Great Wall Resources Pty Ltd (in liq) v Rafeletos

Federal Court of Australia|2012-11-12|Before: Brennan CJ, McHugh J, Kirby J, Callinan JJ, Rares J

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 This is an application for an extension of time in which to seek leave to appeal from the decision of the primary judge to refuse an application by the liquidator of Great Wall Resources Pty Limited (in liq) to set aside an order granting a stay of a judgment. The stay was made conditional on Great Wall executing a mortgage securing any amount due under the judgment and interest in favour of George Rafeletos, the applicant below: Rafeletos v Great Wall Resources Pty Ltd (No 4) [2012] FCA 1168.

Principles 2 An application for an extension of time in which to appeal or seek leave to appeal puts at risk a vested right of the respondent to the application. That position is in contrast to the one position where an application for an extension of time merely concerns the doing of an act in respect of an appeal that has already been lodged: Jackamarra v Krakouer (1998) 195 CLR 516 at 519-520 [3]-[4] per Brennan CJ and McHugh J and at 540-541 [66(4)] per Kirby J. 3 Their Honours applied the decision of Lord Denning MR in The Queen v Secretary of State for the Home Department; Ex parte Mehta [1975] 1 WLR 1087 at 1091. There, his Lordship explained the practice of the Court in a case where a party seeks an extension of time in which to lodge an appeal saying: "We often like to know the outline of the case. If it appears to be a case which is strong on the merits and which ought to be heard, in fairness to the parties, we may think it is proper that the case should be allowed to proceed, and we extend the time accordingly. If it appears to be a flimsy case and weak on the merits, we may not extend the time. We never go into much detail on the merits, but we do like to know something about the case before deciding whether or not to extend the time." 4 An applicant for leave to appeal must establish that the decision in question is attended with sufficient doubt to warrant the grant of leave and must also show that substantial injustice will result from a refusal of leave to appeal: Bienstein v Bienstein (2003) 195 ALR 225 at 231 [29] per McHugh, Kirby and Callinan JJ.

Background 5 The relevant circumstances were set out in detail in the reasons of the primary judge. It suffices to say that on 19 June 2009 his Honour gave provisional reasons for judgment after a substantive hearing. He found that Great Wall had repudiated its agreement with Mr Rafeletos on which he had sued for damages. The primary judge expressed a provisional view as to the damages to which Mr Rafeletos was entitled. He assessed this as the value of 20% of the issued shares in Great Wall as at the date of judgment, derived on the basis that the company's only activity after the date of the agreement, had been to engage in the acquisition, development and sale of lots in a significant property in the Wollongong area, at Yallah. 6 Initially, Mr Rafeletos' evidence indicated that Great Wall had a liability in the order of $2.5 million. On 17 November 2009, his Honour ordered judgment against Great Wall in about that sum. At the same time, his Honour granted a stay up to 11 December 2009 so that the company would have an opportunity, if it was so inclined, to apply for leave to re-open its case in relation to the assessment of damages. That was because, up until then, it had not put on evidence to deal with damages, in breach of orders that his Honour had made earlier for that purpose. Subsequently, his Honour extended the stay on a number of occasions. 7 When the matter came before his Honour on 18 December 2009, he imposed two conditions of the stay of the earlier judgment. One condition was that Great Wall grant Mr Rafeletos a first mortgage over identified parts of the Yallah property as security for the enforcement of any judgment or order in the proceeding. No such mortgage was then granted. The proceedings came before his Honour again on 5 February 2010. On that occasion he noted that the earlier stay had terminated, but he reimposed it without attaching the above condition. 8 Critically, when the matter came before his Honour on 5 March 2010, his Honour extended the stay up to and including 26 March 2010 upon the condition that Great Wall grant to Mr Rafeletos, no later than 4 pm on 8 March 2010, a first mortgage in the form that his Honour initialled and dated. That form of mortgage was again over part of the Yallah property. It secured in favour of Mr Rafeletos the amount of any judgment together with interest in the proceeding. Great Wall executed the mortgage in that form on 8 March 2010. Subsequently the mortgage was registered under the Real Property Act 1900 (NSW). 9 It was common ground before his Honour that Great Wall was insolvent as at both 5 and 8 March 2010. However, there was no suggestion that the company's director or Mr Rafeletos was aware of that fact at the time. Great Wall was ordered to be wound up on 7 December 2010.

Great Wall's applications below 10 Great Wall made two substantive applications to the primary judge on 25 September 2012. First, it sought an order vacating the condition of the stay imposed on 5 March 2010 that had required it to grant the mortgage. In addition, as a consequence of that relief being granted, Great Wall sought to have the mortgage itself set aside. Secondly, in a separate application, Great Wall sought relief under ss 588FE(2) and (3) and 588FF(1) of the Corporations Act 2001 (Cth). That was on the basis that it contended that the grant of the mortgage was either a voidable uncommercial or insolvent transaction within the meaning of ss 588FB or 588FC of the Act. 11 His Honour rejected all of Great Wall's claims on the second of those bases, namely its claims that attacked the grant or validity of the mortgage under the Act. Great Wall does not seek to appeal from his Honour's rejection of its claims made under the Act. 12 Great Wall's challenge to the primary judge's decision is limited to his refusals to set aside the condition of the stay that he imposed on 5 March 2012 requiring it to grant the mortgage and consequentially to set aside the registered mortgage as well. Great Wall contends that on 5 March 2010 the Court was induced to impose that condition under an innocent misapprehension that the company was solvent, when it was not. Great Wall seeks orders setting aside both the stay and the mortgage, that it decided to execute so as to bring the stay into effect. 13 Great Wall argues that the condition for the grant of the stay imposed on 5 March 2010 had a limited purpose. That was, it argued, to protect Mr Rafeletos' position. It submitted that the condition had not been imposed to put him a better position, as against other creditors of Great Wall, than he would otherwise have had. Great Wall asserts that the effect of what has subsequently happened is that its insolvency, and its subsequent winding up on 7 December 2010, provides a basis on which his Honour should have ordered that the mortgage be discharged.

