THE DUKE GROUP LTD (IN LIQ) v PILMER & ORS No. SCGRG-92-1874 Judgment No. S373 [1999] SASC 373

On 15 June 1998 Mullighan J published his reasons for staying execution of the judgment pending the hearing of the appeals and of the cross-appeals. The stay in favour of the applicants was ordered on the basis of an undertaking not to dispose of assets except in the ordinary course of business, or to meet ordinary living expenses, or to meet liabilities or for the purposes of legal expenses. That is a broad summary only of the undertaking.

On 20 May 1999 the Full Court published its decision on the appeals and cross-appeals. The Full Court found that the applicants are liable to pay damages and interest to the plaintiff in the sum of approximately $117 million. Certain other defendants, who have not sought a stay, were held liable for a higher amount. The Full Court held that some of the defendants were not liable at all.

The Full Court made its formal orders dealing with the appeals and cross-appeals on 13 August 1999. On that day the applicants sought a further stay pending an application to the High Court for special leave to appeal. The Full Court referred the application for a stay to me.

There is no doubt that this Court has jurisdiction to grant a stay in the present case. The making of the application is regulated by r 95.17 of the Supreme Court Rules. The Court has an inherent jurisdiction to grant a stay in the present circumstances: see Aston v DPP (1987) 45 SASR 181 at 183 Cox J. It has that jurisdiction because it is the Court that entered the judgment, and not as an incident of jurisdiction in respect of the application for special leave to appeal: see Manfal Pty Ltd (In Liq) v Trade Practices Commission (1990) 65 ALJR 256 at 257. As well, s 17 of the Enforcement of Judgments Act 1991 gives the Court power to grant a stay of execution "if satisfied that there is proper reason for granting the stay". I consider that s 17 applies to the present case.

In Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd [No 1] [1986] HCA 84; (1986) 161 CLR 681 Brennan J said at 683:

"The jurisdiction to grant a stay in the present case depends on whether a stay is necessary to preserve the subject-matter of the litigation. If an application for special leave to appeal would be futile unless a stay is granted, the jurisdiction arises."

A little later he described the jurisdiction that he was exercising in terms that have been referred to in later cases. He said (at 684):

"A stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted. If an order for a stay is made, the respondent is kept out of the benefit of the order of the court in which the matter is pending until the hearing of the application for special leave to appeal."

Brennan J then stated the matters to be considered when exercising the jurisdiction. He said (at 685):

"In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court's discretion. In each case when the Court is satisfied a stay is required to preserve the subject matter of the litigation it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the Court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies."

His use of the expression "extraordinary", and statements made by other Judges of the High Court about its approach to the grant of a stay pending an application for special leave, indicate that in such circumstances a stay will be granted only if "exceptional circumstances" are demonstrated (Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [1997] HCA 24; (1977) 71 ALJR 814 at 815 McHugh J) or if a "stringent standard" (Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460 at 464 Kirby J) is met. See also Apache Northwest Pty Ltd v Western Power Corporation (1998) 72 ALJR 1136; Frugtniel v Attorney-General (NSW) (1997) 71 ALJR 810.

Mr Wells QC for the applicants submitted that the approach taken by the High Court is not the approach to be taken in this Court. He submitted that the High Court's jurisdiction is "extraordinary" because of the practice, since Burgundy Royale, of the application being made first to the court whose decision is subject to the application for special leave. He submitted that an application will be made to the High Court only if the lower court has refused a stay, and that is why the High Court's jurisdiction is extraordinary. He submitted that a less demanding approach should be taken to an application for a stay made to the Court whose decision is the subject of the application for special leave.

He referred to a decision of the Court of Appeal of New South Wales that appears to reflect a less stringent standard: John Fairfax & Sons Ltd v Kelly (No 2) (1987) 8 NSWLR 510.

There is some force in this submission. However, there is no indication in the remarks of Brennan J, to which I have already referred, that he anticipated a different approach being taken by a Supreme Court or intermediate appellate court. Nor is there any indication that he considered that he was stating a new and more restrictive approach to be adopted by the High Court in future, after an unsuccessful application to a lower court.

My view is that, pending a considered determination, by an intermediate court of appeal, of the appropriate approach, I should follow the approach indicated by Brennan J.

I am mindful nevertheless of the fact that I am exercising a discretion that is a broad one. It is a discretion to be exercised as the interests of justice require. I consider that that must be so, whether I exercise the Court's inherent jurisdiction or the power conferred by s 17 of the Enforcement of Judgments Act. But Brennan J was exercising an equally broad discretion.

It is stating the obvious to observe that the applicants have been found liable by the trial Judge and by the Full Court. That will often be the case when an application for special leave is made to the High Court. There is no further right of appeal available to the applicants. The High Court will entertain the appeal only if the case is a proper one for the grant of special leave. The judgment of the Full Court is not merely provisional, subject to confirmation by the High Court. The Full Court judgment creates an entitlement in the plaintiff, unless and until the judgment is set aside: Advanced Building at 816 McHugh J. On the other hand, when an available process of appeal is invoked (be it an appeal as of right or subject to the grant of leave), it seems unjust to allow the enforcement of the judgment meantime if that enforcement is likely to be irreversible, or to produce irreversible consequences, should an appeal succeed.

I consider that the first of the matters to which I have just referred probably explains the approach taken by Brennan J to the exercise of the jurisdiction to grant a stay. But it does not follow that the second matter to which I have just referred is not an important consideration.

I do not understand Brennan J to have attempted to state exhaustively the circumstances that enliven the jurisdiction to grant a stay. In Burgundy Royale the jurisdiction was enlivened by the need to preserve the subject matter of the litigation: see Brennan J at 683. But consistently with basic principle, and with other decisions, I consider that the jurisdiction is also enlivened if enforcement of the judgment will result in significant irreversible loss or harm to the applicant for the stay, should the stay be refused and should an appeal ultimately succeed: see Federal Commissioner of Taxation v Myer Emporium Ltd [No 1] [1986] HCA 13; (1986) 160 CLR 220 at 223 Dawson J; Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [1997] HCA 24; (1977) 71 ALJR 814 at 816 McHugh J.

I therefore approach the matter on the basis that the first issue is whether the jurisdiction is enlivened. If the jurisdiction is enlivened, it is then necessary to consider three of the four matters identified by Brennan J. The second matter does not require consideration in this Court. I do not treat what Brennan J said as if it were a provision of a statute fixing the limits to the manner of exercise of the discretion. I treat his words as providing authoritative guidance in the sound exercise of what remains a broad discretion: Patrick Stevedores v Maritime Union of Australia [No 2] (1998) 72 ALJR 869 at 871-872 Hayne J.

It is necessary to say something about the hearing before me. I will refer to the applicants as "the defendants". One of the defendants, Mr Stokes, has died. One of his executors, Mr Langford, has been substituted as a defendant.

On 13 August 1999 the Full Court stayed execution of its judgment for seven days. That order was made on terms that required one of the defendants' insurers to make a payment into court and that required each of the defendants to continue their existing undertaking. (The terms of the existing undertaking are set out below.)

On 20 August 1999 the application for a stay came on before me. By then, the defendants had filed a number of affidavits relating to their assets and liabilities. The affidavits also explained the state of affairs as between the defendants and their insurers. These affidavits were sworn between 7 August and 16 August. There were some other affidavits as well. The affidavits appeared to provide a reasonable, if brief, description of the matters referred to.

However, the defendants' affairs (including the estate of the late Mr Stokes) as disclosed by the affidavits, are so arranged that it is very difficult to tell what their net worth is. Nor is it easy to tell what income the defendants have received and are receiving, and just how that income has been disposed of. Family trusts, and companies controlled by or on behalf of family members, are a common feature of the manner in which the defendants' affairs are arranged. It is not easy to tell what assets the defendants have an interest in, nor is it easy to tell what property is available as security for the judgment debt. This is not intended as a criticism. I accept that many persons have arranged their affairs in a similar fashion, for tax and other reasons. However, the fact remains that it is difficult to determine the net worth of the defendants, the income receivable by them or under their control, and just how they have disposed of their income and assets.

The affidavits suggest that Martino, Messer and Gray have an excess of liabilities over assets. They suggest that Crawford, Pilmer and Munachen have a small excess of assets over liabilities (each between $70,000 and $175,000), and that the estate of Mr Stokes has a net worth of about $570,000. But for the reasons that I have indicated, one cannot be confident about this.

Mr Wells QC sought a stay on the basis of these affidavits. He proposed terms that were designed to protect the plaintiff. The terms related to the monies payable under the defendants' insurance policies, the continuation of existing undertakings, and included an undertaking by each defendant to provide a quarterly statement of assets and liabilities.

Mr Gray QC opposed the making of the order. He complained that although the defendants had been told that the plaintiff required them to be available for cross-examination on their affidavits, they were not present at court. He strongly criticised the affidavits that had been filed. He submitted that they were inadequate in their detail, incomplete in some respects, unsupported by documentary proof and did not enable one to determine the true position of the defendants.

He submitted that the undertaking given to Mullighan J, and which the defendants offered to continue offered the plaintiff no real protection. He submitted that it offered the defendants so much flexibility that they were at liberty to do pretty much as they pleased with their assets and with their income.

There is some force in each of these submissions. I have already explained, although in general terms only, the difficulty in reaching a reliable conclusion about the defendants' financial position and the dealings in which they have engaged. I accept that the proposed undertaking allows the defendants considerable latitude.

