the status quo by protecting the judgment creditor from the risk of loss by framing orders, which, as far as practical, ensure that the existing value of the judgment appealed against will still be available to the judgment creditors if the appeal fails: Kalifair v Digi-Tech at [28]. [46] One way in which this might be done is by requiring security as a condition of a stay; another is requiring an undertaking in the nature of a Mareva order: Kalifair at [28]-[32]. See also Mao v AMP Superannuation Limited [2017] NSWCA 296 at [7] per White JA.
Prima facie, Fitz Jersey is entitled to payment of the judgment sums or, failing that, to enforce the judgment and orders even if that triggers events of default under the defendants' other financial arrangements. It is for the Yazbek parties to demonstrate a proper basis for a stay that is fair to all parties.
It is accepted that the Yazbeks' appeal is arguable, where I have also concluded that the appeal in respect of the breach of director's duties as to the write-off of shareholder loans is also arguable. It is also accepted Fitz Jersey has substantial assets and, should the judgment sums be paid but the defendants succeed on appeal, Fitz Jersey is 'good for the money'.
Further, the total assets and liabilities of Mr and Mrs Yazbek and their corporate defendants are both substantial. The net assets are, by my calculations, some $16.3 million, which represents a loan to value ratio (LVR) of 85%. That is, Mr and Mrs Yazbek and the defendant corporate entities are highly leveraged. Should assets realise less than their estimated value or take longer than expected to sell, the gap between assets and liabilities may be eroded or disappear. I do not accept that Fitz Jersey will suffer no prejudice by being required to wait until the appeals have been determined in, say, mid 2023 in these circumstances.
There are three key problems with the application for a stay. First, the freezing order made by Ball J on 30 July 2020 was breached by Mr and Mrs Yazbek when mortgaging the Avalon Beach property on 30 July 2021. Whilst Mr Yazbek did not accept that he breached the terms of the freezing order, the freezing order was clearly breached. The property no longer had unencumbered equity of $8,103,937. I have no doubt that Mr Yazbek was aware that he and his wife were mortgaging the property as security for the $99.3 million loan and I do not accept his evidence to the contrary. Whether Mr and Mrs Yazbek mortgaged the Avalon Beach property with the intention of breaching the freezing order or inadvertently is not something I need to decide.
Second, the suggestion that the Yazbeks are unable to pay, or provide security for, the judgment sum critically depends on the evidence of Mr Yazbek, on which I am not prepared to rely. Mr Yazbek's propensity to disclaim the authenticity or proper execution of critical documents and his efforts to distance himself from any knowledge of the Yazbek Group was troubling. Of course, the defendants also relied on valuations, loan agreements, mortgages and the like. These evidence the extent to which the Yazbeks have encumbered their assets in recent times, as well as the significant amounts of money moving between the Yazbek corporate defendants and the Yazbeks. Whilst I accept the defendants' submission that there was nothing wrong with Botany Road project declaring dividends per se, Fitz Jersey pointed to these payments as, essentially, evidence that the Yazbeks were willing and able to make substantial payments amongst themselves and, indeed, to anyone other than Fitz Jersey. I was left with the unshakable impression that Mr Yazbek would be able to find the necessary funds or security if he were minded to do so.
Third, I doubt that the Court has been provided with the full picture in respect of the Yazbeks' ability to provide security. I infer from the qualified nature of Mr Yazbek's affidavit and that of his solicitor that Mr and Mrs Yazbek have cash to pay some but not all of the judgment debt. Whilst the Yazbek corporate defendants may not presently have the funds to pay the judgments against those companies, it may well be the case that other companies or trusts within the control of the Yazbeks may be able to provide cash or security in support of a stay. Mr Yazbek agreed that there were numerous other companies within the umbrella of his corporate group but said that he would struggle to answer a question about the financial position of any trust or company within his group. He blamed this on Mr Vartuli. Otherwise, the evidence was silent as to these matters.
In the absence of the consent of the secured lenders, the Yazbeks' offer of unregistered third mortgages does appear to be a breach of the existing La Trobe loan facility. This is an unsatisfactory security regime, where it gives the secured lender the right to enforce its security. There is no evidence of any communication between the Yazbeks and the secured lenders to ascertain their attitude to permitting the Yazbeks to provide this security to Fitz Jersey.
What do the interests of justice require in these circumstances? I consider that a stay ought be granted on terms that the Yazbeks defendants give Fitz Jersey security for the judgment sum by requiring that the amount of the judgment sum be paid into Court as a condition of the stay. Where the Sweeney defendants have already provided security for part of the judgment sum in the amount of $650,530.87, this should be deducted from the security to be provided by the Yazbeks. An undertaking in the nature of a Mareva order does not achieve a fair adjustment of the rights of the parties where the defendants' assets are fully encumbered, this being initially achieved in breach of a freezing order. Nor is an unregistered third mortgage adequate security where it is offered in likely default of the first registered mortgage. As I apprehend that Mr and Mrs Yazbek do have some cash at their disposal, but may need a little more time to find the balance, the security can be provided in two instalments.

ORDERS

For these reasons, I make the following orders: 1. On the fourth applicant, Scott Sweeney, giving the undertakings in MFI-1, stay the orders made on 6 May 2022 against him pending the determination of the appeal from those orders or until further order. 2. Order that the costs of the motion filed on 19 September 2022 as between the fourth applicant and the respondent are to abide the outcome of the appeal. 3. Stay the orders made on 6 May 2022 against the first, second, third, fifth, sixth and seventh applicants pending the determination of the appeal from those orders or until further order on the following conditions: 1. payment of $4 million into Court by 4.00 pm on 30 December 2022; and 2. payment of $4,518,396 into Court by 4.00 pm on 17 January 2023, failing which the stay is lifted. 1. Order that the costs of the motion filed on 19 September 2022 as between the first, second, third, fifth, sixth and seventh applicants and the respondent: 1. in the event that the applicants fail to comply with the conditions in Order 3(a) or Order 3(b), to be paid by the first, second, third, fifth, sixth and seventh applicants; 2. otherwise abide the outcome of the appeal.

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: 14 December 2022

Judgment

HER HONOUR: This is an application for a stay pending an appeal listed for hearing for five days commencing on 27 March 2023. The final orders were made by Stevenson J following his judgments in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) [2021] NSWSC 1692 (Fitz Jersey 2021) and Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) [2022] NSWSC 394 (Fitz Jersey 2022). Whilst ordinarily such an application would be heard by the trial judge, his Honour was asked to recuse himself and did so.

At a glance

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