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[2003] NSWSC 249
procedural. Stay refused. The hearing before the Registrar listed for 24 April 2003 was vacated, a mention was fixed for 17 April 2003, and the applicant was ordered to pay the respondents' costs of the stay...
The DPP argued that the Supreme Court case about the children's claimed interests in property should wait until the District Court dealt with a proceeds-of-crime application. Campbell J refused. The District Court could potentially act on property under Mr Macarthur's effective control even if the children had equitable interests, but those interests could still matter to its discretion. The Supreme Court was also the usual forum for deciding significant equitable-interest questions, and the District Court's jurisdiction to declare trusts was limited. The judge did not decide whether the children actually had rights under the trust or in the sale proceeds.
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In Macarthur v Cawdor Nominee Pty Ltd [2003] NSWSC 249, Campbell J considered an interlocutory application by the Commonwealth Director of Public Prosecutions (DPP) to stay proceedings brought by four children of Ross William Macarthur. The children sought declarations that land at Kenthurst, formerly owned by Cawdor Nominee Pty Limited, had been held on trust for them, and that they were entitled to the proceeds of its sale. The property had been sold, and the sale proceeds were held by the Official Trustee ([1]).
2 cited instruments linked from this judgment.
The children commenced their proceedings on 9 December 2002 ([2]). Their claim arose against the background of criminal proceedings involving their father. Mr Macarthur was found guilty on 28 August 2002 of being knowingly concerned in a company defrauding the Commonwealth, contrary to s 29D of the Crimes Act 1914 (Cth). The fraud concerned the avoidance of excise duty on diesel fuel between 1 February 1998 and 5 May 1999. The conviction was entered on 17 December 2002 ([3]-[4]).
While the criminal proceedings were pending, the Common Law Division made freezing orders over assets alleged to be controlled by Mr Macarthur. The Kenthurst property was among them. Following an order made after the freezing order, it was sold and the proceeds were held by the Official Trustee ([5]).
The DPP proposed to apply in the District Court for a pecuniary penalty order under the Proceeds of Crime Act 1987 (Cth). It sought to pause the children's Supreme Court claim until the District Court determined that application ([6]-[7]). The DPP's central point was that the Act permitted the District Court to act in relation to property under a person's “effective control” without regard to whether that person held a legal or equitable interest in the property. Section 9A expressly allowed effective control to be assessed by reference to matters including company interests, trusts, and family, domestic or business relationships ([6], [8]).
Campbell J refused the stay. The court did not decide whether the children had an equitable interest, what the trust deed meant, or whether any property was effectively controlled by Mr Macarthur. It decided only that the stay was not warranted at that stage. It vacated the principal proceedings' listed hearing and set a mention date, and ordered the DPP to pay the respondents' costs of the stay application ([14], [16]).
The court rejected the idea that the statutory concept of effective control made it pointless to determine equitable interests. The Act gave effective control two distinct functions: it could inform the assessment of the benefits relevant to the pecuniary penalty, and it could provide the basis for an order making property available to satisfy that penalty ([10]). Under ss 26-28, the court considering the penalty application could assess benefits derived from an offence and, in specified circumstances, treat property subject to a person's effective control as that person's property. Section 28(3) also provided for a declaration that property under effective control was available to satisfy a pecuniary penalty order ([6]).
The judge accepted that the District Court could make an order based on effective control even if the children had an equitable interest in the Kenthurst property. That did not mean their claimed interests were immaterial. The judge identified them as potentially relevant to the District Court's discretionary decisions: whether to take controlled property into account in fixing a penalty, whether an order would deprive another person of a property right, and what property right would be affected ([10]). The judgment carefully stopped short of deciding what weight the District Court should give those matters. That decision was entrusted to the District Court judge.
The potential for inconsistent findings was also considered. The children's counsel submitted that the District Court and Supreme Court might reach different conclusions about the trust or the children's property rights if the Supreme Court proceedings were stayed. The DPP responded that issue estoppel would prevent the Supreme Court from deciding the matter inconsistently with a District Court determination. Campbell J regarded that argument as dependent on precisely what issues were fought in the District Court. There was a realistic prospect that the nature of the children's rights would be an issue there, so the DPP's estoppel argument had merit, but it did not resolve the stay question ([12]-[13]).
