Court of Appeal (WA)|2010-11-29|Before: Newnes JA

SPIERS EARTHWORKS PTY LTD -v- LANDTEC PROJECTS CORPORATION PTY LTD [2010] WASCA 226 (29 November 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SPIERS EARTHWORKS PTY LTD -v- LANDTEC PROJECTS CORPORATION PTY LTD [2010] WASCA 226

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74 (S)

Practice and procedure - Application for stay pending outcome of appeal - Whether respondent had financial capacity to repay judgment sum if appeal successful - Appellant relied on information on public registers to show incapacity - Onus on respondent to rebut incapacity - Adequacy of financial information provided by respondent

Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308

Federal Commissioner of Taxation v Myer Emporium Ltd [1986] HCA 13; (1986) 160 CLR 220

Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203

Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74

Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74 (S)

Smolarek v Brian Keith McMaster as administrator of Eznut Pty Ltd [2006] WASCA 216

1 NEWNES JA: The appellant has appealed against a judgment of Wager DCJ in the District Court in which her Honour found for the respondent on its claim and for the appellant on its counterclaim, and ordered that the appellant pay the respondent's costs of its claim and there be no order as to costs on the counterclaim: Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74. The appellant contends that the primary judge erred in finding for the respondent on its claim and in failing to order the respondent to pay the appellant's costs of the counterclaim.

2 The appellant has applied for a stay of the enforcement of the order that the appellant pay the costs of the respondent's claim, pending the determination of the appeal.

3 On 19 November 2010, I ordered that the enforcement of the costs order be stayed until the determination of the appeal and, in the meantime, that the appellant pay the amount of the costs, when taxed, into an interest bearing account in the joint names of the solicitors for the parties. I said I would provide reasons for my decision. The following are my reasons.

4 The proceedings between the appellant and the respondent arise out of two contracts entered into by the parties in 2005 under which the respondent engaged the appellant to carry out earthworks, drainage road works and bridle path construction for a subdivision in Pinjarra. Subsequently a number of claims were made by the respondent against the appellant in respect of the contract work under the first contract. The appellant denied the allegations and counterclaimed against the respondent on a number of grounds arising out of the first and second contracts. The trial of the claim and the counterclaim occupied nine days in March 2009 before the primary judge.

5 Judgment was delivered on 20 May 2010. Her Honour found that the respondent was entitled to judgment in the sum of $172,811 on its claim, and that the appellant was entitled to judgment in the sum of $173,151 on its counterclaim. As a result of the judgment, there was a net sum of $340 payable by the respondent to the appellant. Her Honour then heard submissions on the question of interest and costs and, relevantly, ordered that the appellant pay the costs of the respondent's claim to be taxed and that there be no order as to costs in relation to the appellant's counterclaim: Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74 (S).

6 An appeal against the decision of the primary judge was filed by the appellant on 29 June 2010. There are 15 grounds of appeal, challenging a number of the findings made by the primary judge in respect of the respondent's claim. The appellant also appeals against the order of the primary judge in relation to the costs of the proceedings. The appellant seeks a stay of the enforcement of the order that it pay the respondent's costs of the respondent's claim on the ground that if the costs are paid before the appeal is determined and the appellant is successful on the appeal there is a real risk that it will be unable to recover the money from the respondent. I should mention that the respondent has lodged a bill of costs for taxation in the total sum of $164,628.48.

7 The appellant has conducted searches at the Australian Securities and Investments Commission in relation to the respondent. Those searches have revealed that respondent was registered on 27 August 2004. Mr Anthony Palermo is its sole director. It has issued capital of a single one dollar share which is beneficially held by Monarch Corporation Pty Ltd. Monarch Corporation was registered on 27 June 2000. Again, the sole director is Mr Palermo and it has issued capital of 10 one dollar shares, one of which is held by a Maria Palermo and the other nine by PAJ Investments Pty Ltd. PAJ Investments is the trustee of the A Palermo Family Trust.

8 The appellant has also conducted a search at Landgate which has revealed that the respondent does not own any land in Western Australia.

9 On 1 October 2010, the appellant's solicitors wrote to the respondent's solicitors requesting that they provide proof of the respondent's financial capacity to repay the costs of the District Court action if the appeal is successful. The respondent's solicitors replied on 5 October 2010, saying simply that the respondent had the capacity to do so and that was self-evident from its active participation in the litigation. On 12 October 2010, the appellant's solicitors wrote again reiterating their request for proof that the respondent had the financial capacity to repay the money. The following day, 13 October, the respondent's solicitors wrote by email saying that the respondent was under no obligation to provide that information and it would not do so. They said the appellant's solicitors had already been told that the respondent could repay the money if the appeal was successful and the appellant had not provided any credible evidence that there was a serious risk the respondent would be unable to do so.

