Narain v Euroasia

Court of Appeal (Vic)|2008-09-17|Before: MAXWELL P and ASHLEY JA

Practice and Procedure - Appeal - Stay of execution - Appellant threatened with bankruptcy on basis of judgment debt - Whether exceptional circumstances - Whether grounds of appeal reasonably arguable - Stay granted.

Practice and Procedure - Appeal - Security for costs of appeal - Appellant impecunious - Impecuniosity not related to respondent's conduct - Whether order for security would stultify appeal - Whether financial information sufficient to show likelihood of stultification - Security ordered.

1 I invite Ashley JA to deliver the first judgment.

2 Before the Court are two applications which arise out of orders made by Robson J on 13 May 2008. In the first of them, Edwina Narain (conveniently 'the appellant'), by summons dated 4 August 2008, seeks a stay on execution of orders made by Master Evans on 12 May 2006 pending the hearing and determination of an appeal[1] by her against orders made by Robson J. The second application, brought by the respondent to the appeal, Euroasia (Pacific) Pty Ltd, seeks by summons filed 3 September 2008 security for the costs of the appeal in the amount of $50,000, and that the appeal be stayed unless security is provided.

3 The circumstances which give rise to these applications extend back a number of years. What follows is in part derived from the statement of claim in a proceeding brought by Euroasia against the appellant and others. I state as facts matters which, though perhaps uncontroversial, have not been proved.

4 For a period leading up to mid-2005, a company by name Golden Dragon Abalone Pty Ltd ('GDA') was engaged in the abalone processing and sales business. Mrs Narain was a director and secretary of and shareholder in the company, which was apparently the corporate alter ego of her husband, Ravi Narain. He was also a director and the largest shareholder. A third person, Andrew Michael, was also a shareholder. In late 2004, Euroasia (conveniently, 'the respondent') lent $500,000 to GDA as working capital. Then, in early 2005, the respondent negotiated to purchase 50% of the share capital of GDA from the appellant and Mr Michael for $1 million; and such sum was paid - not to the vendors but to GDA. But the acquisition did not proceed, and all the moneys paid became immediately repayable to the respondent. In the event, the advance was converted into a loan by the respondent to GDA. A loan agreement was prepared and executed in the form of a deed. The respondent became the lender in respect of all the moneys and GDA the borrower. Mr and Mrs Narain and Mr Michael guaranteed the loan. At the time when Mrs Narain did so, GDA was already in default of the putative loan.

5 The one firm of solicitors acted for each of the named parties, as well as for GDA, in this transaction.

6 There was default in repayment of the loan and the respondent brought a proceeding against Mr and Mrs Narain and Mr Michael.

7 The proceeding was settled and a deed of settlement was executed on 28 October 2005. By the settlement, each of the appellant, her husband and Mr Michael became jointly and severally liable to the respondent in an amount of about $1.64 million.

8 The deed of settlement provided that in the event of default the deed would constitute the irrevocable consent of each of the parties to the entry of judgment in the proceeding, the production of the deed to the court being conclusive evidence of all necessary consent to give effect to the deed, including consent (if necessary) to have the application for judgment before the court, and for the entitlement of the respondent to apply for judgment in the extant proceeding and to enter such judgment in that proceeding.

9 On 12 May 2006, none of the defendants being in attendance personally or by legal representatives, Master Evans ordered that the statement of claim be amended, and then entered judgment in favour of the respondent in an amount of about $1.116 million.

10 Thereafter, matters proceeded at no great pace. Apparently there were attempts to resolve the situation. They led to the execution of a further deed of settlement, but that came to nothing. In the end, Mr Narain was made bankrupt, and a bankruptcy notice and later a creditors' position were served on Mrs Narain. She sought independent legal advice for the first time not long after being served with a bankruptcy notice in July 2007.

11 Mrs Narain was advised that, she not having appeared on 12 May 2006, it was open to her to seek to have the judgment entered against her set aside in reliance upon r 22.15 of Ch 1 of the Rules. She was advised that she had an arguable defence to the respondent's claim based upon principles stated in National Australia Bank Ltd v Garcia;[2] and the persistence of circumstances giving rise to that equity up to the time of her execution of the deed of settlement.