An important counterweight was the District Court's limited equitable jurisdiction. Section 134 of the District Court Act 1973 restricted its jurisdiction to make declarations that trusts subsisted to proceedings involving trusts not exceeding $20,000 in value, as determined by the court. The District Court could still decide whether a trust subsisted if that were incidental to a jurisdiction properly before it, such as the proceeds-of-crime application. But Campbell J considered it relevant that the Supreme Court's Equity Division was ordinarily the appropriate forum to determine equitable interests in property of significant value ([13]). Taken together, the statutory discretion, possible issue estoppel, and forum considerations did not justify stopping the Supreme Court proceedings.
The trust deed was itself a reason not to assume the answer. The children relied on a discretionary trust deed dated 30 March 1986. It named them and others as beneficiaries and contained provisions for appointment of income and capital, as well as default provisions ([11]). The judge observed that being named a beneficiary under such a deed did not necessarily mean the property was simply held for those beneficiaries. The children might, as takers of income in default of appointment, have a vested but defeasible interest, but the judgment did not decide the deed's effect. The relevant point for the stay application was that they claimed an equitable interest “of some sort” requiring determination ([11]).
This judgment is a decision about the management of overlapping proceedings, not a final ruling on beneficial ownership or the interpretation of the trust deed. Before the decision, the children had a pending Supreme Court claim for declarations concerning the property and proceeds, while the DPP proposed a District Court application under the Proceeds of Crime Act 1987 (Cth). The DPP sought to have the civil claim paused while that statutory process proceeded ([1], [6]-[7]).
After the decision, the stay was refused, so the Supreme Court proceedings were not halted by the application. The judgment did not decide whether the children had an equitable interest, whether the Kenthurst property was held on their trust, whether it was under Mr Macarthur's effective control, or whether the District Court should make a pecuniary penalty or property order. Those issues remained unresolved in the reasons ([10]-[14]).
The judgment's reasoning is narrow. It illustrates that statutory power to proceed on an effective-control basis does not necessarily make legal or equitable interests irrelevant to a separate court's discretion. It also illustrates that the forum's jurisdiction and suitability can matter when a stay is sought. Campbell J did not announce a universal rule against stays in proceeds-of-crime matters. The conclusion turned on the statutory scheme, the potential relevance of third-party property rights, the possibility that the District Court would consider trust questions incidentally, and the limited scope of its trust-declaration jurisdiction ([10], [13]).
The judgment refers to Re Director of Public Prosecutions; ex parte Lawler (1994) 179 CLR 270 for the proposition that the constitutional just-terms limitation in s 51(xxxi) does not apply to penalties. Campbell J proceeded on the assumption that this line of authority would also apply to the 1987 Act. The judge did not undertake a separate constitutional analysis or decide any constitutional challenge to the Act ([10]).
On discretionary trusts, the judgment cites Gartside v Inland Revenue Commission [1968] AC 553 and Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 when cautioning against treating named beneficiaries as automatically holding the trust property for themselves. It also cites Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 regarding a possible vested, though defeasible, interest held by takers in default of appointment ([11]). The court did not resolve the deed's construction on this interlocutory application.
At [10], the court explained that effective control played more than one role under the Act: it could affect the amount of the penalty and support an order making property available to meet that penalty. In plain English, control was relevant not only to who formally owned an asset, but also to the statutory calculation and enforcement mechanisms. The judgment then made a critical distinction: even if the District Court could act despite another person's equitable interest, that interest could still matter to the District Court's discretion.
The judge identified possible relevant considerations: whether property under effective control should be counted when setting the penalty if others had property interests; whether an order would deprive another person of a property right; and the nature of the right affected by the order ([10]). The judge expressly declined to say what effect those matters should have. This preserved the District Court's role in deciding its own application.
At [11], Campbell J warned that it might be an “over simplification” to say the proceeds were held for the children simply because they were named as beneficiaries. In plain English, a trust deed's label for a person does not necessarily answer what enforceable interest that person has. The deed's appointment and default provisions would need to be considered. The judge noted a possible interest for those entitled to income in default, but did not decide whether that applied to the children.
