McLean Tecnic v Digi-Tech; Kalifair v Digi-Tech

COUNSEL : Claimants - A J Sullivan QC/ HWD Stowe Opponents - M S Christie SOLICITORS : Claimants - Atanaskovic Hartnell Opponents - Blake Dawson Waldron CATCHWORDS : PROCEDURE - appeal - stay - prejudice LEGISLATION CITED : Supreme Court Act 1970 (NSW) Sali v SPC (1993) 67 ALJR 515 Wentworth v Wentworth (1994) 35 NSWLR 726 House v The King (1936) 55 CLR 499 Re Will of Gilbert (1946) 46 SR (NSW) 318 Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 CASES CITED: Moulieux Pty Ltd v Girvan NSW Pty Ltd (1991) 13 Leg Rep 24 Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1997) 71 ALJR 814 Federal Commissioner of Taxation v Myer Emporium Ltd [No 1] (1986) 160 CLR 220 Bone v Commissioner of Stamp Duties [1972] 2 NSWLR 651; (1974) 132 CLR 38; [1977] AC 511 Rodger v Comptoir d'Escompte de Paris (1871) 3 LR PC 465 TCN Channel 9 Pty Ltd v Antoniadis [No 2] (1999) 48 NSWLR 381 DECISION : Appeals allowed with costs. Orders made

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

40838/02 ED 50169/99

40840/02 ED 50169/99 ED 50087/00 HANDLEY JA SHELLER JA IPP JA

6 December 2002 KALIFAIR PTY LTD & ANOR v DIGI-TECH (AUSTRALIA) LIMITED & ORS McLEAN TECNIC PTY LTD & ORS v DIGI-TECH (AUSTRALIA) LIMITED & ORS

Judgments for substantial sums were entered against the appellants following a trial. A single Judge of the Court of Appeal dismissed the appellants' motions for a stay. The appellants appealed to a Full Court.

The appellants submitted that the single Judge should not have followed the decision of Brennan J in Sali v SPC Ltd (1993) 67 ALJR 515 and should have followed the decision of this Court in Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685. The respondent judgment creditor contended that as a condition of any stay the persons interested in the appellant companies should be required to provide security for the judgment debts.

HELD, allowing the appeal: The primary Judge erred in principle in following Sali v SPC (1993) 67 ALJR 515. A stay of execution may be granted where there is a substantial question to be determined on the appeal. In exercising its discretion the Court will be guided by the balance of convenience and the competing rights of the parties. Where there is a risk that if a stay is not granted the appeal may prove abortive or the appeal rendered nugatory the Court will favour granting a stay. Since a stay would prevent the judgments being enforced while the appeal is pending the Court should endeavour to preserve the status quo by protecting the judgment creditor from the risk of loss. It does this by framing its orders to ensure, as far as practicable, that the existing value of the judgments will still be available to the judgment creditor if the appeal fails.

(2) Orders of Meagher JA of 17 October 2002 set aside;

(3) UPON the appellant A I McLean Pty Ltd, by its counsel, undertaking to the Court that it will not, by itself, its servants or agents, remove or cause or permit to be removed from the State of New South Wales or sell, charge, mortgage or otherwise deal with or dispose of, or cause or permit to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets (whether held beneficially or otherwise) within the State of New South Wales provided that his undertaking shall not prevent it from paying expenses incurred in the ordinary course of business, including legal expenses incurred in prosecuting the appeal or selling any listed shares for their market value, SUBJECT TO the respondent Digi-Tech (Australia) Ltd by its counsel undertaking to the Court to abide by any order as to damages which this Court may later make if it turns out that the former undertaking should not have been required. ORDER that all proceedings on the judgment of 28 August 2002 against A I McLean Pty Ltd be stayed until the determination of this appeal or the further order of this Court;

(4) The undertakings given to the Court and noted in the previous order are to continue until one month after the Court has delivered final judgment in the appeal;

(5) Order that all proceedings on the judgments against McLean Tecnic Pty Ltd, Kalifair Pty Ltd and Kalinick Pty Ltd be stayed until the determination of this appeal or the further order of the Court;

(6) Cost of the motions before Meagher JA be costs in the respective appeals;

(7) The costs orders in favour of the appellants in this Court are not to be enforced without the leave of the Court. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

40838/02 ED 50169/99

40840/02 ED 50169/99 ED 50087/00 HANDLEY JA SHELLER JA IPP JA

6 December 2002 KALIFAIR PTY LTD & ANOR v DIGI-TECH (AUSTRALIA) LIMITED & ORS McLEAN TECNIC PTY LTD & ORS v DIGI-TECH (AUSTRALIA) LIMITED & ORS

