[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
EX TEMPORE Judgment
LEEMING JA: By amended notice of motion filed in Court today, the appellant, Mr Paul Gerald Henry Misan, seeks a stay of orders 1, 2 and 3 made on 17 June 2022 until seven days after the determination of an appeal which he has promptly brought from a judgment in the Equity Division adverse to him and in favour of the respondent, Markham Real Estate Partners (KSW) Pty Ltd.
The judgment was reserved after a two day trial in the Equity Division and delivered on 3 June 2022: Markham Real Estate Partners (KSW) Pty Ltd v Misan [2022] NSWSC 733. The judgment was entered in the amount of $4,102,570.33 on 17 June 2022. Mr Misan was also ordered to indemnify the respondent in relation to certain legal costs in the amount of slightly more than $100,000 and to pay Markham's costs of the proceedings from 28 July 2021 on an indemnity basis. During the course of the hearing today, which has lasted the entirety of the day, the judgment including the costs order has been labelled by me, without objection from the parties, as approximately $5 million.
The motion was amended today, following the discovery by Mr Misan that two days ago, a writ for levy of property was filed upon his home. There had been formal agreement between the solicitors for the parties that no step would be taken towards executing the judgment without first giving 24 hours' notice. That notice was not given, although some notice not exceeding 22 hours was given. Mr Hyde who appeared for the respondent correctly acknowledged the seriousness of the respondent breaching an agreement reached between the firms acting for the parties. I agree with his assessment of the seriousness. It is trite that "solicitor[s] should be able to place reliance upon the word of another and to accept [their] undertaking that [they] will do what [they] promise[]": Law Society of NSW v Foreman (1994) 34 NSWLR 408 at 445; what occurred in the present case departed from the standards required of solicitors. Further, the breach occurred only two days ago, with no explanation for why Markham saw fit to instruct its solicitors to seek to alter the status quo immediately before the hearing. Still further, the step taken was not merely taking a step towards execution against Mr Misan's assets, but it is something that is directed at the two neighbouring apartments in the apartment complex in Darlinghurst where the appellant lives. It is not difficult to see that discovery of the lodgement of the writ contrary to the agreement which had formerly been reached between the firms of the solicitors could cause considerable distress to the appellant.
The seriousness of the breach that has occurred does not rest merely on the fact that the solicitor did something contrary to her agreement. Nor does it rest merely upon the fact of the inevitable distressing effect it would have upon the appellant. It is to the fact that the writ for levy of property has a direct impact upon a non-party, the spouse, against whom, at least on the evidence, the respondent has absolutely no claim whatsoever. The spouse is a co-owner of the properties upon which the writ was directed. There is nothing to suggest that the solicitor or her client gave any attention to the difficulties attending execution upon co-owned real property (as to which see Boyd v Thorn (2017) 96 NSWLR 390; [2017] NSWCA 210). The spouse is not before me today.
No explanation by way of evidence was provided by the respondent's law firm for its breach. Happily, the agreement between the firms did not amount to an undertaking to the Court. Had it been otherwise, I would have required at least one and perhaps both of the solicitor involved and her supervising partner to give evidence to me and if appropriate to be cross-examined as to how it occurred.
I cannot remember a time in recent years when I have encountered such conduct. It is possible that there is a relatively innocent explanation for what occurred, but it would be speculative to inquire why because despite my concern having been made pellucidly clear from the outset of this hearing today, no explanation by way of evidence has been given. I dwell upon this not merely because of its inherent seriousness but because it directly informs the exercise of discretion which I am called upon to make.
The amended notice of motion also seeks in paragraph 2A an order for the writ for levy of property to which I have referred to be set aside or alternatively stayed until 7 days after the termination of this appeal. I infer that the reason for the amended notice of motion seeking an order that the respondent pay the appellant's costs on an indemnity basis with a fallback alternative of their being paid on the ordinary basis is driven by the appellant's perception of the seriousness of what occurred in the last 48 hours.
It is necessary to say a little about the background that gives rise to his appeal.
Mr Misan was the guarantor of a company Wayl Pty Ltd which was the tenant under a long term lease at certain premises at King Street Wharf in Sydney. The premises were the venue for a restaurant business. A complicated series of transfers of the reversion of the long term lease, which was originally granted in around 2012, led to the position that Markham became Mr Misan's company's landlord. The company had for some period of time been in dispute with Markham's predecessors in title as landlord leading to a resolution within NCAT in September 2018 requiring various steps as stated in paragraph [31] of the reasons for judgment to occur. The respondent became landlord after that resolution was in place. The foregoing is to be inferred from what I read on the face of the judgment, with knowledge of those matters not least because the deed and a side deed between it and its predecessor in title refer expressly to the payments to be made by the tenant.
