Solicitors:
Marsdens Law Group (applicant)
Somerville Legal (respondent)
File Number(s): 2013/00377766 (Supreme Court file number)2016/00386747 (Court of Appeal file number)
[2]
[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.]
[3]
Judgment
PAYNE JA: The present proceedings came before me as the Court of Appeal duty judge in the week commencing 7 January 2017. The case had been determined by Hall J in the Common Law Division of the Supreme Court on 13 December 2016. On 15 December 2016, his Honour granted a stay of proceedings pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 51.44(1) for the period of 28 days. That was all his Honour was asked to do.
On 11 January 2017, the applicant by notice of motion sought to move the Court of Appeal to continue the stay. The notice of motion was actually filed with an incorrect file number. The orders sought in that notice of motion were as follows:
1. Service of this motion and any supporting affidavit be dispensed with.
2. The stay granted by Hall J on 15 December 2016 (the Judgment) in Supreme Court Proceedings No. 2013/00377766 be extended up to and including 10 February 2017.
3. The Applicant pay into Court the sum of $248,513.46, being the amount of the Judgment ordered by Hall J and post judgment interest up to 10 January 2017, by 5.00pm on 16 January 2017.
4. The Judgment be stayed pending determination of the Notice of Intention to Appeal or any subsequent Notice of Appeal filed in these proceedings.
5. The matter be listed for directions before the Court on a date after 31 January 2017.
6. Costs.
7. Such further or other orders as this court sees fit.
There was a notice of intention to appeal filed on 24 December 2016, however no notice of appeal had been filed. Indeed, at the date of hearing the notice of motion, the notice of appeal had still not been filed.
The consequence of this failure to file a notice of appeal is that the Court of Appeal was without jurisdiction. It is clear that the filing of a notice of intention to appeal does not give the Court of Appeal jurisdiction: UCPR r 51.9(3); see Crowe-Maxwell v Frost [2016] NSWCA 46 at [12] per Beazley P (Macfarlan and Gleeson JJA agreeing). Nonetheless, sitting as a Supreme Court judge I had power to consider, in limited circumstances, whether to continue the stay under UCPR r 51.44(1) granted by Hall J. On 30 January 2017, the notice of appeal was filed, commencing Court of Appeal proceedings. Given the absence of prejudice to any party I will treat the present motion as being one filed in the Court of Appeal proceedings.
When the matter came before me on 12 January 2017, the respondent to the motion was not in a position to proceed. This was understandable given that the notice of motion and supporting evidence had only been served the day before, following a direction to do so from the Court. The applicant in the motion erroneously sought to rely upon a "self-executing" letter served on the respondent on Christmas Eve (a Saturday) which it was apparently thought absolved the applicant from the responsibility of serving material on the respondent to the motion. No basis was identified for seeking order 1 of the notice of motion that "service of this motion and any supporting affidavit be dispensed with". Very special circumstances would need to be shown before such an order would ever be made. No attempt was made by the applicant to explain how it could ever have been entitled to such an order in this case. This is a matter I will return to in the determination of the costs of the motion.
On 12 January 2017 I made the following orders:
1. Grant leave to Port Macquarie-Hastings Council to file in Court the notice of motion and the affidavit of Mr Balasubramanian dated 11 January 2017 together with its exhibit dated 10 January 2017.
2. Note the undertaking given by Mr Balasubramanian to attend the Registry by 4pm today to pay the relevant filing fees.
3. Stand the matter over for hearing on 27 January 2017 before Payne JA.
4. Extend the stay granted by Hall J on 15 December 2016 until 4.30pm on 27 January 2017.
5. Diveva Pty Limited ABN 34 003 779 815 trading as Mid Coast Road Services to file and serve any evidence it seeks to rely on in the motion by 5pm 18 January 2017.
6. Port Macquarie-Hastings Council to file and serve any evidence in reply by 2pm 25 January 2017.
7. Costs reserved
Those orders were not complied with by either party. In the first part, the applicant on the motion purported to electronically file documents in the Court of Appeal. As I have explained there is no proceeding before the Court of Appeal unless and until a notice of appeal is filed. The respondent served but did not file evidence from their managing director within the time frame I had prescribed.
