Momentum Productions Pty Limited v Lewarne

REASONS FOR JUDGMENT 1 Federal jurisdiction was attracted in this matter by claims made under the Trade Practices Act 1974 (Cth). The proceedings concerned the circumstances surrounding the purchase of a hotel named the East Village Hotel at 234 Palmer Street, East Sydney. The purchase involved the assignment of a lease of the hotel premises as well as the purchase of the business carried on at those premises. The persons involved included the second appellant Richard James Scotts, his brother Anthony Scotts and the respondent Richard John Lewarne, who were the main players. Although Mr Anthony Scotts was involved in the transaction, he was not a party to the proceeding, nor did he give evidence. 2 On 7 August 2007 the primary judge delivered a 56-page judgment on the question of liability. The issues which were canvassed included Trade Practices claims, partnership issues and contract issues. Her Honour directed the parties to bring in Short Minutes of Order for the resolution of the proceedings in the light of her findings and reasons. 3 On 9 October 2007 her Honour made a number of orders providing for relief in the proceedings and dealing with costs. In support of the orders which were made on 9 October 2007, the primary judge delivered further reasons for judgment which occupied some eight pages. 4 The proceedings at first instance bore the identification number NSD 1985 of 2005. A Notice of Appeal was filed by the appellants on 30 October 2007, which in turn was replaced by an Amended Notice of Appeal filed 16 November 2007. The identification number for the appellate proceeding is NSD 2155 of 2007. 5 On or about 15 or 16 November 2007 the Court was approached by the appellants' current solicitors with a view to having an urgent hearing of an application for a stay pending the determination of the appeal. The corresponding Notice of Motion was filed in the proceedings bearing the number NSD 1985 of 2005, but it may be taken that the application is one which is brought in the appeal, which bears the number NSD 2155 of 2007. 6 It was indicated that the matter could come before the Court on 19 November but a request was made to push the application for a stay back to a later day this week. As it transpires, the matter was listed for hearing of the stay application before me as the duty judge at 4:30 pm today, 22 November 2007. It is now 6:50 pm. Yesterday a Notice of Motion seeking the stay was filed and made returnable for 4:30 pm today. 7 Reference has been made to various affidavits which have been filed for the second appellant, for the respondent and for Mr John Vouris, a receiver and manager of the assets of a partnership which the primary judge found to have come into existence and to have been dissolved on 20 November 2006. 8 The respondent initially took the view that this matter should be dealt with by a Full Court. However, as the matter progressed, it became clear that the urgency associated with the hearing required it to be dealt with now, even though the application came before a single judge of the Court, which of course is permitted by Order 52 rule 17 of the Federal Court Rules ('the Rules'), under which the application is made. 9 Whilst the affidavits have not formally been read, much has been said about the case by counsel for the appellants and by counsel for the respondent and by counsel for Mr Vouris and I have been invited to deal with the application on the basis of the facts as they have been disclosed to me, most of which have been drawn from the reasons for judgment of the primary judge of 7 August 2007. 10 The reason for the urgency is that the second appellant has been confronted with a bankruptcy notice served upon him by the receiver and manager requiring the payment of $418,671.73 within 21 days. The bankruptcy notice was apparently served on 12 November 2007, which would mean that compliance would be required on or before 3 December 2007, or thereabouts. The bankruptcy notice itself was founded upon order 5 made by the primary judge on 9 October 2007. 11 I will not take time to set out all of the orders made by the primary judge on 9 October 2007, but I should set out those orders which were identified as orders numbered 1, 2, 3, 4, 5 and 6: 'THE COURT ORDERS AND DECLARES THAT: 1. The partnership between the Applicant and the Respondents in operating the business conducted at the East Village Hotel situated at 234-236 Palmer Street, Darlinghurst NSW being Lot 1 in Deposited Plan 82439 ('Partnership') was terminated on 20 November 2006 pursuant to ss 26 and 32 of the Partnership Act 1892 (NSW). 2. Mr John Vouris, of Level 9, 1 O'Connell Street Sydney NSW 2000, having consented to the appointment, be appointed receiver and manager of the Partnership and the Partnership Business ('Receiver') without security. 3. The Receiver have the same powers with respect to the Partnership and the Partnership Business as those contained in s 420 of the Corporations Act 2001 (Cth), as if the Partnership Business were the property of a corporation. 4. The assets of the Partnership and the Partnership Business be realised by the Receiver and the proceeds be applied by the Receiver in due course of administration in accordance with orders 9 and 10 of these orders. 5. The Second Respondent pay to the Partnership the amount of $416,276.71 together with interest on that sum pursuant to s 52 of the Federal Court of Australia Act 1976 (Cth). 6. The Second Respondent holds his interest in the property known as unit 18, 14 Robertson Street, Narrabeen NSW, being Lot 18 in Strata Plan 4575, subject to an equitable charge in favour of the Partnership to secure the amount referred to in order 5. …' 12 Exhibit RJS6 to the affidavit of the second appellant affirmed 21 November 2007 was a statement of assets and liabilities of the second appellant dated 21 November 2007. It revealed net assets of $142,846. It is unnecessary for present purposes to detail the various assets or the liabilities. Suffice it to say that the net assets roughly equate to what is anticipated will be the net proceeds of sale of two properties located at 23 and 24 Albany Street, Crows Nest, which are presently the subject of an exchanged contract for sale of land under which the consideration payable is said to be $1 million and on which the mortgages affecting the property cover a liability of $876,000. No doubt it is anticipated that that sale will be settled in the not too distant future. 13 Were the Court not to grant a stay, then it is apparent that an act of bankruptcy would be committed upon the second appellant's failure to comply with the bankruptcy notice on or before 3 December 2007. In the affidavit of the second appellant he said that he would be unable to pay the amount of $418,671.73 specified in the bankruptcy notice within the 21 day period for which it allows. 14 In the event of an appeal, the power of the Court to order a stay of execution under the judgment appealed from is to be found in Order 52 rule 17 of the Rules, which relevantly provides: '17(1) An appeal to the Court shall not: (a) operate as a stay of execution or of proceedings under the judgment appealed from; … except so far as the Court or a Judge or the court below may direct. … (3) An application for a direction of the Court or a Judge under subrule (1) shall be made to the Court or a Judge by motion upon notice …' 15 The principles relating to the circumstances in which it is appropriate to order a stay are now well-established. One of the primary sources of the relevant principles is to be found in the joint judgment of Kirby P, as his Honour then was, Hope JA and McHugh JA, as his Honour then was, in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 ('Cambridge Credit Corp'), especially at 694-695. Their Honours said at 694: 'It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour'. Their Honours referred with approval to a passage from a judgment of Mahoney JA in Re Middle Harbour Investments Ltd (In Liq) (New South Wales Court of Appeal, 15 December 1976, unreported) ('Re Middle Harbour'). In that case his Honour said: '… Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.' 16 Other matters adverted to by the Court of Appeal in Cambridge Credit Corp were: