Penrith Whitewater Stadium Ltd & Anor v Lesvos Pty Ltd & Anor

Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 Lesvos Pty Ltd & 1 ors v Penrith Whitewater Stadium Ltd [2006] NSWSC 823; (2006) 58 ACSR 481 Lesvos Pty Limited & Anor v Penrith Whitewater Stadium Limited & Anor [2007] NSWSC 335 CASES CITED: McLean Tecnic v Digi-Tech; Kalifair v Digi-Tech [2002] NSWCA 383; (2002) 55 NSWLR 737 New South Wales Bar Association v Stevens [2003] NSWCA 95 Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd [2002] HCA 35; (2002) 211 CLR 317 TCN Channel 9 Pty Limited v Antoniadis No. 2 (1999) 48 NSWLR 381

Penrith Whitewater Stadium Ltd & Anor - First Claimant/Appellant PARTIES: Penrith City Council - Second Claimant/Appellant Lesvos Pty Ltd - First Opponent/Respondent Koffee Pty Ltd - Second Opponent/Respondent

COUNSEL: M S Jacobs QC and P J Bambagiotti - Claimants A W Street SC and D C Price - Opponents

SOLICITORS: Gadens Lawyers - Claimants Andresakis & Asociates - Opponents

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): SC 20147 of 2002

LOWER COURT DATE OF DECISION: 12 April 2007

LOWER COURT MEDIUM NEUTRAL CITATION: [2007] NSWSC 335

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40199/07

McCOLL JA 23 April 2007

Penrith Whitewater Stadium Limited & Anor v Lesvos Pty Limited & Anor

Judgment 1 McCOLL JA: This is an application by Penrith Whitewater Stadium Limited and Penrith City Council for a stay of the judgment and orders made by Grove J in Lesvos Pty Limited & Anor v Penrith Whitewater Stadium Limited & Anor [2007] NSWSC 335. 2 In those proceedings the opponents were successful in persuading the trial judge, inter alia, that prior to the 2000 Olympics they had reached an agreement with the claimants that they would operate a café at Penrith Whitewater Stadium. The Amended Statement of Claim pleaded an agreement for the operation of the premises in consideration for the payment of a licence fee. The precise characterisation of the agreement was not pleaded, although the particulars did allege that the parties were, in due course, to execute a "deed of sub-licence" and repeated that the opponents were to pay a licence fee. 3 In finding in the opponents' favour, the trial judge found (at [61]): "61 The elements agreed were: (a) That the plaintiffs would operate the café at Penrith Whitewater Stadium. (b) That in an appropriate fashion the plaintiffs would be secured in conducting the operation for a period of five years with an option to extend for a further five years…" 4 The trial judge published his reasons for his conclusions on 29 March 2007 but did not direct the entry of judgment. Rather, he said: "109. There will be in due course judgment for the plaintiffs against both defendants in the sum of $298,477, together with appropriate interest pursuant to s 100 of the Civil Procedure Act. Unless cause can otherwise be shown, costs should follow the event." 5 He asked (at [61]) the respective parties to deliver to his Associate in writing: (a) A calculation of appropriate interest together with any reasons in support of the calculation, and (b) Any submissions on the issue of costs. 6 When the matter came back before the trial judge on 12 April 2007, the claimants had filed a Notice of Appeal even though judgment had not yet been entered. The parties each raised a number of issues as to which, to the extent that they went beyond the matters referred to in para [61] of his 29 March judgment, his Honour took the view that he was functus officio. The only one of these it is necessary to mention is the opponents' application that a bank guarantee, which they gave to comply with an order for security for costs made by Bell J, be returned. I shall return to the issue of the bank guarantee in due course. 7 On 12 April 2007 Grove J entered judgment in the opponents' favour in the amount of $488,995 and ordered the claimants to pay the opponents' costs of the action. 8 The claimants have filed an Amended Notice of Appeal with Appointment which identifies 14 grounds of appeal, almost all of which are the subject of sub-issues. That document does not appear to comply with the requirement that a notice of appeal state the grounds briefly, but specifically, and should not descend to a detailed statement of the reasons supporting the appeal: SCR Pt 51 r 11. Drafters of such notices should be alert to what McHugh J said in Tame v State of New South Wales; Annetts v Australian Stations Pty Ltd [2002] HCA 35; (2002) 211 CLR 317 (at [70]) (citing Aldisert J, Opinion Writing, (1990) at (89) that where there is: "an appellant's brief containing seven to ten points or more, a presumption arises that there is no merit to any of them"