Mr Gray submitted that in view of the inadequacy of the affidavits, and the defendants' failure to attend for cross-examination, I should refuse the stay then and there.

Alternatively, he sought an order for general discovery on oath by each of the defendants relating to their assets, liabilities, income and outgoings, and an order that each of them attend for cross-examination. These orders were resisted by Mr Wells.

There are obvious reasons of practicality why an application for a stay of execution on a judgment cannot be turned into a wide ranging enquiry into the financial affairs of the parties seeking the stay. On the other hand, I considered it only fair that the plaintiff should have an opportunity to test what the defendants were saying. In broad terms, the defendants were claiming a stay on the basis of assertions about the state of their affairs, which assertions could not be assessed reliably from the affidavits that they had filed.

I made a limited order for disclosure by the defendants of records of the receipt of income, and of documents disclosing dealings with any superannuation fund or trust in which the defendants had an interest. I directed that the defendants Pilmer, Langford, Martino and Munachen attend for cross-examination. I set two days aside for that purpose.

I took the view that the plaintiff was entitled to challenge the defendants' claim that there was no risk of the plaintiff suffering prejudice from the stay as a result of the defendants dealing with their income and assets so as to reduce the assets available to satisfy the judgment. I accepted that if the defendants had done so during the previous stay, that would be relevant to the grant of a further stay. I also took the view that the defendants' claim of an inability to make, or of difficulty in making, a payment into court as a condition of a stay, should be tested. A payment into court would protect the plaintiff against loss of interest on such amount as the plaintiffs might ultimately recover from the defendants. I also took the view that the plaintiff was entitled to test the value of the undertaking that the defendants offered, by inquiring into the manner in which their affairs were arranged. Finally, I took the view that the plaintiff was entitled to test the defendants' claim that they were unable to provide any worthwhile security for the amount owing under the judgment.

Having made those orders, I continued the stay.

I made the orders with some misgivings. I knew that it would be difficult to draw the line between a general inquiry into the defendants' affairs, and the matters properly relevant to the application for a stay.

As events unfolded, my misgivings were confirmed. Mr Gray complained regularly about inadequate and late disclosure of documents by the defendants. It was difficult to draw the line of relevance. The cross-examination of the defendants raised a number of issues about the affairs of each defendant, which issues could not be resolved satisfactorily in the limited time available. The cross-examination confirmed my initial impression that, without a lengthy inquiry, a confident assessment of the defendants' worth, and of the transactions in which they had engaged, could not be made.

For his part, Mr Wells complained of excessive demands by the plaintiff for access to documents, and of excessive demands for information. He made the point that the defendants had relatively recently been forced to instruct new solicitors, because the solicitors who had previously acted for them, apparently under instructions from the defendants' insurers, had found that they could no longer act for the defendants personally. This was because of a possible conflict between the defendants and their insurers. That matter itself became an issue. The defendants said that they had taken reasonable steps to provide information about their affairs to their previous solicitors. Mr Wells submitted that any problems of lateness in the provisions of affidavits and in the provision of documents was not of the defendants' making. Mr Gray disputed this. I declined to open up yet another line of inquiry, namely, into the dealings between the defendants and their former solicitors.

In the end I heard evidence and submissions for a total of about three sitting days. The end result was a somewhat confusing mass of documentary material relating to the defendants' affairs.

In the course of all this I formed the view that nothing short of a lengthy hearing would resolve all matters. I decided that I should do the best that I could with the material that I had. I concluded that there had to be an element of summary justice in the process. I declined to grant Mr Gray's application for orders for yet further disclosure of documents by the defendants, and for cross-examination of the other defendants who had not been directed to attend, and possibly for further cross-examination of the defendants who had attended on further documents that they might provide if ordered to do so.

I have outlined the course of the hearing before me to explain the difficulty that I have experienced in grappling with the facts relevant to the grant of a stay. It is for the reasons that I have indicated that I have decided to deal with the matter in what is necessarily a broad brush fashion.

If a stay is not granted, the plaintiff will enforce its judgment. I find that that there is no prospect of the defendants satisfying the judgment. I am satisfied that the plaintiff will issue and serve a bankruptcy notice on each defendant, and that a sequestration order will probably follow. It is possible that the Federal Court might adjourn the bankruptcy proceedings, but if this Court refuses a stay, I would have thought it unlikely that an adjournment will be granted.

Subject to two qualifications that follow, I find on the evidence that the defendants have insurance cover for an amount of $50 million plus costs incurred by the defendants in resisting the plaintiff's claim. That cover is provided in layers of $10 million, $10 million and $30 million respectively.