12 By summons filed 12 March 2008, the appellant sought to have the judgment and orders made against her by Master Evans set aside, in the circumstances which I have described.

13 On 11 May 2008, a Master set aside the judgment. In effect, the master held that there was an arguable defence deriving from the circumstances of the appellant's involvement in the original loan agreement and her agreement to release the respondent from any claims which she might have against it with respect to the loan agreement; and that neither delay nor prejudice to the respondent stood against an exercise of discretion under r 22.15.

14 The respondent appealed from the Master's orders and on 13 May 2008 Robson J upheld the appeal. His Honour concluded that the r 22.15 procedure was unavailable in the circumstances but that in any event the appellant did not have an arguable defence based upon Garcia.

15 Thereafter, the appellant, upon the assumption that Robson J had made interlocutory orders, or orders upon an interlocutory application, sought leave to appeal from his Honour's orders. That application was heard earlier this year by Redlich JA and Osborn AJA. Their Honours referred the application for leave to appeal for hearing by the Court which heard the appeal.

16 It remains to mention that Robson J opined that a proper course open to the appellant was to seek an extension of time to appeal the order of Master Evans. If such an extension was made and granted, the issue before the judge would be whether the motion for judgment should be allowed or not. A defence to that motion would be to impugn the compromise agreement.

17 In consequence of what his Honour said, the appellant has instituted such an application. Its determination has been stayed, as I understand it, pending the determination of the appeal against the orders made by Robson J.

18 I deal first with the appellant's application for a stay of execution. In order to secure such a stay, which may be granted under r 64.25 of Ch 1 of the Rules, the applicant must demonstrate exceptional or special circumstances that justify depriving the respondent of its entitlement to the fruits of the judgment below. The onus of satisfying the requirement of special circumstances rests on the applicant. Special circumstances may be discerned when an appeal would be rendered nugatory if a stay was not granted; but that prospect should be balanced against the principle that the successful party is entitled to the fruits of the judgment.

19 In this case, the appellant claims that an appeal which has arguable prospects of success would be rendered nugatory if the stay was not granted. She says that the respondent has made it clear that if the present application fails it will proceed with a petition that she be made bankrupt. Counsel for the respondent accepted, in answer to my question today, that that was his client's position. The consequence of such an order would be, the appellant claims, that she would lose the ability to conduct the appeal. Prosecution of the appeal, or its non-prosecution, would lie with the trustee in bankruptcy.

20 It was implicit in the submissions made by the appellant that, if the petition was to proceed, she would be made bankrupt. I consider, all in all, that this can be assumed to represent the likely situation.

21 This Court has said on occasion in the recent past that the foreshadowed making of a bankruptcy order, by its effect upon the ability of an appellant to prosecute an appeal, and by its reputational impact, may have the effect of rendering the appeal nugatory and so constitute special circumstances justifying a stay on execution.[3] Counsel for the appellant submitted that what the Court there said could be applied by analogy in the present case.

22 Counsel for the respondent relied upon Sali v SPC Ltd[4] for the proposition that the right of appeal did not stand in need of preservation, and that the application for a stay should be more appropriately made to the court which would hear the sequestration application. Counsel also pointed out, by reference to ss 60(2) and (5) of the Bankruptcy Act, that the appellant's right of appeal would endure if she was made bankrupt, subject always to the trustee's election whether to continue with the appeal.