I shall also return to the issue of the form of the Notice of Appeal in due course. 9 The substantive issues the claimants seek to canvas on appeal, as I understand the submissions of Mr M Jacobs QC who appears with Mr PJ Bambagiotti for the claimants, relate to the trial judge's finding of an agreement between the parties, his asserted failure to attach a legal characterisation to that agreement, so that various Statute of Fraud type defences and an issue relating to delegated authority arising from the Local Government Act 1993 and/or the Corporations Law were not dealt with, the finding that, whatever the agreement was, the claimants had repudiated it and damages. There are other issues which I will describe as of a procedural nature, without intending to diminish their potential significance, which relate to claims that the opponents were permitted to pursue a case which went beyond the pleadings, or, to the extent it related to damages, was not properly notified to the claimants thereby catching them by surprise. 10 Mr Jacobs handed up detailed written submissions which helpfully drew attention to the claimants' central contentions and the legal principles involved. 11 The claimants submit that if a stay is not granted, the appeal will be rendered nugatory because the opponents are insolvent and, presumably, will be unable to make restitution of the judgment sum if paid over. They rely, in this respect, upon evidence led before Bell J in the application for security for costs to which I have already referred: Lesvos Pty Ltd & 1 ors v Penrith Whitewater Stadium Ltd [2006] NSWSC 823; (2006) 58 ACSR 481 (the "security for costs proceedings"). 12 The claimants also argue that the opponents have not demonstrated they need the judgment monies to start any other business. On the evidence before the trial judge each had ceased trading. It also appears that the principal of each of the opponents have commenced, and are operating, another business. 13 In the security for costs proceedings the claimants led evidence demonstrating, as Bell J concluded, that: "13 Lesvos and Koffee are each companies having a single shareholder and a single director. Company searches of each are exhibited to Mr Hirst's affidavit. These reveal that each has been the subject of action to strike them off the register of companies. The action did not proceed in either case. Mr Jacobs submitted the fact that those responsible for the company's affairs had allowed each to get into such a state of affairs was material to be taken into account in considering the likelihood of the plaintiffs being able to meet an order for costs. I accept that is so, but it is not a consideration to which I attach significant weight. 14 Maria Alexiou is recorded in the company search as Lesvos' sole director. I infer that she is one and the same as Maria Mihas (a copy of the plaintiffs' economic loss report prepared by Chris Katehos of Furzer Crestani Services is exhibited to Mr Hirst's affidavit (the Katehos report) - Mr Katehos records that he has been asked to assume that Maria Mihas is the sole director and shareholder of Lesvos). The sole director of Koffee is Arthur Alexiou. Koffee and Lesvos each record their current principal place of business as 18 Glenmore Place, Penrith." 14 The opponents relied upon an economic loss report prepared by Chris Katehos of Furzer Crestani Services which was exhibited to Mr Hirst's affidavit (the "Katehos Report") in the security for costs proceedings. Schedule C to that report contained a summary of the profit and loss statement for Lesvos which Bell J accepted (at [16]) showed it to be insolvent. According to the Katehos Report Koffee had ceased to trade. 15 Bell J also noted that: "16 Lesvos is the registered proprietor of the premises at 16 Glenmore Place, South Penrith, Folio Identifier 158/246594. This property is subject to a registered mortgage in favour of Permanent Custodians Limited. Mr Andresakis states that he has been informed by Arthur Alexiou that the sum of approximately $298,000.00 is outstanding under the mortgage to Permanent Custodians Limited (Wizard Home Loans). There is no evidence of the value of the property. 17 Koffee does not hold any interest in real estate." 16 Bell J concluded (at [23]) that "there is reason to believe that the plaintiffs will be unable to pay the costs of the defendant should there be judgment against them." In considering whether her discretion should be exercised in the claimants' favour her Honour noted a concession by Mr D Baran, who appeared for the opponents, that there was "a very live issue about damages and about the cause of action generally, there is no doubt about it" (T 14/07/06 at 15.32-34). Her Honour considered that concession was realistic and the claimants' prospects of successfully defending the claim were not without significance in considering the exercise of the discretion. She concluded (at [34]) that there was "a very substantial risk that the plaintiffs would be unable to meet an adverse costs order in the event they fail". She ordered that the opponents give security for the claimants' costs of the proceedings in a form acceptable to the Registrar within 28 days in an amount of $187,500.00. That security was in due course provided in the form of the bank guarantee to which I have referred. 17 Mr AW Street SC, who appears with Mr D Price for the opponents, submits that the claimants have not adduced any evidence that if a stay is not granted the appeal will be rendered nugatory. He points to the fact that the first opponent is recorded in the documents tendered before Bell J as being the owner of real estate in South Penrith. While that property is subject to a mortgage in favour of Wizard Home Loans, he submits that in the absence of evidence of its value, the claimants have not established that if the judgment was paid over, the opponents would be unable to make restitution in the event the appeal was successful.

Consideration 18 The overriding principle in an application for a stay is to ask what the interests of justice require: New South Wales Bar Association v Stevens [2003] NSWCA 95 at [83] per Spigelman CJ (Meagher JA and Sheller JA agreeing). 19 The detailed principles concerning the grant of a stay are set out in Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 at 694:

a. Where there is a risk that an appeal will prove abortive if the appellant succeeds and a stay is not granted, the Court will normally exercise its discretion in favour of granting a stay;

b. the onus is upon the applicant to demonstrate a proper basis for a stay;

c. it is a matter of discretion whether the Court grants a stay and if so as to the terms which would be fair as part of the granting of a stay;

d. what is important in considering whether or not a stay ought be granted is the balance of convenience and the competing rights of the parties before it;

e. it is not necessary that special or exceptional circumstances should be made out; it is sufficient for the applicant to demonstrate a reason or an approp riate case to warrant the exercise of discretion in its favour.