The insurer in respect of the first layer of $10 million claims to be entitled to set-off or to deduct part of the costs incurred by it so far in resisting the claim. It claims, on that basis, that nothing is payable by it in respect of the first layer of insurance. There is likely to be a dispute about that. The plaintiff has already issued proceedings against this insurer, claiming an entitlement to enforce as against it the rights of the insured, and disputing the claimed deduction or set-off. I cannot resolve that issue.

The insurer in respect of the second layer of $10 million accepts its liability in relation to three of the defendants, but has denied liability as to the other four. This insurer has paid into court the sum of $10 million as security for the liability of the insurer.

There is a complication in respect of the third layer of insurance. There is a doubt about the existence of cover in respect of 24 per cent of this layer. If insurance cover has not been placed in respect of this layer, it may be that the broker in question will be liable for the failure to arrange cover. The broker appears to have told the defendants that cover had been arranged. The underwriters in respect of the remaining 76 per cent of this layer accept their liability to the extent of $22.8 million, have paid into court the sum of $6.95 million, and are prepared to pay into court interest on the balance of their liability in quarterly rests or in such other instalments as the Court may order. They will submit to a rate of interest to be fixed by the Court. These insurers also accept their liability in relation to three of the defendants, but have denied liability as to the other four.

In brief, insurance cover is confirmed to the extent of $32.8 million. There is a dispute about the liability of the insurer in respect of the first layer of $10 million, and uncertainty about liability in respect of $7.2 million of the last layer of $30 million. The plaintiff is not at risk in respect of interest on the amount of the confirmed insurance cover.

In the light of what I have said, enforcement of the judgment will inevitably lead to the bankruptcy of the defendants, and to the insolvent administration of the estate of Mr Stokes, who died while the trial was in progress.

The defendants Messer, Martino, Gray, Crawford, Pilmer and Munachen are or were practising chartered accountants. Their sources of income are varied. They range over practice as chartered accountants, audit work, acting as a company secretary, acting as a company director, including as a director of publicly listed companies, and providing management and advisory services to public and private companies. Martino, Messer, Gray and Crawford earn most of their income from practising as an accountant. Pilmer and Munachen earn most of their income from company directorships and from providing advisory services to companies.

I find that if a sequestration order were made against them, each of them would be unable to continue to practise as an accountant or auditor, and each of them would in all probability be unable to continue to earn income in the various ways indicated by me. I find that as a result of this they would suffer financial loss that would be irreversible and irreparable, were the judgment of the Full Court to be set aside or varied so as to reduce the damages to an amount close to the limit of the available insurance cover.

I find also that service of a bankruptcy notice on those defendants would require them to give notice of that fact to clients, and to other persons from whom income is earned and with whom they have financial arrangements, and so would of itself have a significant adverse effect on their ability to earn income. Each defendant is engaged in activities of such a nature that it would be proper and probably necessary for them to disclose service of a bankruptcy notice. That disclosure is likely to result in them being forced to withdraw from the relevant activities.

On the other hand, none of these defendants has indicated what he proposes to do, if anything, about the fact that a judgment has been entered against him that he is quite unable to meet, and that will lead to bankruptcy unless a stay is granted and the judgment is reversed or significantly reduced in amount. Nor has any one of these defendants commented on the fact that some of the persons and entities for whom they act, and with whom they have business relationships, must surely be aware of the fact of the judgment and of the significance of it for their solvency.

In light of this, while I accept that service of a bankruptcy notice and sequestration would cause irreversible and irreparable harm, I am not satisfied that it would completely terminate their ability to earn income in the manner in which they presently do so.

The defendant Langford is a defendant in his capacity as one of two executors of the estate of the late Mr Stokes. That estate has no prospect of satisfying its liability to the plaintiff. A distribution of the assets of the estate has not been made to the beneficiaries. The main assets of the estate are loan accounts with certain private companies which are trustees of family trusts or which appear to be controlled by or, subject to a significant degree of influence by, members of the Stokes family. The information provided in relation to the affairs of the estate discloses that there are a number of private companies that owe money to each other. On the available information it is impossible for me to tell what the net proceeds will be if the monies owed to Mr Stokes are called up.

I find that were the estate to be administered as an insolvent estate, it is likely that the calling up of the monies owed to Mr Stokes would have a significant impact on the affairs of the group of companies which the Stokes family appears to control or in which it appears to have a significant interest. However, I am unable to determine just what that impact would be. I also find that in all probability one of the relevant companies would have to dispose of its interest in an hotel, and the business of that hotel. That hotel, and the business conducted from it, appear to be the main assets, or perhaps the only assets, in which the estate has an indirect interest.

In short, in the case of the estate I am satisfied that administration in insolvency would cause a significant disruption to the affairs of the Stokes family, but I am unable to be more precise than that.

