Ramsay v BigTinCan Pty Ltd

Judgment 1BASTEN JA: The first applicant, David Ramsay, was a former director of the respondent company; the second applicant, Roel Pollers, was a consultant who worked for the company and obtained a shareholding in it. The company obtained in the Equity Division a judgment ordering that they pay an amount in excess of $360,000 to it: BigTinCan Pty Ltd v Ramsay [2013] NSWSC 1248 (Ball J). Cross-claims by the applicants were dismissed. The applicants brought an appeal to this Court from a judgment of Ball J, which was dismissed: Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324. They now seek a stay of the judgment of this Court delivered on 16 September 2014 pending an application for leave to appeal to the High Court of Australia. 2The test for considering whether to order a stay was stated in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2014] NSWCA 375 at [4]: "The basis of the application to this Court was in accordance with the procedure approved in Jennings Construction Limited v Burgundy Royale Investments (No 1) [1986] HCA 84; 161 CLR 681, namely, that an application for a stay pending determination of a special leave application to the High Court, should be made to the Court from which the appeal is to be brought. The principles to be applied by this Court are set out in Rinehart v Welker [2012] NSWCA 1; 83 NSWLR 347 at [42] ff. These require the Court to grant a stay only in exceptional circumstances and subject to the usual considerations that apply to stays pending appeal. These considerations are, first, the necessity to protect the subject matter of the litigation; secondly, the prospects of success on an appeal and, thirdly, the balance of convenience having regard to both the detriment likely to be caused to the applicant and to the respondent, respectively, were the stay to be granted or not granted." 3Dealing first with the necessity to protect the subject matter of the litigation, the applicants are not seeking to do more than protect their respective financial positions and avoid bankruptcy pending the special leave application. Those matters should be taken into account, but they are not the subject matter of the litigation. 4With respect to the prospects of success, the respondent argued that the ordinary test required satisfaction as to "substantial prospects of success": Rinehart v Welker at [49]. The principal issue which forms the basis of the special leave application derives from a degree of uncertainty as to the proper test of causation with respect to loss claimed to result from a breach of fiduciary duty by a company director. 5The primary judge accepted that "the role of causation itself remains uncertain in claims of equitable compensation for breach of fiduciary duties": at [95]. However, he approached the matter by assessing the company's loss as the loss of an opportunity to raise capital, which he assessed at 25% of the amount sought. This Court held that the primary judge should have assessed not merely the company's prospects of obtaining funding but also whether that funding, if obtained, would have been put to profitable use: at [72]. In the result, the Court was content (Gleeson JA dissenting) to adopt the final figure assessed by the primary judge. The respondent submitted that the test for causation does not squarely arise in this case. 6The respondent further contended that, even accepting that the test of causation is one of lively interest in principle, the case provides an unattractive vehicle to agitate the issue. While there is force in this submission, there were differences of approach at trial and in this Court (though not within this Court) and not with respect to causation as such. Without considering the precise nature of the "uncertainty" relating to causation in respect of equitable compensation, and without considering whether the case involves an appropriate vehicle for the consideration and possible resolution of such uncertainty by the High Court, it may be accepted that the special leave application is reasonably arguable. 7The respondent resists a stay if that is all that can be said, relying specifically on the statement referred to above, from Rinehart v Welker at [49]: "We do not, however, agree with the respondents that in all cases it is an essential prerequisite for the grant of a stay that the Court finds that there are substantial prospects of success on the special leave application. There may be cases, albeit rare, when the other factors material to the grant of a stay may be of such significance that a stay should be granted even if this Court is unable to reach the view that the application has substantial prospects of success. That does not seem to us inconsistent in any way with what Brennan J said in Burgundy Royale or his subsequent decision in Edelsten v Ward." 8Before addressing this submission, further matters should be addressed. The applicants raised additional grounds relating to the failure of the trial judge to address their cross-claims. They represented themselves in the proceedings before Ball J. The judge noted that each had filed a cross-claim, but said that only one was mentioned during the course of the hearing, and then only during final submissions: at [8]. That claim alleged oppression on the part of the company in issuing shares which had the effect of diluting the interests of the applicants (and Mr Ramsay's wife) in the company. This matter was dealt with by the primary judge at [40]. The dismissal of the cross-claim was upheld by this Court at [88]-[91] (Macfarlan JA, McColl and Gleeson JJA agreeing). 9With respect to the other cross-claims, Macfarlan JA dealt with the allegations that Mr Ramsay had lent two computer servers to the company; that he had an outstanding claim for salary or director's fees and for reimbursements of expenses, at [98]-[100]. Macfarlan JA also referred to an alleged oral representation relied on by Mr Pollers. 