Judgment 1 THE COURT: On 13 August 2002 Einstein J delivered judgment in these proceedings in the Commercial List and entered judgments in favour of the cross-claimant, Digi-Tech (Australia) Ltd (the judgment creditor), against Kalifair Pty Ltd (Kalifair) for A$12,769,191.73, against Kalinick Pty Ltd (Kalinick) for A$6,384,595.84, and against McLean Tecnic Pty Ltd (McLeanTecnic) and A I McLean Pty Ltd (McLean) for A$24,471,088. The plaintiffs' claims against other defendants were dismissed and the judgment creditor also obtained declaratory relief and orders for costs. 2 Einstein J granted a stay for 28 days. On 13 September Kalifair and Kalinick, among others, appealed to this Court as of right joining three companies including the judgment creditor and John Anthony Reid as respondents. On the same day McLean Tecnic and McLean also appealed as of right joining the same respondents. On 24 September Kalifair and Kalinick and McLean Tecnic and McLean filed motions for a stay. On 25 September the stay granted by Einstein J was extended by consent until the hearing date for the notices of motion or further order. 3 On 17 October Meagher JA ordered that the notices of motion be dismissed with costs. The claimants have appealed to this Court, pursuant to s 46 (4) of the Supreme Court Act, which entitles a Full Court to "discharge or vary a judgment given … or an order made … by a Judge of Appeal". The judgment creditor has agreed in the meantime to refrain from enforcing the relevant judgments or serving statutory demands. 4 Meagher JA noted that the following facts had been agreed or were not seriously in dispute: "(a) Neither Kalifair nor Kalinick nor McLean Tecnic have any assets at all, but … McLean has assets of about $1.7 million. None of the four debtor companies is in a position to comply with the judgments, stay or no stay. … (b) There is no evidence of the financial position of the persons standing behind the claimants, a fact of which is of considerable importance in the roughly analogous situation of applications for security for costs … (c ) If no stay be granted, it is in the nature of things that the creditor companies will move for the [winding-up] of the debtor companies. (d) The debtor companies have a good prima facie case for arguing that his Honour the trial Judge fell into error. (e) The opponent creditor … will suffer no prejudice if a stay were granted". 5 His Honour said: "… my attention has been drawn to the decision of Brennan J in Sali v SPC Ltd (1993) 67 ALJR 515 [Sali], which would seem to require me to hold that in a case like the present a stay is not necessary to preserve the claimant's property (i.e. their appellate rights), because these rights exist, stay or no stay; while the existence of an appeal is always a factor which can be taken into account by any court dealing with an attempt to [wind up] the claimant companies. Although I am not bound to follow that decision … I do think it ought to be followed in this Court". 6 The Judge noted evidence for the claimants that the refusal of a stay might prevent the prosecution of the appeals but said that this was a factor "which, according to Brennan J simply [did] not exist". This was a direction of law by his Honour to himself that the evidence was not relevant and not a finding that there was no such evidence. His Honour said he dismissed both notices of motion "although with some hesitation and considerable regret". 7 This Court has yet to determine the nature of the power conferred by s 46(4). In Wentworth v Wentworth (1994) 35 NSWLR 726 Mahoney JA said (731) that the party seeking the discharge or variation of the order of a single Judge of the Court had to establish that the Judge had "misdirected himself in principle or was plainly wrong". Handley JA (733) was of the view that the power of a Full Court "is at least subject to the principles in House v The King (1936) 55 CLR 499 and Re Will of Gilbert (1946) 46 SR (NSW) 318"; while Powell JA considered (737) that an applicant had "to demonstrate that the discretion vested in the primary judge clearly miscarried". 8 It is not necessary for this Court to explore the differences, if any, between those statements, because Mr Sullivan QC, for the appellants, submitted that the primary judge had erred in principle, and did not seek relief on any other basis. An error of principle would satisfy each of the tests in Wentworth v Wentworth. 9 Mr Sullivan submitted that Meagher JA should not have followed Sali which was out of line with decisions of other single Judges of the High Court and was contrary to the principles applied in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 which was binding on his Honour. In Sali Brennan J said at 516: "I turn to consider the question whether or not the jurisdiction to grant a stay should be exercised in this case: is it necessary to preserve the subject matter of the litigation? And in answering that question, it is necessary to identify what the subject matter of the litigation is. The subject of the litigation is the right of the applicant to appeal to the Appeal Division of the Supreme Court of Victoria. It seems to me that whether or not a stay is granted … that right of appeal does not stand in need of any preservation. Whether or not a stay order is made the application for special leave can be considered and an appeal can be heard and determined … it therefore appears to me that the application is not one which attracts the operation of the jurisdiction to grant a stay". 10 In Moulieux Pty Ltd v Girvan NSW Pty Ltd (1991) 13 Leg Rep 24 Toohey J, who granted a stay, said: "The principles are well established and I do not propose to canvas them. But the basic principle is that the jurisdiction of this sort is attracted by reason of the likely result that, if a stay is not granted, the appeal will be rendered nugatory. That is a factor which assumes considerable importance in the present case. It seems clear enough, at least no one has suggested to the contrary, that if a winding-up order is made, the application for special leave to appeal will go by the board". 11 In Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd (1997) 71 ALJR 814, special leave had already been granted, but the respondent had served statutory demands in respect of its taxed costs and filed a summons for winding-up. McHugh J referred (816) to Sali and said: "… I would not seek to deal with this case on that technical basis". 12 He then referred to a statement of principle by Dawson J in Federal Commissioner of Taxation v Myer Emporium Ltd [No 1] (1986) 160 CLR 220, 223, and continued: "No doubt it was for that reason that in Moulieux Pty Ltd v Girvan NSW Pty Ltd … Toohey J ordered a stay, in circumstances where there was a possibility of a winding-up, … So the fact that the right of appeal will be preserved, even if the company goes into liquidation, is not a ground upon which I would refuse this application". 13 Unfortunately these authorities were not cited to Meagher JA who, as a result, erred in principle in following Sali. 14 The grant of a stay by this Court will be governed by considerations which necessarily differ from those applied by the High Court. The appellants' appeals were commenced within time and lie as of right. Although the judgment of Einstein J is presumed to be correct it has not yet been the subject to appellate scrutiny, and the respondent has accepted that there is "a good prima facie case for arguing that … the trial judge fell into error". We take this to mean that there are serious questions to be argued on the appeal. 15 Because the considerations in this Court are different, decisions of single Judges of the High Court on the exercise of its jurisdiction, however persuasive, are strictly not binding on this Court. It appears that decisions of single judges of the High Court are technically not binding on this Court in any event. See Bone v Commissioner of Stamp Duties [1972] 2 NSWLR 651 (reversed on other grounds (1974) 132 CLR 38 but restored by the Privy Council [1977] AC 511). 16 Nevertheless the decisions of Toohey J and McHugh J are for practical purposes binding authority that a stay may properly be granted where an order for the winding-up of a corporate appellant is likely to render its appeal nugatory. 