On 1 May 2019, the respondent sent to Mr Misan's company a notice of breach of covenant pursuant to s 129 of the Conveyancing Act 1919 (NSW). On 2 May 2019 an administrator was appointed to Mr Misan's company, Wayl. The events of the first fortnight in May 2019 which are central to this appeal are set out in some detail in the reasons for judgment, and her Honour records that in large measure the individual facts were both documented and uncontroversial. What appears to have been controversial is that her Honour found, favourably to Mr Misan, that the landlord changed the locks of the premises on 14 May 2019 and that an attempt to delay doing so (so as to avoid that occurring within the 14 days specified in the s 129 notice) was not conveyed to the contractor in time: see paragraphs [82] and [84].
Further, there were exchanges both oral and in writing between the landlord, other creditors of Wayl, and the administrator. Many of those emails are reproduced in the judgment. They bear upon a question as to whether there was a contravention of s 440B of the Corporations Act 2001 (Cth). Her Honour found that the tenant had repudiated the lease prior to the changing of the locks and that its retaking of possession by doing so amounted to an acceptance of that repudiation. Her Honour also found that written consent was given by the administrator to that course. That, perhaps surprisingly, is at the forefront of the issue sought to be advanced on appeal. The nature of the dispute may be seen by reference to para [139]:
"As was put by Mr Misan at the hearing, the contemporaneous documents show that there was never written consent given although 'it comes perilously close' (T76.25-27). He relies, in particular, on the Administrator's statement in the letter dated 9 May 2019 (at [69]) that 'I am not in a position to provide you with my consent to take possession', the email of 10 May 2019 (which Mr Misan says reiterated the statement in the 9 May letter), and the statement in the Administrator's email dated 13 May 2019 that (at [81]):
'I do not know whether I am in position to consent as a result of the section 129 Notice issued on the company prior to my appointment. This may have the effect of limiting your client's right to possession.'"
Before me it was said on behalf of the respondent both that her Honour was correct to conclude that there was written consent given, and also that in doing so it was permissible to have regard to evidence of the administrator's oral statements at the time. That is one of the controversial aspects of the appeal.
Another controversial aspect is that the appellant maintains that if there was no written consent then the effect of contravening s 440B is to release the guarantor from his obligations going into the future. In very large measure, the future obligations, notably the loss of bargain damages awarded in favour of the landlord, contribute to the principal judgment amount of $4,102,570.33 (they are in the order of $3.5 million). The respondent denies that that is the effect of s 440B. I made it plain during the hearing and I do not understand that any contrary submission was made to me, that I would not in the course of determining this stay, express any views as to the effect of s 440B of the Corporations Act in its application to the facts of this case.
The respondent maintains that the conclusion that the primary judge reached; namely, that the tenant had repudiated its lease prior to the changing of the locks (a) is not challenged on appeal and (b) is not seriously capable of challenge.
Although his written submissions referred merely to the findings made by the primary judge being "open" on the evidence, correctly, Mr Hyde, in oral address, acceded that on this issue it was necessary for him to establish the correctness of those findings. The difficulty faced, at this hearing, is that notwithstanding the fact that I have been burdened by the respondent with more than a thousand pages - to the large majority of which no reference whatsoever has been taken - I do not have before me the core documents purported to have been summarised by her Honour's reasons. Experience in the Court of Appeal suggests that very often the summary of documents in a judgment is accurate but occasionally it is not. In any event the command by the High Court for this Court to conduct "real review" of the evidence cannot be satisfied merely by reading the reasons for judgment.
For those reasons, Mr Hyde's concession that he faced difficulties in establishing, merely from the face of the judgment, the correctness of the conclusion about repudiation (transcript, p 64.1) was one which, in my opinion, was properly made. Mr Hyde, in my view, correctly, conceded that some grounds of the appeal, namely, 5 and 6, which concern aspects the exact sum of which is not clear to me but may be in the order of half a million dollars, were reasonably arguable (transcript, p 60.7).
