Selig v Wealthsure Pty Ltd

THE PRINCIPLES 9 The submissions focused upon applying the principles as to whether leave to appeal should be given. The well accepted principles are set out in Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, namely: (1) whether in all the circumstances the interlocutory judgment is attended by sufficient doubt to warrant the decision being reconsidered by the Full Court; and (2) whether a substantial injustice would result if leave were refused, supposing the decision to be wrong.

CONSIDERATION 10 It is apparent from the applicants' submissions on this application that it is not contended that the primary judge misdirected himself as to the principles applicable in deciding whether or not to make an order to stay the execution of the judgment in their favour. The error is said to be in their application. In the primary judgment, the primary judge addressed the principles at [10]-[12]. 11 His Honour then addressed the 21 grounds of appeal of the respondents under the six headings in which they appear, in the Supplementary Notice of Appeal (the then current notice of appeal) of the respondents. 12 A considerable part of the submissions of the applicants on the application focused on the prospects of the respondents avoiding any liability at all if their appeal were to succeed. It is not the case that "liability" as such is in issue on their appeal. What is in issue are various matters relating to the quantum of the loss suffered by the applicants by reason of the conduct of the respondents and others. The grounds of appeal cover claims that there was a failure to prove loss, that the loss as assessed should have been apportioned between the various defendants rather than that there should have been a judgment for the whole of the loss against the respondents, that the amount of contributory negligence on the part of the applicants should have been considerably increased, that the damages assessed at $1,014,680 (plus interest) should have been considerably less, because the only primary or direct loss was the investment by the applicants in the respondent Neovest Ltd (in liquidation) of $450,000 and consequently that the interest assessed was also excessive, and finally under the heading Factual Findings, that a range of particular factual findings should not have been made. 13 The primary judge addressed those various grounds. It is not suggested that the primary judge misunderstood the nature of the grounds of appeal, or failed to assess whether or not they are arguable: see Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 695; Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd [2008] FCA 1867 and Sevenhill Holdings Pty Ltd v Musovic [1992] FCA 264. His Honour concluded that it was inappropriate to make any precise forecast as to the prospects of success, but that the grounds of appeal concerning causation or proof of loss or damage, proportionate liability, contributory negligence, and the quantum of loss and damage including consequential losses were arguable. I was taken to certain arguments put to the primary judge and urged to reconsider them. I have done so. I do not see any error on the part of the primary judge in assessing the contentions proposed to be put on the appeal as arguable. Nor do I see any error in not taking that matter further. That is a matter for the appeal itself. I have formed no concluded view about the prospects of the respondents succeeding on any of their grounds of appeal. Nor do I think it is arguable before a Full Court if leave to appeal is given that the primary judge must have reached a different conclusion or any more definitive conclusion about "arguability". 14 The primary judge also addressed possible consequences arising from what was reported to him as Calderbank offers or Rules of Court offers made to the applicants, the details of which are not set out in the primary judgment. I record that, in the course of submissions on this application, I declined the opportunity to receive details as to those offers, and the documents which were presented during the submissions recording the details of those offers were removed from the materials submitted to me. To some extent, they may be capable of demonstrating a serious issue to be tried as to the costs incidence of any award of damages as ultimately assessed by the Court on appeal. However, I do not think that they can affect whether the grounds of appeal are themselves arguable. Depending on the outcome of the appeal, the order for costs made on 18 April 2013 can be revisited after the hearing. The respondents and the applicants can no doubt have a Supplementary Appeal Book ready to hand up when judgment on the appeal is given. I observe that presently the Supplementary Grounds of Appeal do not refer to the costs ordered, save to set aside the costs order: Order 2 as sought. That is presumably because, at present, the judgment exceeds the amount of, or terms of, any such offers. 15 If the appeal is successful in a way that affects or might affect the costs order made in favour of the applicants and against the respondents, the Supplementary Appeal Book can be handed up to the Full Court. 16 The primary judge also addressed the potential adverse consequences to the respondents if they are successful on their appeal, and the stay was not granted. He accepted that the appeal of the respondents may well be rendered nugatory if the judgment sum is paid to the applicants prior to the hearing and determination of the appeal. That is because, on the evidence, the applicants have their own liabilities and there would be a significant risk that they would apply the funds so received in discharging those other liabilities in circumstances where they could not be recovered even if the judgment in their favour was set aside or significantly reduced. His Honour said at [36]: That is a strong reason to order a stay at least insofar as payment of those monies to the plaintiffs is concerned. 