Sydney Attractions Group Pty Ltd v Frederick Schulman

Supreme Court of NSW|2013-11-21|Before: Sackar J

Background 1I have before me a notice of motion filed by the plaintiff, Sydney Attractions Group Pty Ltd (the plaintiff), on 11 November 2013 seeking: 1. A Stay of execution of paragraphs 1 to 6 and paragraph 8 of the Orders made on 28 October 2013, until the determination of an appeal, to be commenced by Sydney Attractions Group Pty Ltd. 2. Costs. 2The orders made on 28 October 2013 referred to in the notice of motion were provided in short minutes by the parties to give effect to reasons for judgment given by this Court on three occasions (Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858; Sydney Attractions Group Pty Ltd v Frederick Schulman (No 2) [2013] NSWSC 1153; Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) [2013] NSWSC 1544), and were in the following terms: 1. The Plaintiff's Summons be dismissed. 2. Verdict and judgment for the Defendant on the Cross Claim Summons against the Plaintiff in the sum of $4,890,556.30 (as at 28 October 2013). 3. The Plaintiff pay the Defendant's costs of the Summons. 4. The Plaintiff pay 30% of the Defendant's costs of the Cross-Claim Summons. 5. The Plaintiff pay to the Defendant interest on costs and disbursements, at the rates referred to in UCPR rule 6.12(8), on the Allowed Percentage of each amount of costs and disbursements actually paid by the Defendant, from the date of payment by the Defendant of each such amount of costs and disbursements until the first to occur of: (a) such time as the Plaintiff has paid the costs due to the Defendant under any order made in these proceedings; or (b) the assessment of the costs to which the Defendant is entitled pursuant to the costs order in his favour. In this order the Allowed Percentage equals ((Y/X) x 100)%, where: X equals the total amount of costs and disbursements which the Defendant has paid or is liable to pay to his legal advisers in connection with these proceedings, and Y equals the total amount of costs and disbursements allowed on assessment to the Defendant in connection with these proceedings. 6. Grant liberty to the Defendant to apply on 3 days' notice for an order for payment of a specific amount in respect of the interest awarded upon costs pursuant to order 5. 7. Stay the execution of orders 1 to 6 for 28 days from the date on which those orders are made. 8. Declare that upon payment to the Defendant of the judgment sum together with any interest on the judgment sum the plaintiff is immediately entitled to a discharge of the share mortgage granted on 5 July 2004 and registered with the Australian Securities and Investment Commission on 31 Au gust 2004 with registration number 020156966 charge number 1077392. 3On 4 November 2013, the plaintiff filed a notice of intention to appeal from the judgments and orders made on 28 October 2013. Under the Uniform Civil Procedure Rules 2005 (UCPR), this does not operate to commence proceedings in the Court of Appeal (r 51.9(3)), but it has the effect of requiring the plaintiff to commence proceedings by filing and serving on the defendant, Mr Schulman (the defendant), a notice of appeal by 27 January 2014 (rr 51.9(1)(a) and 51.16(1)(b)). 4The defendant opposes the plaintiff's present motion seeking a stay of the execution of the relevant orders of 28 October 2013 until the determination of the appeal.