10 The appellant's solicitors responded by email dated 18 October 2010, in which they noted that the respondent was a one dollar company which did not own any land. They said it also did not have a regular income. The appellant's solicitors said that, pending the outcome of the appeal, the appellant was prepared to pay the amount of the taxed costs into an interest-bearing account, or alternatively to pay it to the respondent on the personal undertaking of the respondent's solicitors to repay the sum if the appeal was successful.

11 Neither was acceptable to the respondent. On 26 October 2010, the respondent wrote by email referring to a telephone conversation the previous day and confirming that Mr Palermo was prepared to give a personal undertaking to repay the costs if the appellant was successful on the appeal. That was not acceptable to the appellant and, on 27 October 2010, the current application was filed.

12 In an affidavit sworn on 10 November 2010 and filed on behalf of the respondent in opposition to the application, Mr Palermo reiterated that he was prepared to give a personal undertaking to the appellant to repay the costs in the event the appeal was successful. He stated, among other things, that he was personally solvent and has never been bankrupt. He said he was a director of more than 20 companies and no company of which he has been a director has ever been placed in administration or liquidation. He said that he had the means to pay 'far in excess' of the costs of the District Court trial. Mr Palermo said he was the registered proprietor of a house and land in Yokine which he had owned since 1985. That property was subject to a mortgage to the National Australia Bank, but he believed that his equity in the property was in excess of $200,000. The basis of that belief was that the property was purchased in 1985 for approximately $50,000 and the mortgage has never been in default. (I note, however, that the mortgage - the amount of which was not disclosed - was registered in 1996 and therefore appears to relate to borrowings other than for the purchase price). Mr Palermo also stated that he currently holds shares and other liquid assets in excess of $250,000, which are 'not encumbered'.

13 Mr Palermo said that the respondent has been and is currently able to pay all its debts as and when they fall due and that large amounts of funds regularly go through its bank account. He annexed to his affidavit copies of various pages of bank statements of the respondent.

14 Under s 15 of the Civil Judgments Enforcement Act 2004 (WA) (the Act), a person against whom a judgment is given may apply for an order suspending the enforcement of the judgment. The court may only make such an order if there are special circumstances which justify doing so: s 15(3).

15 The principles applicable to an application under s 15 are not materially different from those which applied to an application for a stay of execution before the introduction of the Act: see Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203 [3]; Smolarek v Brian Keith McMaster as administrator of Eznut Pty Ltd [2006] WASCA 216 [33].

16 The general principles which are applicable to the exercise of the court's discretion to grant a stay of execution were summarised by Murray and Parker JJ in Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308, as follows:

The successful litigant at first instance will ordinarily be entitled to enforce the judgment pending the determination of any appeal.
It is for the applicant for a stay to move the court to a favourable exercise of its discretion.
It will not do so unless special circumstances are shown justifying the departure from the ordinary rule.
The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation, or where refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal. It is often put shortly that it will first and foremost be necessary to establish that without the grant of a stay, the right of appeal, whether upon the grant of leave or special leave or not, will be rendered nugatory.
If that can be demonstrated, the stay will generally still be refused unless it can be established that the appeal process, whether upon the grant of leave or special leave or not, has ultimately reasonable prospects of success so as to result in the grant of relief to the appellant.
If that hurdle can be overcome, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant; where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted [9].

17 While those principles provide guidance in the exercise of the discretion they are not inflexible or exhaustive, and at all times the ultimate question must be whether there are special circumstances which justify the court ordering a stay.

18 Generally, it will be sufficient to establish special circumstances justifying a stay if there is a real risk that if the fruits of the judgment are paid to the respondent they will not be recoverable by the appellant if the appeal is successful. See Federal Commissioner of Taxation v Myer Emporium Ltd [1986] HCA 13; (1986) 160 CLR 220, 223.

19 The question whether the appeal has reasonable prospects of success does not require a detailed examination of the merits of the appeal. On an application of this nature, argument concerning the substance of the appeal is necessarily limited and generally the court will not speculate as to the appellant's prospect of success. While it is not appropriate to grant a stay if the appeal is devoid of merit, any further examination of the merits should be left to the hearing of the appeal. In the present case, it is sufficient to say that I am satisfied, for the purposes of this application, that the appeal has reasonable prospects of success.