17 At [23], the primary judge noted that, on the authorities, it may be appropriate to order a stay if the appeal might be rendered nugatory either because an appellant is unable to pursue the appeal or because an appellant, even if successful, may not be able to recover monies paid over in the absence of a stay. He regarded that fact as established: that is absent a stay, monies paid by the respondents to the applicants would be, or would be likely to be, irrecoverable in the event that the appeal is successful in whole or in part. The submissions on behalf of the applicants did not seek to impugn that aspect of the findings. His Honour further discussed that issue at [26]-[27]. The evidence showed that the applicants were actively pursuing recovery of their judgment, including by adopting statutory processes to secure the winding-up of the first respondent. 18 In addition, the primary judge addressed the position of the applicants. In their submission on this application the applicants described as an important consideration the balance between protecting the appeal and protecting the judgment. As the primary judge noted, that is directly related to the respondents' capacity to satisfy the judgment. 19 The applicants on this application focused upon the respondents' capacity to satisfy the judgment debt. I was taken at some length to the material in the affidavit of David Newman, the first respondent's Chief Executive Officer, of 5 June 2013 (which was an exhibit to the affidavit of Mr Radbone). It is not necessary to refer to it in detail. As the primary judge recorded, there is obviously some dispute between the respondents on the one hand and the applicants on the other as to the first respondent's prospects of continuing to operate profitably in the future. There is also some dispute about the extent to which it has a surplus of assets over liabilities. It is fair to say, as the applicants' submissions indicate, that the first respondent may well be unable to discharge the judgment other than by access to any insurance fund available to it. If it has any capacity to meet the judgment in any other way, there is nothing to indicate that it had conducted or would be conducting its business in any way which would materially worsen its capacity to do so following the appeal. In addition, if the appeal is dismissed, the applicants will have incurred the costs of the appeal and the respondents will have incurred the costs of the appeal but there will otherwise be no change. The applicants will rank as an unsecured creditor of the respondents along with any other creditors of the respondents but the collectively available funds, other than the costs of the appeal, are not shown to be likely to be materially different from those then or presently available. The primary judge did not misunderstand those matters. His Honour had regard to them. 20 The primary judge also noted that the respondents have insurance cover issued by QBE Insurance (Australia) Ltd (QBE) limited to $3 million for any one claim, which is apparently inclusive of costs and expenses. It was asserted by senior counsel for the applicants and accepted by counsel for the respondents that the respondents' costs of resisting the claim are taken from the insured fund. It is also now common ground that the liability of QBE to indemnify the respondents under the policy in respect of such liability as is ultimately determined in this matter as payable to the applicants is to the limit of $3 million, including the respondents' costs reasonably incurred of defending the claim against them. I was also told, on the material, that those costs directly incurred by the respondents (whether or not QBE is exercising subrogation rights to defend the claim) are in the order of $1.35 million at present, so the balance available to meet the judgment was about $1.65 million. Obviously, the applicants are not bound to accept that in part $1.35 million is the amount of costs reasonably incurred in defending the claim they have made against the respondents, particularly having regard to the respondents' own claims against certain others of the defendants in the initial proceedings, and their appeal against the orders made against them in relation to those defendants. It is also clear that that sum of $1.65 million is a sum particularly ascribed to meeting the judgment liability as varied, if at all, on the appeal: s 562 Corporations Act 2001 (Cth). 21 On the material before the primary judge, his Honour accepted that that is an asset potentially available to meet the liability. As it is now put, and as his Honour in essence accepted, that is the only asset potentially available to meet the judgment liability. He also noted that there is a risk that that asset will be diminished by the amount of the costs which the respondents incur in prosecuting the appeal, provided those costs are reasonably incurred in terms of the policy. As well, the applicants will themselves incur additional costs in resisting the appeal which, depending on its outcome, may increase the respondents' ultimate liability to them. Finally, there is also the potential for the liability to them to increase by the amount of accumulated interest on the unpaid judgment. 22 In conjunction with those factors, senior counsel for the applicants pointed out that, at the time of the decision of the primary judge, the respondents had not provided any estimate of the costs likely to be incurred in prosecuting its appeal. 23 The primary judge reported at [36] that he took into account the insurance in deciding to make an order for payment into Court, and those matters generally. He is not shown to have overlooked those matters. He said he would order that payment into Court even if he were not entitled to take into account that insurance asset, because he would have to balance competing considerations and because he thought the applicants were entitled to some protection. 24 Finally I also note that the primary judge rejected the submission that it was relevant to whether or not a stay should be granted that the first respondent appears to have failed to obtain or procure such insurance as would adequately cover its potential insurance liability to entities such as the applicants. He did not think that inadequacy of insurance was itself a reason not to grant a stay, at least on the conditions he imposed. The applicants did not contend on this application that that step was erroneous. 25 The proposed grounds of appeal if leave to appeal is given are expressed in six separate steps. 