At [13], the judge acknowledged that issue estoppel might prevent conflicting decisions depending on the questions actually litigated in the District Court. The judgment then stressed the District Court's limited jurisdiction to declare trusts and observed that the Supreme Court Equity Division was usually the appropriate place to determine significant equitable interests. In plain English, the possibility that one court's findings might bind another did not automatically settle which court should hear the underlying trust claim.
The operative order at [14] was direct: “I decline to grant the stay which is sought.” The order left the substantive rights undecided. At [16], the court ordered the DPP to pay the respondents' costs, reasoning that the unsuccessful attempt to stop the proceedings would not have its merits affected by the eventual outcome of the principal case.
The reasoning is most relevant where civil proceedings about ownership or equitable interests overlap with a proposed application under the Proceeds of Crime Act 1987 (Cth), and a party asks a court to pause the civil case. The judgment is particularly pertinent where the statutory application may proceed on “effective control” rather than formal legal or equitable ownership ([8], [10]).
It may also be relevant where an alleged third-party interest could affect the discretion to make a penalty or property order. The case indicates that the statutory power and the claimed property interest are not necessarily mutually exclusive: a court might have power to act based on effective control, while still considering the existence and nature of other people's interests ([10]).
The forum question is important where the proposed court's jurisdiction to grant the substantive equitable relief is limited. Here, s 134 of the District Court Act 1973 limited the District Court's jurisdiction to declare trusts, although trust questions could arise incidentally to a matter within its jurisdiction ([13]). A different procedural setting, statutory scheme, property value, or jurisdictional basis could affect the analysis. The judgment does not establish that a stay must always be refused when parallel proceeds-of-crime proceedings exist.
The trust aspect is relevant where a claimant relies on being named a beneficiary under a discretionary trust, especially where the deed contains powers of appointment and default provisions. The decision flags the need to distinguish a discretionary object or named beneficiary from a person with a vested or defeasible interest under particular default terms. It does not determine the status of any beneficiary under the deed in this case ([11]).
The supplied judgment contains no information about subsequent cases that applied, distinguished, followed, or otherwise treated Macarthur v Cawdor Nominee Pty Ltd. No conclusion about later judicial treatment can therefore be drawn from this source alone.
Within this judgment, Campbell J considered Re Director of Public Prosecutions; ex parte Lawler on the constitutional treatment of penalties, while expressly proceeding on an assumption about its application to the 1987 Act ([10]). The judgment also cited Gartside, Buckle, and Hartigan Nominees on the character of interests associated with discretionary trusts and default entitlements ([11]). Those references explain aspects of Campbell J's reasoning; they are not evidence of later treatment of the Macarthur decision itself.
The substantive questions remained open after the stay application. The judgment did not determine whether the 1986 deed governed the proceeds, whether the children were entitled to income or capital under its terms, or whether their asserted interests were vested, defeasible, discretionary, or otherwise ([11]). Nor did it decide whether the Kenthurst property or proceeds were under Mr Macarthur's effective control within the statutory meaning.
The judgment also did not determine whether the District Court would make a pecuniary penalty order, what benefits might be assessed, or whether an order under s 28(3) would make any property available to satisfy such an order. It described possible considerations for the District Court but expressly left their weight to that court ([10]). Whether issue estoppel would arise was likewise dependent on the precise issues litigated in the District Court ([13]).
Finally, the decision does not provide a general test for stays in concurrent civil and proceeds-of-crime proceedings. Its reasoning should be read in light of the particular statutory provisions, trust claim, property, and jurisdictional limits identified in the judgment. This is general legal information, not legal advice. Zoe can make mistakes, and a qualified Australian lawyer should check this before you act on it or rely on it.