The applicant then filed a lengthy expert report from Mr Ross, an expert accountant dated 25 January 2017. That report was not strictly in reply to the evidence which had been filed. I made clear at the directions hearing on 12 January that this approach was to be deprecated. Further, the respondent filed, in response, an affidavit of Sandra Kafantaris sworn 25 January 2017. The evidence before me was completed with the applicant filing a further report of Mr Ross dated 27 January 2017, the day the matter was fixed for hearing.
Despite these considerable breaches of procedural orders I had made, the parties did not object to the tender of evidence and each of the following affidavits and reports became evidence on the application:
Affidavit of Bharath Balasubramanian dated 11 January 2017 and the exhibit to it dated 10 January 2017;
Affidavit of Craig Pinson sworn 18 January 2017 and the exhibit to it also dated 18 January 2017;
Affidavit of Bharath Balasubramanian dated 25 January 2017;
Report of Mr Andrew Ross dated 25 January 2017;
Affidavit of Sandra Lynette Kafantaris sworn 25 January 2017 with its annexures; and
Further Report of Mr Andrew Ross dated 27 January 2017.
Written submissions were provided to the Court, by the respondent on 25 January 2017 and by the applicant on 27 January 2017.
The motion was heard by me on 27 January 2017, after which I reserved my decision and made the following orders:
1. Extend the stay granted by Hall J on 15 December 2016 until judgment on the applicants motion filed 11 January 2017 delivered or until further orders are made.
2. Judgment reserved.
At that time I noted the undertaking of Counsel for the applicant on the motion, that the notice of appeal would be filed no later than 4pm Monday 30 January 2017. As noted above, that occurred.
[4]
The decision of Hall J
In a decision dated 13 December 2016 his Honour determined the claim by Diveva Pty Ltd (Diveva) against Port Macquarie-Hastings Council and made an award of damages for breach of contract ultimately in the sum of $247,443 comprising $217,065 plus pre-judgment interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) in the sum of $30,383.
His Honour in granting the stay said:
I am inclined to make that order. Parties entitled to the opportunity of that least taking advice on whether or not it wishes to appeal. Especially given this time of year I think it would be appropriate to allow the defendant that opportunity. What I specifically have in mind is the issues in the proceedings, including the construction of the option issue. It seems to me that it is not unreasonable to ask a stay…
Diveva is a civil construction company operating on the mid-north coast of New South Wales. In 2005, 2008 and 2011 Diveva was the successful tenderer for the supply and laying of asphalt concrete to Port Macquarie-Hastings Council.
The relevant contract at issue in the present proceedings was entered into between Diveva and the Council in about August 2011. Under that contract Diveva contracted to supply, deliver and lay asphalt for a period of two years with a further one-year option agreement.
In about August 2011 Diveva undertook certain asphalt works on Ocean Drive, Lake Cathie. In the proceedings it was common ground the work was done and that Diveva was not responsible for the failure of those works.
In May 2012 the Council excavated and reconstructed the area on Ocean Drive. Diveva laid asphalt in late July 2012. In late 2012 Ocean Drive again showed signs of failure.
There was a dispute between the parties as to the cause of the failure on Ocean Drive following the 2012 works. Specifically the issue is whether one component of the works was in compliance with specifications.
In March 2013 the Council advised Diveva that it had reviewed the current tender contract specification and determined that the option to extend the agreement would not be exercised and a new tender would be advertised in the coming weeks.
On 4 April 2013 Diveva gave notice that it exercised the option to extend the 2011 agreement for a further 12 months. On the same date the Council asserted that the option to extend the contract had to be by mutual agreement. The negotiations continued. The Council invited tenderers for the period after 31 July 2013 identifying different specifications to be included in further contracts.
While the initial term of the 2011 agreement was extended to 31 July 2013 no further work was offered to Diveva by the Council under the 2011 agreement after about 27 May 2013.
The issues in the proceedings were first whether the option in the 2011 agreement was exercisable unilaterally by Diveva and, secondly, assuming that the option was exercisable by Diveva, whether a term ought to be implied into the 2011 agreement to give it efficacy to the effect that the option was not exercisable if Diveva was in breach of the agreement at the time of the exercise. The third issue was the amount of damages, if any, to which Diveva was entitled to if it was successful in these proceedings.