26 Firstly, it is said that the primary judge failed to adequately protect the applicants in the light of knowing that there would be further diminution of insurance monies by costs if the appeal is allowed to proceed. The proposition is apparently correct as a matter of fact, but it is not correct that the primary judge did not have regard to that factor. The reasons show that it was considered. It is a discretionary factor. Where the applicants did not explore with the primary judge that it may be QBE itself, rather than the respondents personally, now prosecuting the appeal (so that QBE might have been invited to indicate that it would prosecute the appeal from its own resources rather than from the resource under the policy), I do not consider it is arguable that the primary judge wrongly exercised his discretion to allow the respondents to continue to conduct the appeal once it was accepted that the appeal was arguable. There was a balance to be struck between putting the respondents out of prosecuting their appeal on the one hand or potentially further diminishing the recoverable amount under the policy on the other. That is so even though the primary judge was unable to be given an adequate estimate of those costs. In my view, it is not possible to say that that discretion miscarried in such a way as to provide the applicants with the reasonable prospect of succeeding on their appeal on this basis if leave to appeal were given. 27 Secondly, it is said that the fact that there was not a proper estimate as to costs and as to the arrangements between the respondents and QBE was itself a matter which the primary judge should have had regard to. Those matters were all put to the primary judge, certainly in the written submissions, and as the judgment records, were considered by his Honour. There may be room for a difference of views about their significance. Where a discretionary judgment is made as to their significance, I do not think it is shown that there is a reasonable prospect of the applicants upsetting the way in which the primary judge exercised his discretion on that topic. 28 The third ground of appeal is merely assertive. It is that, having found that the applicants were entitled to some protection, the primary judge failed to provide it. He did not. The real debate is whether he should have provided more protection. As was pointed out in the course of argument, again that is a matter of discretionary judgment upon which minds may differ. It was not put to the primary judge that the protection to be provided should have excluded QBE or the respondents from further diminishing the insurance fund by requiring the respondents and/or QBE (if it was exercising subrogation rights) from including the costs of the appeal in the figure for which the policy is covered and supporting those costs from other resources, so there cannot be a basis for saying that leave to appeal should be given to argue that. What was put in argument was understood by, and addressed by, the primary judge in a way that does not suggest the discretionary assessment arguably miscarried. 29 The fourth ground of appeal asserts a failure to adequately assess the reasonable prospects of the respondents materially reducing the judgment sum to a point at which an inability to repay was a realistic concern. In my view, that is simply not the case. The primary judge was aware, from the applicants' submissions, that the insurance fund was the available resource to meet the judgment. His Honour was aware of the assertion that it had been reduced from $3 million to $1.65 million by reason of the costs incurred in defending the claim. He was aware that there was therefore probably a restricted ability to pay the judgment sum, limited to the insurance cover, and that there was a risk that the insurance cover would be further reduced by reason of the costs of the appeal. Those matters were taken into account. It has not been shown that the process of consideration involves error worthy of consideration by the Full Court. 30 The fifth contention is that the primary judge failed to address the prejudice to the applicants by reason of having none of the judgment sum available to meet their costs of the appeal. That is a matter which was put to the primary judge and taken into account by him. Again it is a matter of fact and degree upon which his Honour exercised a judicial discretion in a way which it is not possible to arguably say was wrong. 31 At one point, it was suggested that the applicants may be impeded in their capacity to resist the appeal by lack of personal resources, and the primary judge should have taken, but did not take, that into account. However, the material before the primary judge did not expressly support such a proposition. It was not an error, or an arguable error, not to have addressed it. 32 Finally, it is argued that the primary judge failed to address the impact of the bankruptcy of Mr Bertram. That is not the case. It was put to the primary judge before the decision was made that Mr Bertram was or was about to become bankrupt and, at least by inference, therefore that he would have no assets of his own available to meet the judgment sum. That position has not changed. It was a matter taken into account by the primary judge. 33 Accordingly, in my view, having regard to what was put to the primary judge, it cannot be shown that on this application there was a reasonable prospect of the judgment from which leave to appeal is sought being shown to be erroneous before the Full Court. In one sense it was possibly unnecessary for the primary judge to require some significant part of the insurance sum to be paid into Court, as there was nothing to indicate QBE may be unable to pay that sum (or the unexpended part of it) and it is very unlikely, based upon the submissions put as a rough estimate of costs of the appeal, that the costs of the appeal will diminish by a very significant amount the unexpended portion of those funds; the insurance monies may be diminished only by the reasonable costs of pursuing the appeal, if indeed ultimately it is shown that it was reasonable to pursue the appeal. 34 For those reasons, the application for leave to appeal is refused. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.