20 Since a stay will 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: McLean Tecnic v Digi-Tech; Kalifair v Digi-Tech [2002] NSWCA 383; (2002) 55 NSWLR 737 at [28]. There is no question in this case that if the judgment is stayed, the claimants will not be able to meet it should the appeal fail. Nor do the opponents ask for any condition should the stay be granted, subject to one matter to which I will come. 21 In my view the evidence does establish a risk that the judgment will not be repaid if not stayed. 22 The evidence before Bell J was sufficient for her Honour to conclude that the first opponent was insolvent. Her Honour reached that conclusion on the basis of the documents to which I have referred, including schedule C to Mr Katehos' report which is Lesvos' balance sheet of 30 June 2005. That balance sheet shows the South Penrith property at cost of acquisition, presumably based on historical accounting principles, and as having been subject to the mortgage to which I have already referred. The cost of acquisition entered in the balance sheet was $122,000. There had apparently been capital works on the property and with accumulated depreciation the property was recorded in a balance sheet at about $137,000. The home loan was at that stage for about $90,000 and, subject to other liabilities and taking into account the company's assets, there was a negative equity of approximately $13,500.

23 While it is true that that evidence has not been updated nor is there evidence of the current value of the property, no such evidence was relied upon before her Honour to resist the security for costs application. I would infer in the absence of any such evidence that the present value of the property would not relevantly improve the first opponent's financial position.

24 There was no evidence, as I understand it, of Koffee's financial position before her Honour. The evidence apparently was sufficient to establish that Koffee that had ceased to trade. No contradictory evidence was tendered before her Honour or in this Court.

25 In my view therefore the claimants have made good the proposition that the judgment will be at risk if paid over. I note that this court regularly stays execution of judgments pending an appeal such a risk is demonstrated: TCN Channel 9 Pty Limited v Antoniadis No. 2 (1999) 48 NSWLR 381.

26 It is appropriate therefore, to make order one in the Notice of Motion. Before I do that I should return to the issue of the bank guarantee.

27 As I have said, Grove J did not make an order in respect of the bank guarantee because of the pendency of the appeal in this Court. This matter also warrants consideration today.

28 When the proceedings were called and appearances were being announced, Mr Street informed the Court that the opponents had offered to agree to the stay application on two conditions. The first was that the claimants seek expedition of the appeal and prosecute the appeal with due diligence and the second, that the bank guarantee be returned. The claimants did not accede to that offer. I asked Mr Street whether he had an application before this court and he said he did not. In the course of argument however he sought to make an oral application that the bank guarantee should be returned, submitting that it should not become a de facto security for the claimants' costs of the appeal.

29 Mr Jacobs did not resist the making of that application but opposed the Court acceding to it on the basis that the bank guarantee was necessary to secure the costs of the judgment below. 30 The critical question in my view is what would happen if the appeal was successful. In that event, subject to any matter which may be argued in the course of the appeal, one would ordinarily expect that the costs order below would be reversed. There is, therefore, a continuing possibility that there will be a call on the bank guarantee.

31 I am mindful of the starting principle for an application for a stay that the successful parties are entitled to the fruits of their judgment. However where it appears that there is an arguable case on the appeal that the primary judge ought to have characterised the agreement which he found and, in circumstances where that agreement related to an interest in land, that there may also be arguments concerning Statute of Fraud issues and a matter relating to delegated authority, the bank guarantee ought, in my opinion, to remain in place to constitute security for the costs of the proceedings at first instance. It does not, in other words, constitute security for the claimants' costs of appeal. The first instance proceedings were those in relation to which the bank guarantee was ordered. In circumstances where, as I have concluded, the claimants are at risk if the judgment is paid over, the risk which Bell J identified in granting security for costs also appears to me to remain a live concern as to the first instance costs. 32 In such circumstances I would not accede to Mr Street's application that the bank guarantee be released.

1. Pursuant to the Supreme Court Rules Pt 51 r (2), the judgment and orders of the Honourable Grove J of 12 April 2007, as read with his Honour's judgment of 29 March 2007, be stayed pending the determination by this Court of the claimants' appeal against the aforesaid orders. 2. Costs of the application for a stay be costs in the appeal. 3. Grant expedition of the hearing of the appeal on the claimants' undertaking to prosecute the appeal with due diligence.

4. Order the claimants to file a further amended notice of appeal which complies with the principle relating to notices of appeal to which I have already referred.

34 The matter will be listed in the next call-over list before Registrar Schell which will take place at 11am on this Thursday, 26 April 2007.

STREET: Would your Honour identify a time period for the amended notice of appeal?

HER HONOUR: I will leave that for Registrar Schell to order, Mr Street. Mr Jacobs, if you can have it by Thursday by all means, otherwise as soon as possible consistently with the claimants' undertaking. JACOBS: It will be done. HER HONOUR: I thank the parties for their assistance. **********

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