During the course of the hearing, I expressed some scepticism as to the conclusion of the $3.5 million in damages. The company's rent had a fixed component, increasing each year, and a component based on the restaurant's turnover. The loss of bargain damages for the latter component may have been calculated on the basis of ordinary turnover rents being achieved throughout the entire period of the pandemic, while loss of bargain damages for the former may have included the application of the 3% and 4% escalators in a long term lease, even if the business were in receipt of Jobkeeper allowances over that time. Mr Hyde, correctly, pointed out that neither of those points was raised on appeal, and I observed that that may be because whether the judgment is for $3 million or $4 million, it is so far in excess of Mr Misan's ability to pay that nothing turns on it.
That suffices to summarise the issues that will arise, in legal terms, on the appeal.
Turning to the practicalities of the matter, the appeal has already been set down for hearing on 4 November 2022. It would have been earlier, in mid-October 2022, but that delay was a consequence of the appellant accommodating the convenience of the legal representatives of the respondent. It is a one day appeal. The appellant's written submissions have not as yet been filed. They should have been filed earlier this week, in accordance with the rules, but it is fair to say that the whirlwind of activity over the last two days will have produced the result that the appellant's legal advisers would have been preoccupied with the matters that have culminated in the hearing today. The operation of the stay sought by the appellant, therefore, is for a period of slightly less than three months before the hearing of the appeal; plus, such time, if any, that the Court of Appeal reserves its judgment.
The applicable principles are not in dispute. It is convenient to repeat the summary of Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 and Kalifair Pty Ltd v Digi Tech (Australia) Limited (2002) 55 NSWLR 737; [2002] NSWCA 383 given by Payne JA in Port Macquarie Hastings Council v Diveva Pty Ltd t/a Midcoast Road Services [2017] NSWCA 4 at [29]:
"a. The onus is upon the applicant to demonstrate a proper basis for a stay which will be fair to all parties.
b. The Court has a discretion involving the weighing of considerations such as balance of convenience and the competing rights of the parties.
c. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may refuse a stay.
d. 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.
e. 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.
f. As a condition of a stay the Court may require payment of the whole or part of the judgment sum or the provision of security."
Mr Misan, weeks ago, on 4 July 2022, gave an undertaking not to sell or further encumber his interests in the two units in Darlinghurst where he lives, one of which is rented, except to the extent necessary to meet his legal costs and expenses of this appeal. The respondent put in issue the value of those units. Mr Misan said that his belief as to their value of his interest in them was some $1.2 million. The respondent suggests that they might be worth a little more, maybe $1.5 or even $1.6 million. There is no dispute, despite the volume of material and forensic attention that has been given to the finances of Mr Misan, that he has anything like the assets to meet the entirety of the judgment that is present entered against him is challenged on appeal. So far as I can see, nothing whatsoever turns upon whether the best estimate of the value of those half shares in the units (the other half is owned by his spouse) is $1.2 or $1.5 or $1.6 million.
At all times, it has been abundantly plain to the respondent that if it succeeds in having the appeal dismissed or substantially dismissed, nonetheless, it will be millions of dollars out of pocket. In those circumstances, one commercially rational approach would be to minimise the expenditure in terms of legal costs in the interlocutory proceedings pending appeal. Those circumstances are highly relevant, it seems to me, to the balance of convenience that looms large in a case such as this.
Dealing with the matters identified by Payne JA, I fully accept that the appellant bears the onus to demonstrate a proper basis for a stay. In large measure, that onus has been discharged by his undertaking not to encumber or sell the most substantial realisable property which he owns, except to the extent necessary to meet the legal costs and expenses of the appeal. A great deal was made about the possible consequences of that exception. I am of the view that absolutely nothing turns on this. Mr Misan has the right of appeal; he has a right to spend money on lawyers for that appeal. There is nothing that I have seen to date that suggests there has been any extravagance or over expenditure upon lawyers in the litigation to date. Indeed, the evidence that has been made available of funds of $100,000 that had been lent to him in order to conduct the trial and perhaps, also, the early stages of the appeal, tends to confirm my assessment of the reasonableness of his costs. I do not express a view as to the prospects of success of the entirety of the appeal, noting that it is conceded that grounds 6 and 7 are reasonably arguable. However, I do not accept the respondent's submission, in effect, that the substantive grounds of appeal are so hopeless that they enjoy no real prospect of success. The essential reasons for that are that I consider that I cannot, without regard to the documentary evidence, assess whether the claim that the tenant had repudiated prior to the changing of the locks is unarguable. I can see, on the face of the reasons, a reasonable argument that written consent was not given. Indeed, if written consent excludes oral communications upon which the respondent, in part, relies, this tends to reinforce the strength of that and, as previously noted, I do not express any view as to the legal consequences of a contravention of s 440B.