10Although the Court inferred, favourably to the applicants, that these claims had not been abandoned, the lack of evidence supporting the claims led the Court to conclude that the claims "would inevitably fail": at [96]. The primary reason for that conclusion, with respect to each, was an absence of evidence to support the claims. It is unlikely that the High Court would grant special leave to appeal in respect of those matters and I disregard them. 11Accepting that the issue with regards to the test for causation in a claim for equitable compensation is reasonably arguable, that finding merely opens the door. The strength of the present application must be found elsewhere. It remains to consider the conflicting claims of prejudice. 12On the part of the respondent, the claim for prejudice must depend upon it being kept out of the funds awarded to it by the Court for a further period which is not likely to exceed three months. (The Court was informed that the parties had been offered dates for the hearing of the special leave application in early February and early March 2015.) Against that detriment, Mr Ramsay has offered a charge over his share of the family home in Dee Why, which, on the figures available to this Court, has sufficient equity to cover the judgment debt (with interest) together with a proportion of the costs from the trial and in this Court. 13The potential prejudice to the applicants of there being no stay flows, in effect, from an assumption that the Federal Circuit Court would proceed to bankrupt the applicants on the basis of their outstanding judgment debts, prior to the special leave application in February or March 2015. That consequence is possible, but unlikely and must be significantly discounted for present purposes. Being unemployed, Mr Ramsay, who has available security, is unable to obtain finance secured by a second mortgage over the family home in order to pay the outstanding debt. He can, however, offer security to the respondent. The circumstances of Mr Pollers is not known, but it may be assumed that it offers no resource for security. 14The respondent also complained of delay. The appeal from the judgment of Ball J was dismissed by this Court on 16 September 2014. On 14 October, an application to set aside a bankruptcy notice was dismissed, and a motion brought seeking an order for payment by instalments. That issue has been adjourned and stood over from time to time, and is listed for further hearing this afternoon. Similarly, the bankruptcy petition is listed for further consideration this afternoon. The notice of motion seeking a stay was not filed until 12 December and has been brought on with celerity. 15Given that the application for special leave to appeal was filed on 16 October 2014, it may be accepted that there has been an element of delay. Nevertheless, it is not clear that there has been prejudice to the respondent, except to the extent that it may have incurred the cost of any attempts to enforce the judgment, but such information is not before the Court and may ultimately be recoverable in any event. Indeed, it is perhaps surprising that the stay is being resisted as it is quite unlikely that the security would be realised before the special leave application will be determined. 16There is also an issue as to whether, if the security were to be realised, and the applicants were to succeed in the High Court, they would be able to recover the sum paid. There is evidence that the respondent is no longer trading and may not have assets. If that is so, there is a real prospect that any payment made now will not be recoverable if the judgment sought to be challenged is set aside. 17In the circumstances, given particularly the relatively short time, including the December and January vacation, before the special leave application is likely to be determined, it is appropriate to grant a stay. The stay should be on conditions substantially to the same effect as those set out in the applicants' notice of motion filed in Court. The respondent says that, by way of additional condition, a single payment should be made now, as offered on the application for payment by instalments. I do not propose to add that condition. The giving of the charge referred to in par 3 of the orders will be a condition of the stay. 18The costs of the present application should be the respondent's costs in the proceedings in this Court and will depend upon the outcome of the special leave application and, if leave be granted, the appeal. 19Noting that the undertakings to the court set out in the notice of motion are given by counsel for the applicants, the Court orders: (1) Upon the applicants, by their counsel, undertaking to proceed expeditiously with the application for special leave to appeal to the High Court and any resultant appeal, and subject to the undertakings given below, and on the condition set out at (3) below, enforcement of the orders made by Ball J on 4 September 2013 and of the Court of Appeal made on 16 September 2014 in proceedings 2013/296002 be stayed until the later of: (a) the determination of the application for special leave to appeal in the High Court in matter number S268 of 2014; and (b) if special leave is granted, the determination of the appeal. (2) The first applicant undertakes to the Court that he will not dispose of, alienate, charge, or encumber his assets until the determination of the special leave application other than to meet: (a) his ordinary living costs and expenses, and (b) his legal costs of and incidental to the prosecution of his special leave application. (3) The first applicant charges (subject to existing encumbrances) his equity in the property contained in folio identifier Lot 59A DP321302 (being the property located at 41 Monash Parade, Dee Why, New South Wales 2099) with his liability (including as to costs and interest) to the respondent pursuant to the orders made by Ball J on 4 September 2013 and by the Court of Appeal on 16 September 2014. (4) The first applicant undertakes to notify the respondent immediately on learning of the commencement of divorce proceedings by his wife Noelene Ramsay or any attempt by his wife to dispose of, alienate, charge or encumber the property located at 41 Monash Parade, Dee Why.