STATE BANK OF NEW SOUTH WALES v CURRABUBULA HOLDINGS

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40379/99

MASON P Thursday 19 July 2001

STATE BANK OF NEW SOUTH WALES LIMITED v CURRABUBULA HOLDINGS PTY LIMITED & ANOR

JUDGMENT On respondents'/claimants' notice of motion for stay of proceedings. 1 HIS HONOUR: On 15 March 2001 this Court, constituted by Giles JA, Heydon JA and Ipp AJA, upheld an appeal in the matter of State Bank of New South Wales Limited v Currabubula Holdings Pty Limited & Anor [2001] NSWCA 47. Formal orders were subsequently entered. 2 The respondents to the appeal seek a stay of the orders of the Court of Appeal and also an order restraining the State Bank from taking any step to issue proceedings to wind up the first respondent Currabubula Holdings Pty Limited. The application is made in aid of an application for special leave to appeal which has been filed with the High Court. 3 The Court of Appeal judgment indicates that the Currabubula Holdings Group has been under financial strain for most of the 1990s. The companies are the vehicles through which the Paola family carry on a long established farming venture. There have been the not uncommon ups and downs, more frequently downs than ups, of rural life. The matter has been complicated by the unfortunate illness of Mrs Paola that has had an obvious strain upon the family resources, financial and otherwise. 4 On 5 May 1999 Einstein J found in favour of Currabubula Holdings Pty Limited and Paola Holdings Pty Limited (which I shall hereafter refer to as the claimants). He ordered judgment in the sum of $1.7 million plus costs. $15,000 of that judgment related to an issue of defamation and the balance related to a claim based on breach of an implied term in the banker/customer relationship. 5 The State Bank sought to have execution stayed but that stay was refused by Meagher JA on 7 June 1999 on the basis that, as matters then stood, there was quite adequate capacity of the claimants to repay the judgment debt in the event that the appeal were successful. 6 On 29 September 1999 the bank paid the judgment debt of $1.7 million odd. On 23 August 2000 the State Bank paid the assessed costs of $387,446. It would appear that at least a million dollars of the money paid by the State Bank to the claimants was applied in the reduction of the claimants' extended liability to its banker, the National Australia Bank. The balance of the money appears to have been spent in reimbursing the claimants' solicitor for their costs and in meeting working expenses of the claimants. 7 As indicated, the Court of Appeal gave judgment on 15 March of this year. The appeal was upheld and judgment entered in favour of the State Bank on all issues. The State Bank was given the costs of the proceedings in this Court and the Court below. 8 On 12 April 2001 the claimants filed their application for special leave. The present indication is that that application will be likely to be heard between February and May next year unless expedited. 9 On 8 May 2001 the State Bank served a statutory demand claiming $2,526,218, representing the money paid under the order of Einstein J, the bulk of the costs and interest. The time for complying with that demand expired and there is no basis for resisting that demand other than the prospect of having the Court of Appeal decision itself reversed in the High Court. Assuming that the State Bank entitlement to restitution is left undisturbed by the High Court, interest is accumulating at the rate of $651 per day. 10 The claimants' present banker is the National Australia Bank. The existing facility between the claimants and the National Australia Bank is fully overdrawn and the claimants are in default or could very easily be put into default by the National Australia Bank. The National Australia Bank is presently prepared to sit on its securities over various properties. Indeed it has indicated that, subject to a priority of $2.035 million, it is ready to consent to a second mortgage in favour of the State Bank. That second mortgage is what has been offered by the claimants as the condition for the stay which they seek in the present application. 11 In addition to the money claimed under the statutory demand and the interest that continues to flow, the State Bank is entitled under the Court of Appeal orders to payment of its costs and it has claimed that $600,000 is due on that account. 12 It is not disputed that the claimants do not have the current assets to pay the statutory demand or the costs to date. They have been either unable or unwilling to re-finance their affairs to be able to pay the State Bank. There has been some exploration of sale that has not gone ahead, perhaps because the asking price is high, perhaps because the Paola family are hoping that sale will not ultimately be forced upon them, but it does not really matter. 13 Technically the State Bank could enforce its right to restitution by converting it into a judgment debt and seeking to execute, but to date it has not done so. For various reasons I think the matter should proceed on the basis that it is unlikely to go down that path. The path which it has foreshadowed is a summons to wind up the claimants. 