17 In Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 this Court (Kirby P, Hope, McHugh JJA) restated the principles to be applied in exercising this Court's jurisdiction to grant a stay pending an appeal. The Court said (694, 695): "In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant … demonstrates a reason or appropriate case to warrant the exercise of discretion in his favour …The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion the Court will weigh considerations such as the balance of convenience and the competing rights of the parties … Two further principles may be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay … where it is apparent that unless a stay is granted an appeal will be rendered nugatory this will be a substantial factor in favour of the grant of a stay". 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 not 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. 19 The overriding principle is that stated by Lord Cairns in Rodger v Comptoir d'Escompte de Paris (1871) 3 LR PC 465, 475: "… one of the first and highest duties of all Courts is to take care that the act of the Court does no injury to any of the Suitors and when the expression 'the act of the Court' is used, it does not merely mean the act of the primary Court, or of any intermediate Court of Appeal, but the act of the Court as a whole, from the lowest Court which entertains jurisdiction over the matter up to the highest court which finally disposes of the case. It is the duty of the aggregate of those Tribunals … to take care that no act of the Court in the course of the whole of the proceedings does an injury to the suitors in the Court". 20 This passage was referred to in TCN Channel 9 Pty Ltd v Antoniadis [No 2] (1999) 48 NSWLR 381 where this Court considered the principles governing a stay of execution pending an appeal and the restitution to be ordered in favour of a successful appellant. 21 In the present cases if stays are refused the judgment creditor would be free to serve statutory demands and proceed to winding-up. The prosecution of the appeals would then be stayed automatically and the stays would continue unless and until the liquidator elected to prosecute the appeals. The directors would lose control of the litigation and the creditors, including the judgment creditor, would have a say in any decision to proceed. 22 The directors would thus suffer delay and difficulty and incur additional expense in securing a decision from the liquidator to proceed with the appeals. 23 Three of the four appellants have no assets and in these cases the real purpose of any winding-up proceedings can only be to stop the appeals. However the remaining company, McLean, has assets of $1.7 million and its appeal raises different considerations which will be dealt with later in these reasons. 24 The judgment creditor and its solicitors evidently believe that the winding-up of the three appellants would be to their advantage. The Court should therefore infer that there is a real risk that the making of winding-up orders would prevent the prosecution of these appeals. 25 Where the appellants have no assets the judgment creditor, as it has conceded, will not suffer any relevant prejudice if a stay is granted. The loss of its right to proceed to winding-up to prevent the appeals being heard on their merits does not constitute relevant prejudice for present purposes. The appellants may be required to give security for the judgment creditor's costs of these appeals, but the judgment creditor will not otherwise be financially prejudiced if the appeals proceed and fail on their merits. 26 On the other hand the appellants would suffer irremediable prejudice if they were unable to prosecute appeals which might have succeeded. The prejudice would include not only the loss of the chance of having the adverse judgments set aside, but also the loss of the chance of obtaining money judgments against one or other of the respondents. These losses would be irrecoverable as the appeals are their only avenue of legal redress. 27 However Mr Christie, counsel for the judgment creditor, submitted that this Court should impose conditions on the stay which would require the persons interested in those companies to put up substantial security for the judgment debts. 28 A successful party is prima facie entitled to the fruits of his judgment. He is entitled to be protected, as far as practicable, from the risk that if the appeal fails assets which earlier were available to satisfy the judgment will no longer be available for that purpose. The Court will endeavour to see that a stay does not cause that kind of prejudice to a judgment creditor. An appellant may be required to provide appropriate security as the price of a stay which may make the judgment creditor a secured creditor. Otherwise a requirement for security is only intended to protect the status quo, that is the existing value of the judgment and not to improve the position of the judgment creditor by increasing that value. 29 Security for these judgments is not needed to protect the judgment creditor from the risk of loss caused by the stay. The judgments are already worthless and the judgment creditor is not entitled to have conditions imposed on the appellants for the purpose of increasing their value. These appellants are therefore entitled to orders staying execution on the judgments without any conditions requiring security. 30 McLean is in a different position because it has assets of $1.7 million which are available to satisfy the judgment at the present time. While the motions for a stay were pending before Meagher JA, the solicitors agreed on an inter partes Mareva undertaking as follows: "The appellants be restrained from, by themselves, their servants or agents, removing or causing or permitting to be removed from the State of New South Wales, or selling, charging, mortgaging or otherwise dealing with or disposing of, or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of all or any of their respective assets (whether held by them beneficially or otherwise) within the State of New South Wales provided that this undertaking shall not prevent each from paying expenses incurred in the ordinary course of business including legal expenses incurred in prosecuting the appeals or selling any listed shares for their market value". 31 The undertaking was expressed to continue until 14 October, and there was no suggestion that it had been continued. Such an undertaking given inter partes on behalf of a corporation is worthless because in the event of a breach the other party will have no effective remedy against the directors or officers who were responsible. 32 Upon this Court indicating a strong provisional view that the judgment creditor was entitled to have an effective undertaking in place to protect the status quo at McLean while this appeal was under consideration, Mr Sullivan QC obtained instructions and offered an undertaking in the same terms to the Court. We were informed without objection that McLean is incorporated in New South Wales and that its directors are resident in the State. The Court therefore accepted the undertaking, but without any cross-undertaking as to damages at that stage, because Mr Christie did not have instructions to give such an undertaking and there was no one in Court from whom he could obtain instructions. 33 Mr Christie submitted that a stay should not be granted in favour of this claimant except on conditions which required its directors and shareholders to provide security for the judgment debt. However for the reasons already given, the judgment creditor is not entitled to have conditions imposed for the purpose of increasing the value of its judgment. This is to be protected by the Mareva undertaking given to the Court. The Court will require this undertaking to be continued until a reasonable time after the determination of the appeal, subject to a cross-undertaking as to damages being given by the judgment creditor. Mr Christie did not seek any other order to protect the present position of the judgment creditor in respect of this company. 34 We therefore make the following orders: (1) Appeals allowed with costs;