20 The substantive issue on the application was whether the appellant had established that, if the costs were paid to the respondent before the determination of the appeal, there is a real risk the appellant would be unable to recover the money if the appeal were successful. The appellant submitted that on the available information, the respondent did not have that capacity. The appellant also did not accept that Mr Palermo had the financial capacity to meet his proffered undertaking should he be called upon to do so.

21 The respondent contended that the appellant had failed to make out that the respondent would be unable to repay the costs. The fact that the respondent has issued capital of one dollar and owns no real property in this State does not establish that it would be unable to do so. There was no evidence that the respondent did not have the necessary financial capacity. In the alternative, it was submitted that Mr Palermo's offer of a personal undertaking to repay the money was sufficient to protect the appellant's interests.

22 It is the case, as counsel for the respondent submitted, that the appellant bears the onus of establishing that a stay should be granted. But beyond publicly available information, the financial position of the respondent is not a matter to which the appellant can be expected to be privy and, despite request, the respondent has refused to disclose any information as to its assets and liabilities. The respondent cannot defeat the application simply by relying upon the inaccessibility of its financial affairs. In circumstances where, as I am satisfied is the case here, the appellant has adduced evidence which indicates that the respondent does not have the capacity to repay the money, it falls to the respondent, if it wishes to resist the application, to show that in fact it does have that capacity. In my view, the respondent has failed to do so.

23 While Mr Palermo made very general assertions as to the financial position of the respondent, no financial statements were produced to justify or explain the basis of those assertions and the respondent has maintained its refusal to reveal any details of its assets and liabilities.

24 The only evidence the respondent adduced as to its financial affairs was the evidence of Mr Palermo as to the volume of funds passing through its bank account. I do not consider that that provides any basis for concluding that the respondent would be in a position to repay the costs. Although Mr Palermo deposed to the respondent having 'no liabilities', it is apparent from the various pages from the respondent's bank statements which went into evidence that while large amounts are deposited in the account from time to time, most - and on some occasions, almost all - of those funds are disbursed the same day. Mr Palermo did not identify the source of the funds or explain the reason why in each case they were disbursed immediately, or almost immediately, upon their receipt. Moreover, the pages of the bank statements are for various discrete periods between 16 August 2008 and 23 July 2010 and are very far from a complete record of the respondent's banking transactions for that period. It seems to me that they are of no real assistance.

25 In the circumstances, I also do not consider that the personal undertaking offered by Mr Palermo is a sufficient answer to the application. Mr Palermo's evidence as to his financial position is at a very high level of generality. Although Mr Palermo asserts his belief that he has equity in the Yokine property in excess of $200,000, he does not indicate the current value of the property or the amount secured by the mortgage. The basis given for his belief is not easy to understand. Again, while Mr Palermo states that he has unencumbered shares and other 'liquid assets' in excess of $250,000, he does not indicate the basis upon which that value has been arrived at, and the assets are not sufficiently described to allow any assessment of how readily they could be liquidated. For instance, in respect of both valuation and liquidity, there is clearly a world of difference between shares listed on the Australian Stock Exchange and shares held in a small private company. Mr Palermo also does not disclose the extent of his liabilities.

26 I should add that it was not suggested by the respondent that it would suffer any particular hardship if the stay were granted. In that connection, it appears that the delay between the taxation of the costs and the hearing of the appeal is likely to be no more than a few months at most.

27 The appellant did not seek to stay the taxation of the costs if the respondent pursued that course, but its position was that, once taxed, the amount of the costs should be secured in a manner which ensured that they can be recovered if the appeal is successful. Both parties accepted that if an order was to be made on the application, it would be appropriate that the money be paid into an interest-bearing account in the joint names of the solicitors for the appellant and the respondent.

28 I was satisfied that an order for a stay was appropriate and that the amount of the taxed costs should be paid by the appellant into such an account pending the outcome of the appeal. The parties have liberty to apply on seven days written notice to vary or set aside that order.

Judgments Enforcement Act 2004

SPIERS EARTHWORKS PTY LTD -v- LANDTEC PROJECTS CORPORATION PTY LTD [2010] WASCA 226 (29 November 2010)

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SPIERS EARTHWORKS PTY LTD -v- LANDTEC PROJECTS CORPORATION PTY LTD [2010] WASCA 226 (29 November 2010)

Legislation Cited (1)

Cases Cited (2)