McMahon v National Foods Milk Ltd [2008] VSCA 237

Court of Appeal (Vic)|2008-11-21|Before: MAXWELL P and BUCHANAN JA

PRACTICE AND PROCEDURE - Appeal - Stay - Respondent seeking to execute on judgment - Threat of bankruptcy of individual appellant and winding-up of corporate appellant - Whether exceptional circumstances - Stay granted.

1 There are before the Court two applications: one on behalf of the appellant, for a stay of execution; the other, on behalf of the respondent, is an application for security for costs.

2 We deal first with the application for stay. Axiomatically an appeal does not operate as a stay of execution, but the Court may order a stay pending appeal where exceptional or special circumstances exist. In Cellante v G Kallis Industries Pty Ltd,[1] Young CJ said that special circumstances would exist where 'for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed'.[2]

3 On several occasions recently, the Court has accepted that the prospect of an individual appellant being bankrupted by the judgment creditor if a stay is not granted may constitute special circumstances for this purpose.[3] Ordinarily, of course, the party which succeeds at trial is entitled to enjoy the fruits of its judgment. Different considerations come into play, however, where the appellant/judgment debtor is insolvent. In those circumstances, to allow the process of execution to proceed - in the case of an individual appellant, to bankruptcy or, in the case of a corporate appellant, to winding up - has obvious and significant implications for the capacity of the appellant to prosecute the appeal. In the case of an individual, the making of a sequestration order has significant long-term implications, in reputational and other respects, which may well mean that, in the event of the appeal succeeding, the individual could not be restored 'substantially to his or her former position'.

4 The evidence before the Court establishes that Mr McMahon and the appellant company do not have assets of their own which would enable them to meet the judgment, which is very substantial. The respondent submits that there may nevertheless be funds available, and that Mr McMahon's asset-free position was deliberately brought about by him so as to render himself judgment-proof. It would seem, however, sufficiently established for the purpose of this application that, unless a stay is granted, the judgment creditor intends to and will proceed to have Mr McMahon made bankrupt and the company placed into liquidation.

5 In contradistinction to the position in Gangemi v Osborne, recently decided in this Court,[4] Mr McMahon has sworn an affidavit stating that he has no assets which would enable him to meet the judgment debt. He was not cross-examined. As he himself acknowledges, he has nevertheless been able to raise funds sufficient to make the offer of $35,000 towards security for costs. We also note that there is only very limited material to support his statement that one of the assets is held on trust.

6 It is neither possible nor appropriate for this Court on an application of this kind to conduct an inquiry into the financial circumstances of individuals or companies, let alone into what other sources of finance might be available. We are satisfied that if a stay were not granted, the insolvency steps we have referred to would almost inevitably follow. Consistently with the approach of this Court in recent times, we consider that the prospect of Mr McMahon's bankruptcy is a special circumstance justifying a stay of execution.

7 In the case of the company, there is a relevant analogy with what was said by the court in Orrong Strategies Pty Ltd v Village Roadshow Ltd.[5] It would create quite undue practical difficulties for the conduct of the appeal if Mr McMahon were running his appeal in his own right while the question whether the company participated at all fell to be decided by a liquidator. As counsel for the appellants points out, Mr McMahon's appeal necessarily involves running the company's appeal, because his liability is as guarantor of the company's liability. Moreover, there is a close identity between Mr McMahon and the company.

8 It follows that there are good practical reasons, aside from the disability which winding-up would impose on the company, why the stay should apply to both judgment debtors.

9 We were asked to differentiate portions of the judgment sum for the purpose of evaluating the prospects of success on appeal, but we decline to do so. The fact that the argument for the appellants, if successful, would have the effect of extinguishing the whole debt is in our view sufficient to dispose of that point.

10 For those reasons we will grant the stay as sought.

11 Dealing then with security for costs, the respondent seeks an order that the appellants provide security for its costs in the sum of $66,939. The appellants concede that they should provide some form of security. We infer that that concession was seen to be the inevitable corollary of the appellants' stay argument - that their lack of funds meant that they would be bankrupted if there were no stay.

12 The appellants contend, however, that the amount of $66,000 is excessive. We have discussed with counsel the estimate of the length of the hearing of the appeal. Senior counsel on each side appeared to agree with the tentative view expressed by the Court that this appeal should be capable of being disposed of in a day. That is the assumption upon which any further steps in the preparation of the appeal should proceed. It is properly conceded by senior counsel for the respondent that the cost estimate should therefore be reduced by taking out the costs for counsel and solicitors of the putative second day, an amount in the order of $10,500.

13 A challenge was raised by senior counsel for the appellants to the amount of preparation that had been allowed for. Senior counsel for the respondent conceded - properly, in our view - that the preparation allowance was perhaps over-cautious, particularly in view of the fact that he and his junior had been counsel in the trial. We think that there should be a reduction in the estimate to take out at least a day of the estimated preparation. All in all, and doing the best we can, we think that the amount of security which should be ordered is $40,000. We will make an order accordingly.

14 The last matter to deal with concerns the notice of appeal. Properly, senior counsel for the respondent conceded that there should be leave to amend the notice of appeal,[6] save in one respect. We heard argument about whether a particular ground sought to be advanced was reasonably arguable. In the circumstances, we do not regard that ground as being so obviously untenable that leave to include it should be refused. Accordingly, we grant leave for the amended notice of appeal to be filed in the form in which it has been provided to the Court.

[3] Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSCA 320; Chen v Chan (Unreported, Supreme Court of Victoria, Court of Appeal, Maxwell P & Dodds-Streeton JA, 21 December 2007); Li v Herald & Weekly Times Pty Ltd [2008] VSCA 201; Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 195.

[6] See Panasonic Australia Pty Ltd v Broadtel Communications Ltd [2007] VSC 273.

At a glance

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Judgment (21 paragraphs)

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