(2) Orders of Meagher JA of 17 October 2002 set aside;

(3) UPON the appellant A I McLean Pty Ltd, by its counsel, undertaking to the Court that it will not, by itself, its servants or agents, remove or cause or permit to be removed from the State of New South Wales or sell, charge, mortgage or otherwise deal with or dispose of, or cause or permit to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets (whether held beneficially or otherwise) within the State of New South Wales provided that his undertaking shall not prevent it from paying expenses incurred in the ordinary course of business, including legal expenses incurred in prosecuting the appeal or selling any listed shares for their market value, SUBJECT TO the respondent Digi-Tech (Australia) Ltd by its counsel undertaking to the Court to abide by any order as to damages which this Court may later make if it turns out that the former undertaking should not have been required. ORDER that all proceedings on the judgment of 28 August 2002 against A I McLean Pty Ltd be stayed until the determination of this appeal or the further order of this Court;

(4) The undertakings given to the Court and noted in the previous order are to continue until one month after the Court has delivered final judgment in the appeal;

(5) Order that all proceedings on the judgments against McLean Tecnic Pty Ltd, Kalifair Pty Ltd and Kalinick Pty Ltd be stayed until the determination of this appeal or the further order of the Court;

(6) Cost of the motions before Meagher JA be costs in the respective appeals;

(7) The costs orders in favour of the appellants in this Court are not to be enforced without the leave of the Court. ******

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.