CITATION : Macarthur v Cawdor Nominee Pty Ltd [2003] NSWSC 249 HEARING DATE(S) : 27 March 2003 JUDGMENT DATE : 27 March 2003 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Stay refused
CATCHWORDS : PROCEDURE - miscellaneous procedural matters - whether Supreme Court proceedings seeking declaration of equitable interests in property should be stayed pending application for forfeiture order under Proceeds of Crime Act 1987 (Cth) of that property - TRUSTS - discretionary trusts - rights by virtue of being nominated as "beneficiary" or as taker in default of appointment Crimes Act 1914 (Cth) LEGISLATION CITED : District Court Act 1973 Proceeds of Crime Act 1987 (Cth) Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 CASES CITED : Re Director of Public Prosecutions; ex parte Lawler (1994) 179 CLR 270 Gartside v Inland Revenue Commission [1968] AC 553 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 Stuart Alexander Macarthur - First Plaintiff Fiona Anne Macarthur - Second Plaintiff Duncan George Macarthur - Third Plaintiff PARTIES : Kirsty Jane Macarthur - Fourth Plaintiff Cawdor Nominee Pty Limited - First Defendant Commonwealth Director of Public Prosecutions - Second Defendant Official Trustee - Third Defendant FILE NUMBER(S) : SC 5849/02 D Caspersonn - Plaintiffs/Respondents COUNSEL : No appearance - First Defendant D Fagan SC - Second Defendant/Applicant No appearance - Third Defendant L J Rickard - Plaintiffs/Respondents SOLICITORS : Christopher Levingston & Associates - First Defendant Commonwealth Director of Public Prosecutions - Second Defendant/Applicant Piper Alderman - Third Defendant
IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST
5849/02 FIONA ANN MACARTHUR & ORS v CAWDOR NOMINEE PTY LIMITED & ORS JUDGMENT - Ex tempore 1 HIS HONOUR: The proceedings in which this notice of motion was brought are ones that are brought by the four children of Ross William Macarthur. They seek a declaration that some real estate at Kenthurst, which was at one time owned by Cawdor Nominee Pty Limited, was owned as trustee for them. That Kenthurst property has now been sold, and its proceeds of sale are held by the Official Trustee. The four Macarthur children seek also a declaration that they are entitled to have transferred to them the proceeds of sale. 2 The proceedings are ones which were begun on 9 December 2002. 3 The impetus for the proceedings comes from the fact that Ross William Macarthur was, on 28 August 2002, found guilty, in the District Court, of an offence of being knowingly concerned in a company defrauding the Commonwealth contrary to s 29D of the Crimes Act 1914 (Cth). The fraud related to avoiding excise duty on diesel fuel, over a period of 1 February 1998 to 5 May 1999. 4 The conviction was not entered in the District Court until 17 December 2002. 5 While those proceedings in the District Court were pending, orders were made in the Common Law Division of this Court freezing certain of the assets alleged to be assets controlled by Mr Macarthur. One of those assets was the Kenthurst property. It was pursuant to an order made, after that freezing order was imposed, that the Kenthurst property came to be sold and the proceeds came to be held by the Official Trustee. 6 In the District Court, the Director of Public Prosecutions is proposing to make an application for a pecuniary penalty order. The pecuniary penalty order is one which can be imposed under the Proceeds of Crime Act 1987 (Cth). The following provisions of that Act are relevant: "9A(1) Property, or an interest in property, may be subject to the effective control of a person within the meaning of this Act whether or not the person has: (a) a legal or equitable estate or interest in the property; or (b) a right, power or privilege in connection with the property. (2) Without limiting the generality of any other provision of this Act, in determining: (a) whether or not property, or an interest in property, is subject to the effective control of a person; or (b) whether or not there are reasonable grounds to believe that property, or an interest in property, is subject to the effective control of a person:
(c) shareholdings in, debentures over or directorships of a company that has an interest (whether direct or indirect) in the property; (d) a trust that has a relationship to the property; and (e) family, domestic and business relationships between persons having an interest in the property, or in companies of the kind referred to in paragraph (c) or trusts of the kind referred to in paragraph (d), and other persons. … 14(1) Where a person is convicted of an indictable offence, the DPP may, … apply to an appropriate court for one or both of the following orders: (a) a forfeiture order against property that is tainted property in respect of the offence: (b) a pecuniary penalty order against the person in respect of benefits derived by the person from the commission of the offence. … 24. This Division applies to: (a) property that comes into the possession, or under the control, of a person either within or outside Australia and either before or after the commencement of this Act; and … 26(1) Where: (a) an application is made to a court for an order under this section in respect of benefits derived by a person from the commission of an offence; and (b) the court is satisfied that the person derived benefits from the commission of the offence:
(c) assess, in accordance with section 27, the value of the benefits so derived; and (d) order the person to pay to the Commonwealth a pecuniary penalty equal to the penalty amount. (2) Subject to subsections (3) and (4), the penalty amount is the value of the benefits as assessed under paragraph (1)(c). … (8) An amount payable by a person to the Commonwealth in accordance with a pecuniary penalty order is a civil debt due by the person to the Commonwealth. (9) A pecuniary penalty order against a person may be enforced as if it were an order made in civil proceedings instituted by the Commonwealth against the person to recover a debt due by the person to the Commonwealth and the debt arising from the order shall be taken to be a judgment debt. … 27(2) For the purposes of an application for a pecuniary penalty order against a person (in this subsection called the "defendant" ), the value of the benefits derived by the defendant from the commission of an offence or offences shall be assessed by the court having regard to the evidence before it concerning all or any of the following: (a) the money, or the value of the property other than money, that came into the possession or under the control of: (i) the defendant; or (ii) another person at the request or direction of the defendant: by reason of the commission of the offence or any of the offences. (b) the value of any other benefit provided to: (i) the defendant; or (ii) another person at the request or direction of the defendant: by reason of the commission of the offence or any of the offences: … 28(1) In assessing the value of benefits derived by a person from the commission of an offence or offences, the court may treat as property of the person any property that, in the opinion of the court, is subject to the effective control of the person. … (3) On application by the DPP, a court may, if in its opinion particular property is subject to the effective control of a person against whom the court has made a pecuniary penalty order, make an order declaring that the whole, or a specified part, of that property is available to satisfy the pecuniary penalty order. (4) Where a court declares the property is available to satisfy a pecuniary penalty order: (a) the order may be enforced against the property as if the property were property of the person against whom the order is made; …" 7 The application before me today is a notice of motion by the Director of Public Prosecutions seeking that these present proceedings be stayed until after the determination of the application for a pecuniary penalty order in the District Court. 8 The basis on which the DPP makes the application is that the power of the District Court to make such an order is one which depends on the notion of whether property is within the "effective control" of a person, or (if this is a different thing) simply the "control" of a person. Section 9A makes clear that property can be within the "effective control" of a person regardless of how the legal or equitable estates or interests in that property lie. 9 The submission of the DPP amounts, it seems to me to saying that because the powers of the District Court under the Proceeds of Crime Act are so wide, there is no point in ascertaining what the equitable interests in the Kenthurst property were. 10 I do not accept that that is so. Under the Proceeds of Crime Act 1987 the concept of property which is under the "effective control" of someone convicted has two separate roles to play - it enters into the quantification, under s 26(2) and s 27 of the amount of pecuniary penalty to be imposed on the person convicted, and it provides the basis for an order under s 28(3) and (4) the effect of which is to forfeit the property itself. The District Court Judge will have power to make a pecuniary penalty order or an order under s 28(3) and (4) regardless of whether there was an equitable interest in the Kenthurst property in the Macarthur children, if the District Court Judge finds that that particular property was within the effective control of Mr Macarthur. Even so, there would still be important questions of discretion to be exercised by the District Court Judge in deciding whether he or she would actually make any such order. It is well enough recognised that the limitation in s 51(xxxi) of the Commonwealth Constitution requiring there to be just terms for the acquisition of property does not apply to the imposition of penalties: Re Director of Public Prosecutions; ex parte Lawler (1994) 179 CLR 270. I will proceed on the basis of assuming that that line of authority would also apply to the Proceeds of Crime Act 1987. However, it would be a relevant matter for a District Court Judge to take into account in his or her discretion whether property under effective control of a convicted person should, under s 28(1) be taken into account when fixing the quantum of a pecuniary penalty, if other people had property interests in it. It would be relevant for a District Court judge contemplating an order under s 28(3) and (4) to take into account whether he or she was, by such an order, depriving someone of a property right, or not. It would also be relevant for the Judge to take into account what precisely the property right was which he or she was deciding should be forfeited, on the basis it was within the effective control of someone who had been convicted. In saying that these are relevant matters to take into account, I say nothing about the effect of taking them into account - that is a matter entrusted to the discretion of the District Court judge. 