14 Prayer one of the notice of motion recognises, and I think correctly, that what the claimants really need is injunctive relief to restrain winding up proceedings. I have been referred to decisions of the Federal Court which discuss the interesting question whether a judgment other than for an order for payment of money or imposing some other positive obligation can effectively be stayed (see Bunnings Forest Products Pty Limited v Bullen & Ors (1994) 54 FCR 342, Stellar Call Centres Pty Limited v CPSU [1999] FCA 1236. My present inclination is this is not the territory we are in and that what the claimants need is an injunction, in which the case the principles are as stated by Mason CJ in Smith Kline & French Laboratories (Aust) Limited v Secretary Department of Community Services & Health (1991) 65 ALJR 360. There the Chief Justice said that the High Court's jurisdiction to grant injunctive relief to preserve the subject matter of litigation pending the determination of an application for special leave to appeal or of an appeal pursuant to the grant of leave is an extraordinary inherent jurisdiction and will be granted only in exceptional circumstances. 15 It seems clear, and I do not think it is really in dispute, that the claimants are, in a technical and actual sense, insolvent, at least if the State Bank's entitlement remains. It may be that it is insolvent without that, but I do not think it necessary to express a view about it. 16 Some evidence was given by Mr Paola as to two alternative ventures that are under active consideration. One has proceeded beyond that, being a joint venture concerning mining activity. The other is an alternative farming venture involving a broccoli crop which would itself depend on re-financing. I do not think I am in a position to make a finding that these two ventures have reached a sufficient state of present reality to take the company out of its present parlous situation that I have indicated, at least the parlous situation that would apply if the entitlement to restitution remains undisturbed. 17 In Mr Paola's own words as recounted by his solicitor in an affidavit, "we do not have cash at hand to repay State Bank". What he added was that there was "a real likelihood that we will be able to trade out of the current situation". Exactly how real is I think a rather speculative proposition. 18 Whether dealing with a stay or an application for an injunction I need to give some regard to the question of prospects of success. I accept that the claimants do not have to show a probability of success and I readily accept that the appeal to the High Court is made bona fide. I am even prepared to accept that it raises arguable issues, although (to deliver anything of value) the claimants have to make good their challenge to the unanimous judgment of the Court of Appeal on the contract issue, which does appear to turn essentially on a question of fact. Nevertheless, I have seen the way the special leave application has been framed. It is very hard to predict what the High Court will do generally and in this matter in particular. So I am prepared to proceed on the basis that there is a prospect of special leave. 19 The real questions that face me are the questions of balance of convenience and discretion. There has been debate as to whether or not the State Bank would be adequately protected by the proffered second mortgage. This turns in part upon the value of the property. I do not think it is necessary to make a definitive finding on the rather uncertain material before me about value. The property certainly seems to be worth more than $5.5 million but it could be worth up to a million more than that on the various indications. 20 It seems to me that the issue of the State Bank being protected turns not so much on the equity in the property, but upon the risks that would flow if the present trend of insolvent trading continues. It is a present trend that has continued for a number of years. The position of the State Bank is that if it took security now and if the company goes into liquidation in consequence of the High Court proceedings failing or otherwise there is more than a real prospect that the security taken by the State Bank would be set aside. The State Bank is unwilling to take the risk and on the evidence nobody else appears to be willing to do so either. 21 Turning more specifically to the issue of balance of convenience, the State Bank is clearly able to repay whatever it is paid in the event of a further reversal of the Court of Appeal decision of the High Court. 22 I think the focus should be upon the consequence of the presentation of a summons to wind up and upon a winding up order that, on the present situation, would ensue from that summons sooner or later. 23 As regards the presentation of the summons I think the balance of convenience favours the State Bank. The presentation of a summons will enable it to put its foot in the door, as it were, by preserving its rights under s588FE of the Corporations Law, which rights depend in part upon it being able to attack transactions occurring during the six month period preceding the filing of a summons to wind up. I have referred to this concept in Wilcox v Richardson [1999] NSWCA 329. 