I am satisfied that a basis for the exercise of the Court's jurisdiction has been made out by the personal defendants. I consider that if a stay is not granted the service of a bankruptcy notice and the making of a sequestration order is likely to result in significant loss to them through loss of their ability to earn income. Their business reputation is likely to be damaged permanently, or at least for some time. The basis for the grant of a stay is the likelihood of significant loss for which the defendants cannot be compensated should they succeed (in the sense already explained) in their appeal.

I am not so satisfied in the case of the estate of Mr Stokes. I have found that enforcement of the judgment against the estate will result in inconvenience and disruption to the affairs of the Stokes family. It might result in some loss as a result of the need to realise assets to enable loans owing to Mr Stokes to be repaid. But I am not satisfied that any significant loss will be suffered, other than such loss as might be attributable to the sale of assets at a time other than the time at which the family might choose to dispose of them. I do not consider that I can take into account the likely but (as I find) unquantifiable effects on Mrs Stokes and members of the family, should the judgment be enforced.

I am satisfied that there is a substantial prospect of the High Court granting special leave to appeal. In so holding, I am not predicting what the High Court will do, nor do I have to do so. I mean merely that there are questions of law arising on the judgment of the Full Court that raise significant issues of legal principle and that might attract a grant of special leave by the High Court.

Each defendant filed an affidavit in support of the application for a stay granted by Mullighan J. Those affidavits are before me. So are the further affidavits filed by each defendant in support of the application made to me.

Mr Gray has complained that the defendants have failed to act reasonably. I have already referred to this complaint. There was, he submitted, a late rush of affidavits before Mullighan J, and the same thing has happened before me. The defendants must have known, since the Full Court published its reasons in May 1999, that they would seek a stay in support of any application for special leave to appeal. There was no reason to expect that the plaintiff would agree to a stay. Although there has been a recent change of solicitors, due to disputes or potential disputes between the defendants and their insurers, that does not fully explain the apparent inaction until the last fews weeks. I am unable to say whether the fault lies with the defendants or with their former solicitors. Whatever the reason, the plaintiff has been given limited time to consider the defendants' affidavits and their documents. As well, the not unreasonable request by the plaintiff for the production of documents to substantiate statements made by the defendants has been met with the argument by the defendants that there is insufficient time to comply with the requests, and complaints that the requests are unduly wide. Yet the shortage of time is the product of the defendants' failure to provide information sooner.

I am not able to determine whether the defendants are at fault. I am not prepared to find that they have deliberately manipulated the situation. But I have to bear in mind that the plaintiff has been disadvantaged.

I mention these criticisms because Mr Gray QC opposed the grant of a stay on the basis that the grant would result or was likely to result in irreparable harm to the plaintiff. He submitted that the defendants have deliberately withheld or concealed information, have been lacking in candour, and have acted so as to deny the plaintiff an adequate opportunity to test the case that they put in support of their application.

It is clear that the plaintiff will never recover the whole amount of the judgment. The loss of interest on the amount that is recoverable from the defendants in person will constitute irretrievable loss. It will be irretrievable loss because at the end of the day the plaintiff will recover only the amount properly payable by the insurers, and whatever the defendants are worth personally. If the plaintiff recovers now the amount that the defendants are worth personally, it can earn interest on it. If it recovers that amount after special leave is refused, or after an appeal to the High Court fails, the plaintiff will never recover the interest that it would have earned on the amount that it recovers from the defendants personally. There is no such problem in relation to interest payable on the monies payable by the insurers, other than the first layer of $10 million.

However, I consider that this difficulty can be met to a considerable degree by requiring the defendants, as a condition of the stay, to make a payment into court, during the pendency of any stay. I am unable to quantify the amount that the plaintiff will recover from the defendants personally, and so I cannot quantify the interest that is potentially at risk. But the potential loss to the plaintiff can certainly be mitigated by requiring the making of payments into court.

For those reasons, I do not consider that the plaintiff is likely to suffer significant loss on this basis, if the defendants are required to make a significant payment into court.

As the relevant insurance policies include cover for defence costs, the defendants' assets available to meet the judgment should not be diminished by the payment of legal costs.

A substantial concern raised by Mr Gray QC is that the grant of a stay will defer the time at which a trustee in bankruptcy can take possession of the defendants' assets, and begin to examine their affairs, with a view to ascertaining whether any past transactions should be set aside.

I am not able to make a finding that transactions have occurred that are likely to be set aside should bankruptcy ensue. Nor am I able to find that there are no such transactions. There is a possibility of loss in this respect, but it can be put no higher than that. I acknowledge Mr Gray's point that he has not had the opportunity to explore this matter thoroughly.