Relevant principles 5The statutory power of a court to grant a stay of execution on a judgment or order is found in s 135 of the Civil Procedure Act 2005 (CPA) and probably also r 51.44 of the UCPR. This is in addition to the general power conferred by s 67 of the CPA on a court to order a stay of proceedings and any inherent or incidental power of the court. 6The mere filing of a relevant originating process will not, of itself, operate as a stay of proceedings under the decision below (UCPR, r 51.44(2)(a)). However, it is not uncommon for judges at first instance to provide a stay for a limited period, in order to allow the unsuccessful party a reasonable opportunity to assess the prospects of an appeal. That power to grant a stay continues even after the institution of an appeal, subject to alteration by the Court of Appeal on an application to it (Holmark Constructions Pty Ltd v Tsoukaris (1986) 12 NSWLR 181 at 183-184 per Needham J). The considerations particularly relevant to determining whether to grant a stay of execution pending an appeal have been considered in numerous cases. 7As Barton J said in McBride v Sandland (No 2) [1918] HCA 59; (1918) 25 CLR 369 at 374, "[t]he ordinary principle is that a successful party is entitled to the fruits of his judgment. That being so, there must be sound reasons sufficient to justify the Court in suspending his right. It is not a sufficient ground to say that he, being a rich man, cannot be prejudiced by having his right temporarily denied to him." To similar effect, in Re Middle Harbour Investments Ltd (In Liquidation) (Court of Appeal, 15 December 1976, unreported), Mahoney JA (with whom Moffitt P and Glass JA agreed) said, "it is necessary that the applicant [for a stay] demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct." 8Despite various suggestions in earlier cases, it is now established that it is not necessary for the grant of a stay that special or exceptional circumstances be made out, and it sufficient that the applicant demonstrates a reason or an appropriate case to warrant the exercise of discretion (Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694 per Kirby P, Hope and McHugh JJA). This is because (among other reasons) there is no such requirement in the language of the relevant rule, and appeals today are common rather than exceptional (especially in commercial matters where large sums are at stake) (Alexander v Cambridge Credit Corporation Ltd at 693). 9The court in Alexander v Cambridge Credit Corporation Ltd identified in detail the principles governing whether or not a court should grant a stay of execution of judgment pending an appeal (at 694 and 695, citations omitted): The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties. The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears. The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay... ... [W]here 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. Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay. ... [A]lthough courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case. This consideration is protective of the position of a judgment creditor where it may be plain that an appeal, which does not require leave, has been lodged without any real prospect of success and simply in the hope of gaining a respite against immediate execution upon the judgment. Where, in the present case, Rogers J specifically contemplated in his judgment that an appeal would be lodged; where commentators on the judgment predicted a certain appeal; where the size of the verdict and the novelty of the issues raised suggested the likelihood of an appeal; and where it is properly conceded by the claimant that the appeal is arguable, no question arises relevant to the stay or to the terms upon which it should be granted, that the appeal has been filed simply to gain time for the opponents. 10On more than one occasion, the Court of Appeal has noted that it is common to grant stays of execution of judgments pending an appeal where it has been demonstrated that the relevant party will be unable to repay the money without difficulty or delay if the appeal were to succeed (TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381 at [15] per Handley, Beazley and Stein JJA; Penrith Whitewater Stadium Ltd and Anor v Lesvos Pty Ltd and Anor [2007] NSWCA 103 at [25] per McColl JA). 11In considering whether there is an arguable case on appeal, the following comments of Beazley JA (as her Honour then was) in Chen v Marcolongo [2009] NSWCA 121 at [15] (and subsequently quoted with approval by Tobias JA in Trad v Harbour Radio Pty Ltd [2010] NSWCA 41 at [47] and [48]) should be borne in mind: [15] ... there is no necessary requirement that the court determine whether there is an arguable case on the appeal. Rather, that is a matter that may be relevant in determining whether it is appropriate to grant a stay. In the present climate, where legal practitioners have a statutory obligation not to bring proceedings that do not have reasonable prospects of success: the Legal Profession Act 2004, s 347, this particular consideration may be one that the courts can approach with less scrutiny. It will depend upon the circumstances of the particular case. The court will always be concerned to ensure that its processes are not used inappropriately, for example, by permitting a defendant from keeping a successful plaintiff out of the fruits of his/her litigation victory by seeking a stay in respect of a hopeless appeal... 