There is no material risk that if a stay is granted Mr Misan's assets will be disposed of or dissipated in light of the undertaking he gave some five or six weeks ago. I do not regard the inevitability of spending money on lawyers arguing the appeal to in any way impact upon that conclusion. Mr Misan, in support of his motion, some five weeks ago said this:
"I respectfully seek a stay of enforcement of the judgment to enable me to pursue this appeal. If a stay is not granted and the respondent takes any enforcement action, I believe I will be made bankrupt and this appeal would not be pursued. If the respondent enforces the judgment now, I do not believe it will receive any money in satisfaction of the judgment. I do not believe the respondent will or could be any worse off if it waits until this appeal is determined before it enforces the judgment (if I lose my appeal). In other words, I believe the judgment is worth nothing today and it would not be worth anything in, for example, six or nine months."
I do not accept that the judgment is worth nothing today. However, it is plain on all of the evidence, and at no stage has the respondent cavilled with this, that the judgment is not worth $5 million or anything like $5 million.
I do not understand any substantial answer to have been put forward by the respondent in answer to the cogency of those two paragraphs. The respondent has not gone into evidence. There is not a jot of evidence to suggest that there is any need now for the respondent to obtain some tiny fraction of the judgment as opposed to waiting until the adjudication of the appeal. The evidence before me is that it is impossible, by millions of dollars, for the appellant to discharge the judgment now and rely upon the respondent's ability to repay in the event that the appeal is wholly or largely successful. The evidence before me is that, apart perhaps from borrowing funds, the matter to which I return, and perhaps from obtaining some funds from the trustee of a discretionary trust of which Mr Misan is an eligible beneficiary, he is unable to make any material contribution by way of payment into Court as the price of a stay of more than 2 or 3 or 4% of the judgment amount.
Mr Misan's evidence is that although his spouse and family have lent funds to prosecute the litigation, he is unable to obtain further funds from them. Mr Hyde put that this was incongruous and that indeed a great deal of the time today has been devoted to an attempt to obtain evidence bearing upon the asset position of Mr Misan's spouse. I accept the evidence of Mr Misan. It is entirely plausible that on the one hand a spouse is prepared to lend funds in order to fight an appeal, and on the other hand is completely unwilling to place funds into the hands of the judgment creditor or into a joint account or paid into Court so as to make it easier for the judgment creditor, who threatens to sell the couple's home.
Turning to the other possible source of funds, the evidence of the financial statements for the year ended 30 June 2021 of the unit trust suggests that the trustee does not have substantial funds to draw upon, even if it were minded to make a distribution to Mr Misan. I should say that at least some of the evidence suggests that Mr Misan is entitled to call upon that distribution. However, the evidence also discloses that this amount of some $190,000 is in the financial statements and has been there for at least a year and a half and maybe for much longer. In short, it may be an accounting entry, and certainly the statements reflect relatively small amounts of liquid assets that could be distributed to Mr Misan if he were to demand it.
In addition to the undertaking to which I have referred, it will be plain that the stay is for a relatively short time. Regrettably, the primary judge reserved for some nine months after the hearing, and it will be seen that the events giving rise to this litigation happened in mid-2019, before the global pandemic. In short, the damages to which, if her Honour the primary judge is correct, the respondent is entitled are funds for which it has been out of pocket for some substantial period of time. The breaches and retaking of possession giving rise to this litigation occurred more than three years ago. Of course it is true that following a trial a successful plaintiff is prima facie entitled to enjoy the fruits of its victory, but, in the present case, the additional period of time of the stay which Mr Misan seeks is relatively small and, as I have said more than once in these reasons, on any view of the matter, this is a respondent who, although successful at trial, is never going to be able to realise anything like the full value of its judgment.
The material put forward on behalf of the appellant persuades me in all those circumstances that this is an appropriate case to grant a stay.
In light of the respondent's very substantial appetite to incur legal costs itself, and inflict legal costs upon the appellant, it is as well to reiterate the obligations to which Markham Real Estate Partners, its solicitors and its barrister are all personally subject under s 56 of the Civil Procedure Act, namely to assist the Court to further the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. The real issues in these proceedings have nothing to do with the notice to produce or the subpoena which occupied half of the day, nor indeed do they have much to do with the granting of a stay or the terms upon which it is granted, which has occupied the other half of the day. The real issues in these proceedings have to do with whether there was appellable error made out in the final judgment of the first instance judge in the Equity Division.