Mr Gray also expressed concern that, during the period of a stay, it is open to the defendants by judicious management of their affairs to reduce their own assets available to satisfy the judgment. He submitted that this has already happened on a large scale. He submits that the undertaking given to Mullighan J, and offered again, allows the defendants sufficient freedom to permit this to occur without any breach of the undertaking. The undertaking is in the following terms:

"1 On the basis that the plaintiff agrees that it will not execute its judgment against any of the fifth defendants pending the determination of this matter on appeal the fifth defendants against whom the plaintiff has judgment (the fifth defendants) undertake not to sell, give or otherwise dispose of any asset in which they have a legal or beneficial interest, except:

1.1 in the ordinary course of their day to day business; or

1.2 in the ordinary course of their day to day living expenses, including those living expenses of their dependants or spouse; or

1.3 for the purpose of discharging or servicing their debts, liabilities, including liabilities under guarantees, present or contingent; or

1.4.2 in relation to an appeal of this action including,

2 The fifth defendants agree to abide by this undertaking until the determination of their appeal in this action.

3 The fifth defendants reserve the right to seek a variation of this undertaking by agreement between the parties, such agreement not to be unreasonably withheld, or failing agreement by application to the court."

It can be seen that the undertaking allows the defendants considerable freedom. It is difficult to identify an appropriate variation that would give the plaintiff greater protection, if the defendants are to be permitted to support themselves and their partners and to conduct their respective businesses. However, it should not be impossible to do so.

During argument before me the defendants indicated a willingness to give a charge or some other form of security over any significant assets that they might have. However, the difficulty remains that by and large the assets that are available are assets the value of which depends upon, or can be significantly affected by, other transactions by the defendants, by transactions involving companies in which members of their family have interests or by trustees of family trusts. I accept Mr Gray's submission that the security provided by a charge is limited in that way. As well, many of the assets are not identified with any particular precision, and I have to say that the impression I get from the defendants' evidence is that there are relatively few assets available to be charged, and a good few of them are likely to be encumbered already in various ways.

Mr Gray submitted that certain of the defendants have already made use of the stay, or might make use of the stay, to minimise the assets available to meet the judgment. I am not able to make a finding that this is so. But nor am I satisfied that this has not occurred or will not occur. To explain that comment, I need to digress for a moment.

As I have already explained, the defendants' affidavits provide what appears to be a reasonable summary of their assets and liabilities and of changes in those assets and liabilities since Mullighan J granted a stay. But their affairs as disclosed by those affidavits are so arranged that it is impossible to tell from the affidavits what the defendants' net worth is. It is impossible to say whether they have been reducing the assets available to meet a judgment.

It is not practicable to turn an application for a stay, particularly in a case like this, into a detailed examination of the assets and liabilities and financial affairs of the defendants seeking the stay. On the other hand, from my own reading of the affidavits, I am satisfied that Mr Gray was right in submitting that one cannot tell with any confidence what assets the defendants had available to meet a judgment, what the value of those assets were, and whether the defendants had been making efforts to reduce the available assets. The risk of such things occurring in the future requires separate consideration.

In considering the risk of the plaintiff suffering from the grant of a stay, as a result of the defendants reducing the assets that they have available to meet a judgment, and managing their affairs so as to ensure that they do not acquire assets, there are two broad matters that fall for consideration. The first is the risk of that occurring. The second is the extent to which I can protect the plaintiff against that occurring by requiring the giving of security and the giving of appropriate undertakings. It is to these matters that I now turn.

By and large I accept the evidence of the defendants. By this I mean that I am not satisfied that anyone of them has deliberately manipulated his affairs to dispose of assets, or to reduce or minimise the assets available to satisfy the judgment. There are two qualifications to be made to that finding. The first is that I acknowledge the possibility that a closer investigation will prove that I am wrong. One of the difficulties of this process is the fact that it is not practical to undertake that closer investigation at this stage. I do not consider that it would be right simply to refuse a stay because there is an element of uncertainty. But nor can I disregard that element. It leads me to the conclusion that relatively stringent conditions should be imposed upon the defendants. The other qualification to the finding that I have just made is that it is made in the context that the defendants' affairs are so arranged that they are unlikely to acquire significant assets in their own names. Their affairs are so arranged that income that might have been earned by them is, to some extent, payable and paid to other entities. The use of companies and trusts and taxation minimising arrangements makes it difficult to assess their position, and difficult to express the position with any precision at all. So I am dealing with defendants who operate in a structure that is designed to, or is at least likely to, minimise the assets held by them personally and the income receivable by them personally. The finding that I have made that they have not manipulated their affairs to avoid meeting the judgment has to be understood as relating to defendants whose affairs are so arranged that a creditor will not find it easy to lay hands on assets or income.

I do not find that these arrangements were entered into to defeat the plaintiffs' rights. I accept that they are commonplace in Australia today, at least among people with higher incomes and people who have available to them skilled legal and accounting advice.

On the other hand, and this is hardly surprising, I suspect that the defendants are content to order their affairs so that, should the judgment be enforced, there will be no significant increase meantime in the assets available to be taken by the plaintiff or by a trustee in bankruptcy.