12In the exercise of its discretion as to whether or not to grant a stay of execution of judgment pending an appeal and the terms of such a stay, a number of factors have been identified in the authorities as relevant to the determination of the application, including (as noted in Ritchie's Uniform Civil Procedure NSW at 51.55.15) the balance of convenience, the competing rights of the parties before it, the risk of dissipation of assets (by the applicant if the stay is granted or by the respondent if the stay is not granted), whether it is necessary to maintain an existing state of affairs in order to preserve the subject matter of the proceedings, whether there exist arguable grounds of appeal, whether refusal to grant a stay would render the appeal futile, whether refusing to grant a stay would deprive the appellant of the means of prosecuting the appeal, whether refusing to grant a stay would impose irreparable harm, and whether the respondent will be unable to pay the money if the appeal is ultimately successful. 13The court has a wide discretion as to whether any terms should be imposed, and if so, the nature of the terms (Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184 per Maxwell J). The "usual terms" on which a such a stay should be granted were expressed by Street CJ in Goldstein v Craft (1926) 26 SR(NSW) 354 at 362: Execution on a judgment will be stayed during the period within which under the rules an appeal may be brought, and, if a notice of appeal is filed, and if security for the amount of the verdict and of the costs of the action is given to the satisfaction of the Prothonotary, the stay will be continued until the appeal is disposed of or until the Court otherwise orders. 14Courts have granted stays on various terms, in order to fairly adjust the rights of the parties. For example, courts have sometimes granted a stay, on the condition that the applicant pays a particular sum to the judgment creditor, or provides a particular form of security (such as a bank guarantee) to the judgment creditor, or pays into a joint interest-bearing trust account jointly administered by the solicitors for the parties a sum equivalent to the amount in dispute plus costs, or on some other term or condition. The object of the imposition of (these or other) terms on which to grant a stay, is clearly in recognition of the fact that such a stay deprives a judgment creditor of the fruits of the judgment, to protect it and, by the accumulation of interest, to compensate it for the delays in recovery (Alexander v Cambridge Credit Corporation Ltd at 695). 15One of the orders the execution of which the plaintiff seeks a stay, is merely declaratory (see order 8 above). In some authorities, it has been said that there will rarely be circumstances in which it will be appropriate to stay the operation of a declaratory order, or that there is no power per se to stay a declaratory order. I think the real position is that, even where a court makes a declaratory order, it may suspend or postpone its coming into effect by reference to some appropriate further stage of the appellate process, and it may stay proceedings which might be taken consequent upon the making of a declaratory order (Bunnings Forest Products Pty Ltd v Bullen and Others (1994) 126 ALR 660 per Carr J). 16One final point of principle should be noted. At the time of hearing this stay application, the plaintiff has not actually filed a notice of appeal; rather it has only filed a notice of intention to appeal. The former operates to actually commence the appeal proceedings, whereas the latter does not (UCPR, r 51.9(3)). The plaintiff has, however, provided to the court a draft notice of appeal. The defendant submits that a "draft notice of appeal" is a document of "unknown status" and the plaintiff has not (yet) filed a notice of appeal, and therefore (as I understand the submission) the plaintiff has no basis on which to seek a stay pending appeal (as it has not appealed). 17I do not think this affects the principles applicable when determining whether a stay should be granted. By way of analogy, intermediate appellate courts have frequently granted stays pending an application for special leave to appeal to the High Court (i.e. where it is not yet known whether an appeal will be heard). In my view, in the event I am minded to grant a stay, the appropriate way to accommodate the present situation (i.e. the present non-filing of a notice of appeal), is to craft the orders in a fashion similar to those described by McColl JA in Saleh v Romanous [2010] NSWCA 373 (at [42]). That is, the stay application could be granted pending the filing of a notice of appeal, and if and when that occurs, pending the outcome of the appeal.