The primary judge's reasoning 14 The primary judge accepted that an interlocutory order, such as the conditional grant of the stay of 5 March 2010, could be revisited at any time, where the justice of the matter demanded it. But, he considered that there was no basis for interfering with what had occurred in March 2010. He said that setting aside the orders imposing the condition of the stay would be of no utility by itself without also interfering with the mortgage. His Honour identified that what Great Wall complained about was its own voluntary act of granting the mortgage on 8 March 2010 so as to cause the stay it wanted to remain on foot. The primary judge reasoned that there was no compulsion involved in the company's grant of the mortgage. Rather, the condition in the stay was simply a matter that had to be satisfied for the stay to be effective. 15 As his Honour said, the inference could be drawn that those responsible for the management and decision-making of Great Wall considered that it was in the company's best interests to grant the mortgage in order to satisfy the condition of the stay. He observed that Great Wall made no complaint at the time (in March 2010) that the condition of the stay was inappropriate. And, he said, Great Wall could have ignored the condition with the consequence that the stay would have been dissolved on 8 March 2010, with potential adverse results for the company. The primary judge also pointed out that the creditors would have had no standing to oppose what was happening in the Court at that time and had their own remedy in any event. The primary judge also concluded that there was no basis for the Court to interfere with the consensual act of Great Wall in granting the mortgage to Mr Rafeletos.

Consideration 16 In my opinion, it is not arguable that his Honour was incorrect to refuse the relief that Great Wall seeks to obtain if it were able to pursue an appeal. Great Wall did not suggest in the course of argument that it had any legal or equitable right, independently of the imposition of the condition of the stay granted on 5 March 2010, by which it could compel Mr Rafeletos to set aside or give up the grant of the registered mortgage. Great Wall chose to grant the mortgage on 8 March 2010. It was not ordered to do so. No order of the Court bound it or required it to act in any particular way in respect of the mortgage. Rather, the Court was prepared to grant Great Wall the indulgence of a stay pending it obtaining and deploying evidence and arguments to revisit the provisional judgment reflecting his Honour's assessment of damages against it. But Great Wall could only have done so on the condition that it first had granted the mortgage to Mr Rafeletos. 17 In my opinion, that situation is akin to that in Wilde v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590 at 603-604. There Stephen, Murphy and Wilson JJ discussed the effect of the Court setting aside an earlier order granting a creditor an extension of time in which to register a charge against a company. In that case, the relevant legislation did not provide that registration of the charge became void ab initio if an order extending the time in which it might be registered were made erroneously or set aside. When the order granting the extension of time was subsequently set aside, the charge had been registered. Their Honours said that: "… the consequence that will follow an order setting aside an earlier decision will vary from case to case. So long as the earlier decision stands, and no stay is operative, it is a lawful decision and the action taken in reliance upon it is lawful. It is true that from the moment it is set aside the order can no longer provide the lawful justification for further action, but whether what has been done can be undone will depend upon the availability of appropriate remedies, to bring about the appropriate relief. ... We are unable to escape the conclusion that the order extending time was beyond recall so soon as registration had been effected in reliance upon it, and once those steps were taken the operation of the order could not be undone retrospectively. It follows that the validity of the registration was not dependent on the continued subsistence of the order extending time, and consequently the order setting aside the extension of time could not affect the registration that had already been concluded." (emphasis added) 18 In my opinion, the reasoning of the primary judge is on all fours with that approach. Great Wall argued that in substance the imposition of the condition of the stay on 5 March 2010 created an order similar in effect to a final order for the grant of a mortgage. I reject that characterisation. The conditional order for a stay did nothing of the sort. That order gave Great Wall an indulgence under which, if it chose, it could obtain a stay of an enforceable order of the Court by granting the mortgage. Once Great Wall granted the mortgage the stay came into operation. The Court made no order that compelled Great Wall to act so as to grant the mortgage. Once Great Wall granted the mortgage, it operated in its own terms. 19 Great Wall asserted no independent right to set aside the grant of the mortgage or its registration under the provisions of the Real Property Act other than that this was a consequence, so it asserted, of the Court's order. In my opinion, that argument has no substance for the reasons given by the primary judge and as demonstrated by in Wilde 145 CLR at 603-604.

Conclusion 20 The basis on which the extension of time is sought are as follows. His Honour delivered ex tempore reasons for judgment on 25 September 2012. The solicitor for the liquidator informed his client that he understood that the time for filing an appeal or application for leave to appeal did not begin to run until his Honour's revised reasons had been provided to the parties. Great Wall concedes that that view was erroneous. Were that the only obstacle to the granting of an extension of time, I would have been minded to accede to the application. 21 However, for the reasons above, there is no basis to doubt the correctness of the decision of the primary judge, nor is there any likelihood of substantial injustice flowing from his decision. Accordingly, any appeal that might be brought being without merit, no purpose would be served by granting an extension of time in which Great Wall could seek leave to appeal. 22 The application for extension of time filed on 29 October 2012 must be dismissed with costs. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Corporations Act 2001(Cth)ss 588F(1), 588FB, 588FC, 588FE(2)

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