23 As I said a few moments ago, appellant's counsel submitted that there were reasonably arguable grounds of appeal. In the first place, he submitted that r 22.15 was arguably capable of applying in the circumstances of the case; and that this was so notwithstanding Roberts v Gippsland Agricultural and Earthmoving Contracting Co Pty Ltd,[5] where it was said that -

in certain simple cases an agreement for the compromise of an action may be enforced on a motion for judgment in the action itself in accordance with the agreed terms;

where the compromise was upon terms that the defendant pay to the plaintiff an agreed amount at an agreed date in full settlement of the plaintiff's claim, and with agreement by the defendant that in default of payment the plaintiff might enter judgment for that amount and that the defendant would consent to such judgment.[6]

24 It is to be noted, as I observed earlier, that Master Evans permitted amendment of the statement of claim before entering judgment (inter alia) against the appellant on 12 May 2006. The permitted amendment alleged entry by the defendants into the terms of settlement, the term that there would be consent to judgment in the event of default, and the fact of default. It might be said, I think, that what thereby happened was that a new cause of action was pleaded, and that judgment was obtained in reliance upon that cause of action. If that be the correct analysis, then it would be arguable that r 22.02, and thus r 22.15, could apply in the circumstances of this case.

25 Concerning the merits, Robson J concluded that Garcia could not aid the appellant. Even assuming that it had been possible for the appellant to focus upon the loan agreement rather than the agreement constituted by the terms of settlement, the appellant did not have an arguable case that Garcia would assist her. That was in part because, even assuming she was a person under some disability, that was not a matter within the actual or constructive cognisance of the respondent.

26 Appellant's counsel has pointed to a number of circumstances which arguably suggest, assuming it to be relevant, that the respondent did have knowledge of his client's asserted disability. In my opinion, those submissions were not without some force. I would not say they were not arguable.

27 If r 22.15 was applicable in the circumstances of this matter, and if there was an arguable basis for challenging the appellant's liability under the loan agreement, both the master and Robson J considered that neither delay nor prejudice to the respondent should deny the appellant relief.

28 All in all, I would not discount the appellant's prospects of success on the appeal.

29 I further consider that it is open to the Court to conclude that the appeal would be potentially frustrated by the foreshadowed application for a bankruptcy order, and that it is open to order a stay on execution, notwithstanding what Brennan J said in Sali v SPC Ltd.[7] His Honour addressed a rather different situation to that which is present in this case. In circumstances where there was an outstanding application for special leave to appeal, the applicant did not contend that his ability to pursue his application would be frustrated if he was made bankrupt, but rather that his asset position would be substantially prejudiced. The potential impact of the making of a sequestration order upon the applicant's ability to pursue his special leave application seems not to have been addressed. The unusual circumstances of the matter should also not be ignored. The application related, it will be remembered, to the refusal of the Full Court to permit Mr Sali an adjournment of his appeal from an adverse judgment at trial, and the subsequent dismissal of his appeal after counsel had withdrawn.

30 All in all, I am persuaded that the stay on execution of Master Evans's orders which the appellant seeks should be granted.

31 I turn to the application for security of costs. The operation of r 64.24(2) of Ch 1 of the Rules, by which this Court may make an order that security be given for the costs of an appeal in special circumstances, was summarised by Nettle JA in Li and Anor v The Herald & Weekly Times Pty Ltd and Anor.[8] His Honour said this:

There are then a number of authorities as to what may be regarded as constituting special circumstances. According to some, the ordinary rule in an appeal is that the poverty of the appellant is sufficient in itself to ground an order for security for costs of the appeal. Thus, for example, in Scerri v Northam Holdings Pty Ltd [1967] VicRp 76; [1967] VR 674 and Smail v Burton [1975] VicRp 76; [1975] VR 776, it was said that it is the long and well established practice of the Court that the inability of an appellant to pay a successful respondent's costs of an appeal constitutes special circumstances justifying an order that the appellant give security. Those authorities recognise, however, that the grant of security as an exercise in discretion, and so the general rule may yield to other considerations such as the likelihood of success in the appeal, whether the appeal raises an issue of general importance, whether the appellant's impecuniosity has been brought about by the respondent's conduct, and the nature of any property involved in the appeal. According to other authorities, the proper approach is to recognise that an appellant's impecuniosity is a significant consideration in favour of making an order for security of costs for costs, but that it is not decisive of whether an order should be made, and thus that in each case it is necessary to weigh an appellant's impecuniosity in light of all the considerations arising in the case. The matter has been dealt with in this Court in recent times, and most recently, perhaps by my brother Redlich in Kenyon v Akeroyd [2007] VSCA 50. One consideration which may be relevant in that exercise is the appellant's chance of success on appeal. It has been said that entry into the merits of that appeal should be resisted unless there is a high degree of probability of failure. But a lack of prospects of success is nevertheless a significant consideration in favour of a grant of security.