24 On the present evidence I do not perceive that the presentation of a summons to wind up would precipitate immediate catastrophic consequences that would bring the company and its enterprise immediately to its knees. The National Australia Bank is already in a position to appoint a receiver or take other action to enforce its security. There do not appear to be any other unsecured creditors who have presently come out of the woodwork who are pressing for payment. But if they exist, then the presentation of a summons to wind up is the proper context in which their position should be addressed. 25 It is very clear that the making of a winding up order or alternatively the forced sale of the property would have catastrophic impact upon the Paola family. I think it is legitimate to have some regard to that, although if that is the consequence of their legal obligations then I cannot let it simply stand in the way that consequence. There would be adverse impact on the family, employees, sub-contractors and the local community generally. 26 But I do not accept the submission or the fears expressed by Mr Paola that the mere presentation of a summons to wind up would bring the enterprise to its knees or cause loss through preventing the current crop being looked after and sold in an orderly way. The processes of company law arm both the creditors and the shareholders of the claimants with plenty of opportunities to prevent a loss flowing from a disorderly realisation of assets or preservation of assets pending a proper realisation. 27 I have previously referred to O'Hern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at 148 which indicates that as a general principle a court faced with an application to make a person bankrupt or to wind up a company can and normally will grant an adjournment of the hearing of the petition pending the exercise of proper appellate rights. I think it quite likely, and I do not really understand the State Bank to contend to the contrary, that any summons to wind up would not proceed to a hearing at least so long as the claimants prosecute with diligence their application for special leave. Perhaps they will have to prosecute it with even more diligence by pressing for expedition but I say nothing more on that account. 28 I think it relevant to note that this contest is fought in circumstances where the State Bank is seeking restitution of monies which it was ordered to pay by the Supreme Court, which monies the Court of Appeal has determined should not have been ordered to be paid. In those circumstances and having regard to all the other matters to which I have adverted, I do not see why in the balance of convenience or the exercise of an ultimate discretion the State Bank should be the enforced financier of the claimants for the next twelve months or so when all that the claimants can offer is the possibility of success in the High Court proceedings. If there is presently a sufficient equity and if the enterprise is viable then I think the onus should be on the claimants to procure funding having regard to their current ventures and the couple of other ventures that they have in prospect. 29 While the refusal of the relief sought will, unless the High Court orders otherwise, lead to the presentation of a summons to wind up, that will present both parties with an opportunity to address in that context the orderly preservation of the asset. If the claimants can obtain alternative finance and pay out the State Bank and if there are no other creditors who join in the hunt then the summons can be brought to a quick end. If not, then it certainly does not follow that it will proceed to a winding up order for reasons I have already indicated. I have some concern too about the consequences of leaving matters in their present situation with an insolvent company trading without any apparent attempt to take proper steps to protect the interests of the directors of that company. 30 For these reasons I dismiss the notice of motion. The injunction that I have granted is up to and including today and I intend to leave it that way so that, subject to anything you want to say Mr Reeves, the injunction will expire at the end of today. I do not think you will be unduly prejudiced by that in the reality of things and I do this just in case they want to take the matter further, though I would not encourage it, but it is a matter for them. It will just provide that little bit of breathing space. I order that costs follow the event. 31 WHITFORD: Your Honour I have an application that may appear a little unorthodox but might I ask your Honour for an order to have liberty to apply to your Honour in the event that the summons is filed having regard to the fact that your Honour has seen the evidence which would effectively be led on an application to stay the winding up proceedings or adjourn the hearing of them and heard extensive argument to avoid the duplicity of time and costs? 32 HIS HONOUR: No, I am not disposed to make that order. I assume that these summonses have a return date of some weeks hence at least. There is a possibility that the parties may be able to work out some accommodation once the State Bank get its foot in the door, if that is the way things go. I think the Equity Division is the place to apply winding up law. They know it, I do not.

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