I have decided that it is not feasible to deal in a satisfactory manner with each of the particular transactions and arrangements criticised by Mr Gray. I am not prepared to make a finding, as I have already said, that there has been any deliberate misuse of the stay granted so far. I am not entirely satisfied with all of the explanations that were given, but as I have already said I do, by and large, accept the evidence of the defendants.

Mr Gray has complained that this approach allows the defendants to take advantage of their own lack of candour and of cooperation in connection with the application for a stay, and to take advantage of the limits on the time available for the consideration of the application. He complains that he has not been given an adequate opportunity to expose wrongdoing by the defendants. I have thought carefully about that. He might be right. But, being realistic, I consider that there is little scope for the defendants to so manipulate their affairs that, should the judgment come to be enforced, that manipulation will remain unconcealed.

For those reasons I am satisfied, that provided appropriate terms are imposed, the grant of a stay will not result in irreparable harm to the plaintiff.

I now make some brief observations on the evidence given by the defendants.

Mr Pilmer was the first of the defendants to give evidence. I found his evidence somewhat unsatisfactory. It suffices to say that I consider that he was surprisingly vague and hesitant about a number of aspects of his affairs. For example, I am surprised by the hesitant and uncertain manner in which he gave evidence about the service of a bankruptcy notice on him early in 1995. In view of the income about which he gave evidence, and the financial transactions about which he gave evidence, I was surprised to hear that he has not filed a tax return for ten years. I am not prepared to find that he has deliberately reduced his available assets, or will do so. But nor am I satisfied that the risk of him doing so during the period of estate can be put to one side.

The second defendant to give evidence was Mr Langford. I formed the view that he has made inadequate efforts so far to ascertain the value of Mr Stokes' estate, and to identify the assets that constitute the estate. In particular, little or nothing appears to have been done to clarify the position as between the various companies in which Mr Stokes' estate has an interest, to which Mr Stokes owes monies and by which monies are owed to Mr Stokes. As well, Mr Langford appears to have given little if any consideration to the significance of the fact, as claimed by Mr Gray, that he was a partner of Mr Stokes at the relevant time and might be liable to contribute to any payment made by Mr Stokes' estate in respect of the judgment.

Mr Martino was the third witness. He has a substantial income and substantial outgoings. I accept the substance in his evidence.

Mr Munachen was the fourth witness. He was subject to particular criticism by Mr Gray. It emerged during his evidence, as a result of an inquiry made by me, that the order of Mullighan J granting a stay has not been drawn up. This emerged when Mr Munachen was being questioned about a possible failure to observe terms of that order. The order should have been drawn up, and it is unsatisfactory that it was not. That produced the result that Mr Gray cross-examined Mr Munachen by reference to the reasons for decision of Mullighan J, rather than by reference to the terms of an order. All I can say is that, by and large, I accept Mr Munachen's evidence and his explanations for this conduct. By this I mean that I am not prepared to find that he has deliberately manipulated his affairs to avoid meeting the judgment.

I am conscious of the fact that it is for the defendants to satisfy me that a stay should be ordered. I find that there is a risk of prejudice to the plaintiff, as a result of the defendants organising their affairs so as to minimise the amount available to satisfy the judgment, that cannot be ignored. But I do not find that this will occur. It is somewhat unsatisfactory to leave things in that state, but short of a lengthy and thorough investigation into the defendants' affairs, I cannot go any further than that. I consider that the risk will be reduced by requiring each defendant to give a charge or other appropriate security over any available asset, but I acknowledge that doing so will not eliminate the risk entirely.

Taking everything into account, I consider that if appropriate terms are imposed requiring payments into court during the period of a stay, and the giving of a charge or other appropriate security over all available assets, the risk of loss to the plaintiff is a limited one.

Allowing the plaintiff to enforce the judgment will probably result in the defendants' bankruptcy. That is not irreversible. But it will have consequences for the defendants, and possibly others, that will be difficult to reverse. It would cause irreversible loss to the defendants. The stay now sought should be of relatively short duration, no more than about six months. If the High Court grants special leave to appeal, it is likely to be some time before the High Court can hear the appeal. A further lengthy delay in the enforcement of the judgment might then ensue. I am conscious of the fact that the plaintiff has been kept out of its money for a long time now, and may be kept out of its money for further time. I have to weigh all this up.

Another relevant matter is that the money likely to be recovered from the defendants personally will be a very small proportion of the judgment debt. It will be a small proportion of what is recoverable from their insurers. The amount is not insignificant in absolute terms, but the fact remains that it is not a large amount in the overall scheme of things.