11 The trust which the Macarthur children say exists is, it seems, a discretionary trust, contained in a document executed on 30 March 1986. The discretionary trust deed is one which names the four Macarthur children as "beneficiaries", as well as making provision for various other people to be "beneficiaries". It follows the familiar form of providing that income and capital can be appointed to the "beneficiaries", there is a provision saying what is to happen in default of appointment so far as income is concerned, and another provision saying what is to happen to the capital if there is default in appointing it. If it were to be the case that it is this trust deed which presently states the trusts on which the proceeds of the Kenthurst property are held, it may be that it is an over simplification to say that the proceeds are simply held on trust for the four children by virtue of them being named as "beneficiaries" - Gartside v Inland Revenue Commission [1968] AC 553; Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 - though as takers of income in default of appointment they might have a vested, though defeasible, interest in the trust property - Thomas on Powers ¶ 2-67, 2-75, 2-79; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 426-427 per Mahoney JA (with whom Kirby P agreed). Even so, the case which the children seek to bring is that they have an equitable interest of some sort in the property. 12 Mr Caspersonn, for the children, said that if a stay were to be granted, there is a possibility that there could be conflicting findings between the District Court and this Court concerning the existence or incidents of a trust. Those conflicting findings could arise if the District Court were to make, or perhaps even decline to make, a pecuniary penalty order on the basis of the beneficial interests in the property lying a certain way, and if, once the stay was removed, these present proceedings were to continue, and this court came to a different view. There would then, he says, be the unsatisfactory situation of conflicting findings of different courts. Mr Fagan SC for the DPP says that that undesirable situation will not arise, because an issue estoppel would arise from the District Court proceedings, and so this Court would never get to make any decision contrary to that of the District Court. 13 Whether Mr Fagan's submission is right will depend upon the precise issues which are fought in the District Court, but it seems to me that there is a realistic prospect that the nature of the property rights (if any) of the Macarthur children in the Kenthurst property will be an issue, and if that happens, Mr Fagen's submission seems to me to have merit. It also reveals a problem that there is in the granting of the stay. The jurisdiction of the District Court in equity proceedings, under s 134 of the District Court Act 1973, is limited, so far as proceedings for a declaration that trusts subsist to proceedings where the trust does not exceed $20,000 in amount or value as determined by the court. Of course, if as an incidental matter to a jurisdiction which is clearly conferred on it, such as deciding whether to make a pecuniary penalty order or s 28(3) or (4) order under the Proceeds of Crime Act 1987 following a criminal trial conducted in the District Court, the District Court needs to decide whether a trust subsists, then it may do so. However, as a factor in whether this Court ought grant a stay in the present case, it seems to me relevant that, usually, this Division of this Court is the appropriate place to decide questions about the existence of equitable interests in property of significant value. 14 In all these circumstances, I decline to grant the stay which is sought. I vacate the hearing before the Registrar of the principal proceedings on 24 April 2003. I fix Thursday 17 April 2003 before the Registrar for mention. 15 The respondent seeks the costs of the application. That is opposed. 16 It seems to me that this present application is one where the substantial merits of who should be entitled to costs, is not going to be affected by the eventual outcome of proceedings. It was, after all, an argument about whether the proceedings should go on at all, and the argument that they should not has been irretrievably lost. Thus it would not be appropriate to make the costs the respondents' costs in the proceedings. I order the applicant to pay the respondent's costs. **********
Last Modified: 04/09/2003 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.
Macarthur
Cawdor Nominee Pty Ltd
(1998) 192 CLR 226
(1994) 179 CLR 270
(1992) 29 NSWLR 405
Stay refused. The hearing before the Registrar listed for 24 April 2003 was vacated, a mention was fixed for 17 April 2003, and the applicant was ordered to pay the respondents' costs of the stay application ([14], [16]).