As to the first issue, Hall J determined that on its proper construction the 2011 agreement conferred a unilateral option upon Diveva to extend the agreement for a further 12 month period.
That conclusion was essentially based on the text of the provision and the use of the word "available". So far as context was concerned Hall J found that an option of its nature was consistent with an entitlement granted by the Council and available to the successful tenderer: at [91]. His Honour found that the agreement, taken as a whole, favoured the construction for which Diveva contended. It would have been open to the Council simply to have said that the option could only be exercised by the Council. It did not do this.
As to the second issue, whether a term should be implied in the 2011 agreement, Hall J found that the onus of proving that the term should be implied into the agreement rested upon the Council and that the principles in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 for implied contractual terms tended against implication of such a term in this case. That was because such a term would not operate reasonably or equitably between the parties and it was not necessary to give business efficacy to the agreement.
His Honour determined, assuming a term was implied, that in any event Diveva had not breached the 2011 contract. The expert evidence was effectively unchallenged. There was no contract specification requiring Diveva to undertake testing for in situ voids. The Council was in error in taking a contrary view. Accordingly there is no basis for finding a breach of an express or implied term in the 2011 agreement by the plaintiff even if one had been implied.
So far as the third issue, damages, was concerned, the primary judge was faced with competing expert evidence. The experts prepared a model which was the subject of a joint experts report. The critical difference between the experts was that the expert for the Council, Mr Ross, was of the view that the damages to be awarded approached zero. The primary judge accepted that it was reasonable and appropriate to estimate revenue that Diveva would have received in the option period as including revenue beyond the tender works. His Honour concluded that so far as the gross margin was concerned, that despite there being a general period of decline, the fact was that Diveva achieved a gross margin under the 2011 agreement in the initial 12 months of the contract in the order of 16%. His Honour preferred Diveva's expert Mr Mullins' evidence and said it provided a rational basis for finding loss. Accordingly his Honour determined that judgment for Diveva in the sum of $247,443 should be entered.
[5]
Relevant principles
The leading authorities - Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 and Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 - provide that the Court must weigh a number of factors when considering a stay application, including:
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.
The applicant highlighted Campbell JA's reference, at [68], in Woolworths Ltd v Strong (No 2) (2011) 80 NSWLR 445; [2011] NSWCA 72, to the importance of the "usual practice" of staying judgments pending appeal where there is a risk that the plaintiff will be unable to repay the money without difficulty or delay if the appeal were to succeed. The applicant submitted that ordinarily it is appropriate to consider first whether the appeal raises a serious question to be tried, in the sense of arguable grounds, and, secondly, if so, where the balance of convenience lies: see Kalifair at [18] and Vaughan v Dawson [2008] NSWCA 169 at [17].
The respondent submitted that it was entitled to the fruits of its judgment. The overriding principle when determining 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 and Sheller JJA agreeing). The respondent emphasised that a stay pending an appeal is not a matter of course and pointed to Hickey v Land Enviro Corp Pty Ltd [2014] NSWSC 472, where Harrison J stated:
An appellant does not have an automatic right to a stay of execution pending an appeal. The starting point is that a Respondent to an application for such a stay ought not be deprived of the fruits of its victory. It is relevant in an appropriate case to consider whether a stay is necessary to maintain an existing state of affairs in order to preserve the subject matter of the proceedings. An Applicant for a stay must generally identify circumstances that warrant a departure from the general rule that the judgment below should be presumed to be correct and is appropriate to be enforced.
[6]
Evidence on the application
The applicant relies upon expert accounting reports that call into question the credibility and accuracy of the respondent's balance sheets and valuations. The reports conclude that the respondent's financial position is precarious and there is no "reliable information which suggests that Diveva will make substantial trading profits in the near future". The applicant also relies upon Construction Certificates granted by the Port Macquarie-Hastings Council, annexed to the affidavit evidence of its solicitor. These Certificates are said to cast doubt on the respondent's expected future trading.
The respondent, in opposing the application, relies upon evidence of its Managing Director as to its financial position, the sale of part of its business and its current and future trading. The respondent also relies upon evidence of its Accounts Manager and its Balance Sheet as at 25 January 2017, which show a figure for net assets of approximately five times the sum here at issue.