The risk of loss to the plaintiffs through the loss of interest can be mitigated by requiring the defendants to make the lump sum payment, and further regular payments during the currency of a stay. The risk of assets being disposed of can be mitigated by requiring the defendants to grant a charge over existing assets that are available to be charged.

The risk of the defendants manipulating their affairs can be met to some extent by imposing a more stringent undertaking than the undertaking that has been imposed so far.

Weighing everything up, I consider that the balance of convenience does favour the grant of a stay, provided that terms are imposed that will provide the plaintiff with reasonable protection in relation to the matters to which I have referred.

The conditions that I intend to impose are intended to protect the plaintiff against the possibility of the defendants manipulating their affairs during the currency of the stay to reduce the assets available to meet a judgment, or to avoid receiving benefits that might become available to meet a judgment. They are intended to protect the plaintiff against loss of interest on monies that might later be recovered from the defendants. They are intended to provide the plaintiff with security over assets that are presently available in satisfaction of a judgment.

To the extent that my approach is rough and ready, the defendants will have to accept that result. This matter has to be finalised quickly. There is a risk that my approach may be too favourable to the defendants. I do not consider that, for that reason alone, I should refuse a stay. Nor do I consider that the solution is to embark upon a further enquiry that is likely to take a good deal of time.

In the course of the closing submissions, Mr Wells submitted proposed conditions upon which a stay might be granted. For convenience, I refer to those proposals.

The first of the proposed conditions is a condition requiring the diligent prosecution of the application for special leave to appeal. I consider that that condition should be imposed.

The second, third, fourth and fifth conditions relate to payments and the provision of security by the insurers. I consider that subject to matters of detail, those conditions are appropriate.

The sixth condition requires the continuation by the defendants of the existing undertaking, the terms of which are set out above. I consider that the undertaking to be required from the defendants should be more restrictive. A more restrictive undertaking would cause the defendants some inconvenience, but that is something they will have to tolerate at this stage. A more restrictive undertaking may be productive of further disputes. However, in my opinion the protection of the plaintiff requires a more restrictive undertaking.

The defendants should be permitted to meet their ordinary and usual living expenses, including those of their dependants. The defendants should be permitted to conduct their respective practices as accountants, or business as corporate advisers, in the usual way.

Subject to meeting the expenses that that involves, and making the payments and incurring the liabilities that that involves, the defendants should undertake not to deal with their assets, or to incur liabilities, or to discharge liabilities, other than for reasonable legal expenses in connection with this application for a stay, without the consent of the plaintiff or the approval of this Court. As well, the defendants must undertake not to exercise their powers as a director or shareholder of any company in which they or members of their families have a beneficial interest, or as trustee of a trust, so as to cause that company or trustee to discharge existing indebtedness to the defendant or to dispose of assets or income in such a way as to impair the ability of the defendant to recover any monies due to him. In relation to this, I have been able to do no more than indicate, in a rough sense, the intent of the undertaking that I envisage. The parties will have to fashion something more specific, making due allowance for the defendants' obligations as a company director or trustee.

I will allow the parties an opportunity to agree upon an appropriate undertaking. If the parties cannot agree, I will have to settle the terms. I emphasise that realism is called for on both sides. The undertaking must provide the plaintiff with reasonable protection. On the other hand, it should not be an undertaking that will prevent the defendants from meeting ordinary living expenses and conducting their businesses in the ordinary way. Nor should the undertaking impose terms that will result in frequent applications to the Court.

The defendants also propose terms relating to the provision of security and the making of payments into court.

As to the provision of security, I consider that the proposals by the defendants Pilmer, Martino and Munachen are broadly acceptable. I will, however, give the parties an opportunity to negotiate over this matter. The other defendants will be given a further opportunity to identify an assets or assets that can be provided as worthwhile security. If they cannot do so, I will have to reconsider their position.

As to the making of payments to protect the plaintiff against loss of interest, precision is impossible. I will allow the parties an opportunity to make further submissions. My tentative view on the matter of payments is that a condition should be imposed along the following lines:

Monthly payment on 15th day of each month, first payment due on 15/10/99

I propose to continue the existing stay until 5.00 pm on Friday 17 September 1999. I hope to be able to settle the terms of the stay on that day. The defendants must understand that I expect them meantime to make arrangements for the payment of such lump sum and weekly payment as I might finally require. They are on notice now, and have been so prior to this, that an order will be conditional upon the making of such payments. I realise that the preparation of documents providing the security ultimately required will take some further time, but I aim on 17 September to determine the security that is required, or what is to be done if no worthwhile security is offered.

For these reasons, I propose to grant a stay of execution of the judgment against the dependants Crawford, Gray, Martino, Messer, Munachen and Pilmer. I do not propose to grant a stay in favour of the defendant Langford.

The terms on which the stay will be granted require further consideration. I will continue the existing stay until Friday 17 September, in the hope that the terms can be finalised then.