32 As I read the appellant's material, she would, on her own account, be unable to meet the respondent's costs of the appeal in the event that the respondent succeeded in the appeal. I say that although the material before the Court in that connection is in some respects unsatisfactory. I agree with the submission of counsel for the respondent that the appellant could have been a good deal more forthcoming in explaining her financial position, and I agree also with counsel's submission that a further affidavit sworn by the appellant's solicitor this afternoon does not advance the matter as it ought reasonably to have done.

33 That said, I think that the burden of the material is that the appellant, on her own account, would be unable to meet the respondent's costs of the appeal, and I approach the matter on that basis. It is also the situation that the appellant's impecuniosity is unrelated to the conduct of the respondent. These considerations tend in favour of the making of an order that security for costs be given.

34 On the other hand, for reasons which I discussed in the context of the application for a stay on execution, I do not discount the prospect of the appellant succeeding in her appeal. So also, running in her favour, it may be said that the appeal raises an issue of general importance; that is, as to the reach of National Australia Bank v Garcia; and possibly an issue of some importance as to the reach of r 22.15.

35 But whilst there are considerations which run in the appellant's favour, I consider that in all the circumstances she should be required to give some security for the respondent's costs. Those costs have been estimated, up to the time that the hearing of the appeal is concluded, at some $50,000. That is a guide to, but is not

determinative of, the amount of security which should be given.

36 All things considered, I propose that the appellant provide security for the respondent's costs in an amount of $10,000 within 21 days of this day, and in a further amount of $10,000 not later than 14 days before the day on which the appeal is set down for hearing; and that in default of making either such payment the appeal be stayed.

37 I agree and would grant the stay of execution and make the order for security which his Honour proposes for the reasons which he gives.

38 I wish only to add one matter in relation to the state of the financial material relied on by the appellant. As counsel for the respondent pointed out, it was not asserted for the appellant in writing that a grant of security would stultify the appeal, although she implied that her financial situation was such that a sequestration order would be made, and thus that her ability to pursue her appeal would be frustrated.

39 If she had wished to make good that point, the appellant needed to be a good deal more forthcoming about her financial position. The sequence of correspondence to which we were referred, and the lack of precision in the affidavit filed this afternoon, betrayed a reluctance to disclose the detail of the financial position. For example, the indication that we were given today, confirmed by affidavit, that a benevolent relation has stepped in to provide some degree of financial relief in relation to the mortgage, raises more questions than it answers. We have no information about the scope of the proffered assistance, nor about whether the same benevolence might be extended in relation to other matters.

40 That seemed to me to be a reason for us being able to conclude that there is impecuniosity so as to enliven the discretion to order security, but no sufficient proof of impecuniosity to show that the order to pay security would have the effect of

41 On the appellant's summons dated 4 August 2008, the Court orders:

Pending the hearing and determination of the appeal, there be a stay on execution of the orders made by Master Evans on 12 May 2006.

On the respondent's summons filed 3 September 2008, the Court orders:

Within 21 days of this date, the appellant give security for the costs of the appeal in the sum of $10,000.
Not later than 14 days before the date fixed for the hearing of the appeal, the appellant give security for the costs of the appeal in the further sum of $10,000.
In default under either of those orders, the appeal be stayed.

On each summons we will order that the costs of the application be costs in the appeal.

[1] Subject, it may be, to a successful application for leave to appeal.

[3] Orrong Strategies Pty Ltd and Ors v Village Roadshow Ltd (Unreported, Supreme Court of Victoria, Court of Appeal, Maxwell P & Ashley JA, 23 November 2007).

[6] It seems that Robson J took this to mean that the court would exercise its inherent jurisdiction in so acting, rather than a jurisdiction founded on r 22.02 of Ch 1.

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