[7]
Consideration of application for stay of execution
It is tolerably clear to me that the applicant on the motion has an arguable case on appeal. While I was not provided with the contract in issue, I have read Hall J's decision of 13 December 2016. When his Honour granted the stay he commented that "What I specifically have in mind is the issues in the proceedings, including the construction of the option issue. It seems to me that is not unreasonable to ask for a stay". His Honour accepted that the applicant's construction was arguable. Having read the decision, I am content to proceed on the same basis.
The reports of Mr Ross contain high level conclusions that do not, in my view, establish that the financial difficulties which the applicant asserts Diveva is experiencing are either immediate or dire. The balance sheets annexed to Ms Kafantaris' affidavit show that, prima facie, Diveva has net assets well in excess of the judgment amount.
Nevertheless, the financial position of Diveva Pty Ltd was contested at trial and the subject of competing expert evidence. Reluctantly, I have come to the conclusion that there is some risk that the judgement sum may not be able to be repaid and it is appropriate to approach the case on the hypothesis that the evidence of Mr Ross, which was rejected by the primary judge, might be accepted on appeal.
My reasons for reaching this conclusion are as follows. Diveva's financial position contains the following risks and potential uncertainties:
1. The first substantial component of Diveva's net assets comprises loans to associates. On the evidence, the recoverability of those loans is a matter of speculation;
2. The second substantial component of Diveva's net assets comprises plant and equipment. The value of that plant and equipment was determined by its directors, and not independent valuations. This is entirely commonplace but does inject a level of risk about those values;
3. Diveva has no other substantial net assets;
4. Diveva has recently sold a large part of its business;
5. Diveva has experienced a significant drop in revenue, reporting a loss in the period of 1 July 2016 - 12 January 2017; and
6. Diveva would have reported a loss in 2016, but for a $1.6million debt that was forgiven by one of its suppliers.
I consider that the balance of convenience favours the making of orders granting the stay, coupled with orders expediting the appeal. The Court has availability to hear the appeal in the last week of February 2017. If the appeal could not have been heard expeditiously, the balance of convenience may have required a different result.
I note that as a term of any stay the Council has agreed to pay the sum of $247,443 plus post judgment interest into Court and agreed to the appeal being significantly expedited.
[8]
Costs
Ordinarily, the costs of stay applications of the present kind become the costs of both parties in the appeal. However, the approach taken in this matter has not been ordinary. The bulk of costs in this application were incurred prior to there even being a case in the Court of Appeal, which only commenced with the filing of the notice of appeal on 30 January 2017.
The notice of intention to appeal was only served on 24 December 2016, Christmas Eve and a Saturday. The letter effecting service requested that the respondent not enforce judgment, and purported to excuse the applicant from the requirements of the UCPR in the event it made an application for an extension of the stay. When such an application was made, it was purportedly filed in the Court of Appeal, despite there being no appeal proceedings on foot. The evidence on the motion was not served on Diveva until the day before the hearing and gave rise to a needless application in the vacation period. The principal costs associated with this stay application arise from the decision of the Council to originally ask for a 28 day stay and wait until Christmas Eve to agitate an extension.
Given these factors, and despite the applicant's ultimate success in achieving an extension of the stay, I propose to make an order that the costs of the motion be the respondent to the motion's costs of the appeal.
[9]
Conclusion and orders
On basis of significant expedition, I am persuaded that the balance of convenience lies in making the order.
Accordingly, the orders of the Court are:
1. Applicant pay sum of $247,443 plus post judgment interest into Court by 4pm Friday 3 February 2017;
2. Stay granted by Hall J on 15 December 2016 be extended until further order of the Court of Appeal;
3. Appeal expedited;
4. The costs of the motion to be the respondent to the motion's costs of the appeal.
I note the undertaking of applicant on the motion given by its counsel that, if unsuccessful in the appeal, it will pay any additional post judgment interest to the respondent on the motion within 7 days.
[10]
Amendments
01 February 2017 - Typographical errors in [31], [41] and [43] corrected.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 February 2017
Parties
Applicant/Plaintiff:
Port Macquarie-Hastings Council
Respondent/Defendant:
Diveva Pty Limited ABN 34 003 779 815 trading as Mid Coast Road Services