Discussion and conclusion 18In an affidavit sworn by the solicitor on record for the plaintiff, Mr Henrik Lassen (Mr Lassen), on 8 November 2013, Mr Lassen gave evidence to the effect that the plaintiff is a company engaged in substantial and iconic business operations in Sydney, and of substantial financial means. For example, the financial statements provided in an exhibit to Mr Lassen's affidavit show that for the eighteen-month period ending 30 January 2011, the plaintiff's consolidated revenue was $83,133,926, its total equity was $24,203,802 and its gross assets were $103,701,783. For the period from 1 January 2012 to 29 December 2012, the plaintiff's consolidated revenue was $61,572,910, its total equity was $25,921,422 and its gross assets were $117,857,692. Mr Lassen also gave evidence that he has received instructions from the "Group Legal Director" of the plaintiff's parent company that there has been no material deterioration since the publication of those accounts. 19The solicitors for the plaintiff wrote to the solicitors for the defendant on 31 October 2013, requesting confirmation of the plaintiff's understanding that the defendant had no business or assets in Australia, but did not receive a response. The plaintiff submits that, as the defendant appears to be residing in New York and has no known business or assets in Australia, it would be very difficult and expensive, in the event that the plaintiff's proposed appeal is successful, to recover from the defendant any monies paid over to him, and that it is therefore appropriate to order a stay of execution pending the outcome of the plaintiff's proposed appeal. 20In an affidavit of a solicitor acting for the defendant, Chrystalla Georgiou (Ms Georgiou) sworn on 18 November 2013, Ms Georgiou confirms that her understanding, based on instructions from the defendant, is that the defendant is a resident of New York, that he is the chairman and one of the founding shareholders of New Bank (a New York commercial bank with offices in New York and New Jersey, chartered and governed by the Federal Deposit Insurance Corp and the New York Department of Finance), the President of East Coast Capital Holdings Limited (a specialised small business investment company licensed by the US Small Business Administration), the principal of Fredrick Schulman & Associates (one of the largest consumer credit protection law firms in the US), the Chairman of New York Skyline, Inc (which owns and operates a tourist attraction in the Empire State Building in New York) and a shareholder and director in Ronco Holdings (which owns the Ronco Brand of household and consumer products). 21Despite the admittedly grandiose descriptions of the defendant's activities in New York, there is no disclosure in this affidavit of the defendant's actual, personal, financial means. This evidence therefore does not directly address the critical question of whether, if the money the subject of the judgment is transferred to the defendant, he personally could repay the money without difficulty or delay if the appeal were to succeed. Evidence of his activities, and of his (unvalued) non-personal interests via trusts, corporate vehicles or other intermediaries are only of marginal relevance. In relation to the concern raised by the defendant about the plaintiff's ability to meet the judgment if a stay is granted and the appeal is successful, that may be remedied by a form of orders requiring the plaintiff to provide some form of sufficient security, in the event that a stay was granted. 22At the hearing of the application, the defendant sought, and I granted him, leave to file in court an affidavit of Frederick Schulman dated 20 November 2013. In that affidavit, Mr Schulman asserts that the net worth of his financial position is US$18,025,000. However, I should say in passing that some of the descriptions given to the components making up this figure raise questions, which I have not found necessary to pursue. For example, the figure provided for his liabilities is said to express his liabilities "other than mortgages". Unlike the formal financial accounts provided for the plaintiff, there is nothing indicating that these figures are based on sound accounting practices or have been audited. 23Counsel for the defendant also provided in court a letter dated 20 November 2013, seeking (on page two) that any stay granted by this court be subject to the condition that the plaintiff provide security, and that such security should include a sum or allowance for the costs of the proceedings to which the defendant is entitled. In opposition to the plaintiff's stay application, counsel for the defendant directed my attention to the fact that the plaintiff's consolidated statement of financial position (for the period 1 January 2012 to 29 December 2012) disclosed total current assets of $9,181,078 and total current liabilities of $17,824,978, and therefore a deficiency of $8,643,900. I was also shown a paragraph in the notes to the plaintiff's financial statements, which included the following statement: The parent entity, Merlin Entertainments (Australia) Pty Ltd, has confirmed in writing that it will provide financial support to the level required by the Group to allow it to fulfil all obligations as and when they fall due for a period of no less that twelve months from the date of approval of these financial statements. 24I also note that there is evidence, from Mr Lassen's affidavit, that the Merlin Entertainment Group is an entertainment company running ninety-nine attractions in twenty-two countries. 25The defendant also submitted that, in addition to the "unknown status" of a "draft notice of appeal", the plaintiff has not demonstrated a prospect that the appeal may succeed, or that there is a risk of diminished ability on the part of the defendant to repay if the appeal is successful, or that there is no risk of diminished ability on the part of the plaintiff to meet the judgment if the stay is granted and the appeal is unsuccessful. 26Finally, in considering whether this is an appropriate case for a stay, I have had regard to the fact that there is a judgment in favour of the defendant, but also to the fact that the principal proceedings clearly involved difficult questions of construction (Sydney Attractions Group Pty Ltd v Frederick Schulman (No 3) at [35]). 27Having regard to the circumstances, I propose to grant a stay of execution during the period within which, under the UCPR, an appeal may be brought, and, if a notice of appeal is filed, and if a bank guarantee (for a sum representing the judgment amount plus interest over a period of 12 months at the rate currently prescribed under the UCPR) is provided to the Principal Registrar, the stay will be continued until the appeal is disposed of or until the Court otherwise orders. Given the plaintiff's evidence of its financial capacity, I imagine the requirement for a bank guarantee would pose no difficulty, and in the circumstances, I consider it unnecessary to include an amount for costs in the amount to be secured by the proposed bank guarantee. 28Having made my views known to the parties, they agreed, after some discussion, to prepare short minutes of order to the effect that a stay be granted pending the resolution of the appeal, on the condition that by the close of business on 9 December 2013 the plaintiff files a notice of appeal and provides a bank guarantee for the judgment amount plus interest (as at the current rate under the UCPR) for a period of 12 months from the date of 9 December 2013. The parties also should have liberty to apply to re-list the matter before me, if necessary.

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: 22 November 2013

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Judgment (4 paragraphs)

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