It is sad to say it is now 4.46pm. The likelihood is that the hearing of the appeal will take less time and cost Markham less than the money which Markham has thrown at the interlocutory issues resolved by me today. As I said at the outset of the day, that is something very much to be deplored.
Returning to the question as to whether the stay should be granted on any terms that money or other security be provided, the testimonial evidence of Mr Misan as to (a) the availability of funds, (b) the absence of any evidence of readily available funds to be provided, and (c) the sheer insignificance of those funds in light of the magnitude of the judgment Mr Misan presently faces, leads me to conclude that no useful purpose would be served by taking those steps.
Nothing separately was said by the respondent in opposition to new para 2A of the amended notice of motion which calls for the setting aside of the writ for levy of property. The writ was issued contrary to agreement between the solicitors. That should not have occurred. Even had the 24 hours' notice to which the solicitors had agreed been given, I would not have granted any relief consistent with placing a writ for levy of property on the home of the appellant and his spouse.
Mr Misan's spouse has been subjected to a very large subpoena, which, in very large measure, should never have been issued, as well as the writ on their home. I have no hesitation in granting the relief in para 2A of the amended notice of motion.
The further position, which was exposed in exchanges throughout the day, including at the very beginning of the hearing and at the very end of the respondent's submissions, is the purpose that should be imputed to the respondent in spending the sums which have been spent in debating the issues before the Court today. I identified three possible purposes and invited submissions as to whether such an inference would be sound or whether there were purposes which I had not identified which should be inferred.
In response, it was said… I'm just going to stop myself. Ms Nguyen, I gave Mr Hyde an opportunity to take instructions about the three purposes, and he said he was quite content for Mr Horobin to continue addresses, and he'd get back to me if there was anything. He didn't get back to me. I'm not being critical of you or him. I'm going proceed on the basis there's nothing else that you want to say; is that right? [Ms Nguyen indicates that is so]. Thank you.
The essence of counsel's submission was that the respondent is an entity which owns a number of leases, many or most of which have guarantees, and it takes very seriously its rights to enforce those guarantees. I do not cavil with the respondent's commercial attitude in that respect. I do not doubt that there is a benefit to the respondent in being perceived to be a landlord which enforces enthusiastically and perhaps even aggressively its rights against guarantors of its tenants.
However, those purposes have the potential to clash with the obligations to which it is personally subject in the litigation which it commenced and in which it continues to be involved, despite its success, through being a respondent to the appeal, and it is important that it understand that when there is tension between its desire to achieve what might seem to be a commercially desirable reputation of being a landlord that takes its legal rights very seriously, that must come second to its obligations under s 56(3) to further the overriding purpose to which I have referred.
For those reasons, then, I am minded to order that upon Mr Misan's undertaking not to sell or further encumber his interests in units 104 and 105 at his address in Darlinghurst, except, to the extent necessary, to meet his legal costs and expenses of his appeal, a stay of orders 1, 2 and 3 made on 17 June 2022 in the Court below until seven days after the determination of this appeal.
[Following discussion about the nature, form and timing of the undertaking being to the Court, and the form of orders, costs and submissions on appeal, the following orders were made:
Note that Mr Misan undertakes to the Court not to sell or further encumber his interests in units 104 and 105 of his address except to the extent necessary to meet his legal costs of this appeal, stay orders 1, 2 and 3 made on 17 June 2022 in the court below until 7 days after the determination of this appeal.
The writ for levy of property filed in these proceedings on 9 August 2022 is set aside and to the extent that there is a notice of motion filed in these proceedings or in the proceedings below concerning such writ it is dismissed.
The respondent pay the appellant's costs of the amended notice of motion dated 11 August 2022 and the notice of motion filed 19 July 2022.
Direct the respondent to supply by email to my Associate by 4pm 12 August 2022 written submissions against the proposition that those costs should be on an indemnity basis
Direct the applicant to file on or before 16 August 2022 any submissions in response.
I reserve the question of whether costs should be on the ordinary or the indemnity basis.
Direct the appellant to file and serve his written submissions on the appeal on or before 25 August 2022
Direct the respondent to file and serve its submissions on the appeal on or before 22 September 2022.]
[3]
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Decision last updated: 18 August 2022