Victorian Securities Corporation Limited v Icehot Pty Limited & Anor [2010] NSWSC 1413 | Case summary

2008/280166 VICTORIAN SECURITIES CORPORATION LIMITED v ICEHOT PTY LIMITED (RECEIVERS & MANAGERS APPOINTED) ACN 085 175 837 & ANOR JUDGMENT 1 These proceedings concern an agreement entered into in June 2006 by which the plaintiff (VSCL) agreed to lend to the first defendant (Icehot) an amount of up to $6,950,000. That amount was to be used principally to refinance loans that had been made to Icehot in connection with a property development at Tweed Heads. The loan was secured by a mortgage over the property and a charge over Icehot's assets. In addition, Mr Buggy, who was Icehot's sole director and shareholder, guaranteed Icehot's obligations under the loan agreement. The loan was for an initial period of one year and was then terminable by VSCL on 30 days' notice. 2 The proceedings were commenced on 28 March 2008 following Icehot's failure to repay the loan. Icehot was placed into receivership on 26 September 2008 and, after a number of interlocutory applications, Einstein J gave summary judgment on 23 October 2009 in favour of VSCL against both defendants in the sum of approximately $8,500,000. On 24 November 2009, VSCL issued bankruptcy proceedings against Mr Buggy. An order for substituted service of those proceedings was eventually made on 29 March 2010. Mr Buggy applied to have that bankruptcy notice set aside on the basis that he had an offsetting claim (which I will describe shortly). Federal Magistrate Barnes dismissed that application on 21 September 2010. The defendants now seek to stay the judgment given by Einstein J. 3 The basis of the defendants' application is that, unless a stay is granted, related proceedings brought in the Supreme Court of the Australian Capital Territory will be stultified since the only source of funding for those proceedings is Mr Buggy. 4 The proceedings in the ACT Supreme Court were commenced by Cleary Bros (Parramatta) Pty Ltd and Parker Constructions Pty Limited (two other companies associated with Mr Buggy) on 16 July 2006. The proceedings in the ACT Supreme Court arose in this way. In June 2006, VSCL advanced approximately $6,000,000 to Icehot under the loan agreement. Approximately $3,000,000 of that amount was paid into accounts held by Cleary Bros with National Australia Bank Limited and Parker with the Commonwealth Bank of Australia. It appears that Cleary Bros was one of the companies that had previously advanced funds to Icehot in connection with the Tweed Heads development. VSCL became concerned about the payments to Cleary Bros and Parker and made arrangements with NAB and CBA to freeze the amounts held in those accounts. The arrangements for those accounts to be frozen lasted for a period of approximately 16 days. Mr Buggy says that, as a consequence of those arrangements, Icehot lost a commercial opportunity to sell the Tweed Heads development to a purchaser for well in excess of the amount owed to VSCL. Just how that loss is said to have come about is not easy to understand from the pleadings in the ACT Supreme Court proceedings. It seems that what is alleged is that it was part of the agreement for sale that Icehot would fund a marketing campaign for units in the development and provide other financial assistance to the proposed purchaser, that as a consequence of the freeze it was unable to do so and that, as a result, it lost the proposed contract for sale. Although all that happened in a period of 16 days, it is said that that was a critical period and that it was not possible for any of the companies associated with Mr Buggy to pursue the proposed sale or any other sale at an acceptable price once the freeze was lifted. 5 There have been extensive delays in the ACT proceedings, largely due to the plaintiffs. The statement of claim has been amended a number of times. As part of those amendments, Icehot and then Mr Buggy were added as plaintiffs. Hearing dates that have been fixed for the proceedings have been vacated on three occasions. One of those was due to the fatal illness of Mr Buggy's son and there is no suggestion that the plaintiffs are at fault in relation to the vacation of that hearing date. However, the other two occasions were clearly the fault of the plaintiffs. Most recently, a hearing due to commence on 14 April 2009 was vacated on the application of the plaintiffs. At that time, Penfold J ordered the plaintiffs forthwith to pay the defendants' costs on an indemnity basis and stayed the proceedings until those costs were paid. Those costs were not paid until 1 March 2010. Mr Buggy says that that was because of a dispute about the amount of costs to which the defendants were entitled. Following the payment of those costs, the court, on 2 March 2010, listed the proceedings for final hearing commencing on 19 July 2010. The proceedings are part-heard and have been adjourned until 11 April 2011. 6 Two other points should be made about the history of the two proceedings. 7 First, following the stay of the ACT Supreme Court proceedings, Icehot and Mr Buggy filed a motion in these proceedings seeking to have them transferred to the ACT. That application was dismissed by Windeyer AJ on 20 August 2009 for the obvious reason that, by then, the ACT proceedings had been stayed. 8 Second, on 23 October 2009, when Einstein J granted summary judgment in favour of VSCL, Icehot and Mr Buggy made an application to amend their defence to allege many of the matters which were the subject of the ACT Supreme Court proceedings. Einstein J refused that application. His Honour gave a number of reasons. One was that it was an abuse by Icehot and Mr Buggy to seek to bring the same claims in the NSW proceedings when those claims had been stayed by the ACT Supreme Court and in circumstances where, had the ACT proceedings been prosecuted diligently, they would have been determined by the time that the application came before Einstein J. In addition, his Honour pointed out that the cross-claim could have been filed over a year ago and no explanation had been given for the delay in doing so. 9 Generally, a successful party is entitled to the fruits of his or her success: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 537 at [28] (Handley, Sheller and Ipp JJA). It is for the person seeking a stay to satisfy the court that the requirements of justice demand one: Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 at 360-1. The court has a wide discretion to grant a stay: Joskovitz v Bonnick [1964] VR 654 at 656 (Herring CJ). However, it will rarely be appropriate to grant a stay where the defendant relies on a setoff or cross-claim to justify the stay and the defendant has previously agreed that payment should be made free of any setoff or cross-claim: see Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd [2000] QSC 050. 10 In my opinion, it is not appropriate to grant a stay in this case. Clause 7.2(a) of the Deed of Guarantee and Indemnity signed by Mr Buggy in favour of VSCL provides:

(b) …" Provisions to a similar effect are contained in the mortgage granted by Icehot. 11 Mr Gray, who appeared for Icehot and Mr Buggy, sought to make two points about this clause. First, he said that the clause purported to oust the jurisdiction of the court to grant a stay and consequently no weight should be placed on it. Second, he submitted that the decision of Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd [2000] QSC 050 should be distinguished on the basis that that case was concerned with whether the borrower should be permitted to bring a cross-claim in proceedings commenced by the lender to recover the debt owed to it. It was not concerned with a case where the effect of the stay would be to stultify related proceedings. 12 I do not accept these submissions. Clauses such as cl 7.2(a) do not oust the jurisdiction of the court. They set out the agreement between the parties. Normally, the court should give effect to that agreement absent some vitiating factor. No vitiating factor is relied on in this case. Once that principle is accepted, there is no reason as a matter of principle to distinguish this case from the type of case considered in Daewoo. The question in each case is whether the case for a stay is sufficiently compelling that the court should grant it notwithstanding the agreement of the parties. 13 In this case, it is said that the case for a stay is compelling because, unless the stay is granted, the ACT proceedings will be stultified and the rights of the plaintiffs in those proceedings will never be vindicated. I accept that that is an important consideration; and it was a factor not present in Daewoo. But I do not think that that factor justifies ignoring the agreement of the parties in this case. I say that for four reasons. 14 First, the plaintiffs in the ACT proceedings are largely to blame for the position that they find themselves in. They had a number of opportunities to have the claims in the ACT proceedings dealt with. Instead, they have been guilty of inordinate delay in pursuing them. Mr Gray submitted that this consideration should carry little weight. The fact is that the ACT Supreme Court granted the adjournments sought by the plaintiffs in those proceedings. They should not be penalised for delays which were, in effect, permitted by the court. I do not accept that submission. The question is not whether the plaintiffs were permitted to engage in conduct which caused delay in those proceedings. The question is whether they were responsible for that delay and whether, if they were, that is a reason for refusing to grant the stay that Icehot and Mr Buggy now seek. It is clear that the plaintiffs were responsible for very substantial delays. That is why Penfold J made the orders she did. It seems to me that that delay is very relevant in considering whether the court should exercise its discretion to grant a stay. Icehot and Mr Buggy say, in effect, that the court should grant a stay because of the prejudice the plaintiffs in the ACT proceedings (including them) will suffer. But that prejudice arises from their own conduct. I do not think that the court should grant a stay in those circumstances. 15 Secondly, Icehot and Mr Buggy have been guilty of substantial delay in bringing the application for a stay. It is now over a year since Einstein J delivered his judgment. VSCL has incurred significant costs in enforcing that judgment, including a contested hearing to set aside the bankruptcy notice served on Mr Buggy. It was only when Mr Buggy lost that application that he applied for a stay of the judgment. He has offered no explanation for his conduct. Having regard to the course that Mr Buggy elected to take, I do not see why the court should grant a stay now. 16 Thirdly, I accept that VSCL will be prejudiced if a stay is granted. The extent of that prejudice is difficult to determine. However, if a stay is granted there is a risk that what assets Mr Buggy has will be dissipated and VSCL will be delayed further in enjoying the fruits of the judgment that it has obtained. Mr Gray submitted that this prejudice could be addressed by imposing conditions on the grant of a stay. Although that would go some way in addressing the question of prejudice, it would not address it completely. On Mr Buggy's own admission, his assets will be used to fund the ACT court proceedings and, until those proceedings are finally disposed of, VSCL will still not have the benefit of the judgment it has obtained against Mr Buggy. 17 Fourthly, it is far from clear that Mr Buggy or Icehot has a strong case in the ACT proceedings. It is, of course, a matter for the ACT Supreme Court to determine the case. However, in granting a stay it is appropriate for the court to take into account the strength of the case that it is said will be stultified if a stay is not granted: cf Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 at 695 (concerning the relevance of the prospects of success of an appeal in determining whether to grant a stay pending an appeal). 18 Originally, the ACT proceedings were commenced by Cleary Bros and Parker. That is not surprising since the money that was frozen was money held in accounts belonging to them. As I have said, more recently Icehot and Mr Buggy have been joined as plaintiffs. As to Icehot, the principal claim appears to be that there was an implied term of the loan agreement that VSCL would not do anything which would prevent any of Icehot, Cleary Bros, Parker and Mr Buggy having the benefits of the loan. As to Mr Buggy, the principal claim appears to be that VSCL owed Mr Buggy, as the sole director and shareholder of each of Icehot, Cleary Bros and Parker, a duty of care not to do anything which would prevent any of Icehot, Cleary Bros, Parker and Mr Buggy having the benefits of the loan. There is also a claim that Icehot and Mr Buggy suffered damages as a consequence of unconscionable conduct engaged in by VSCL in breach of s 12CA of the Australian Securities and Investment Commission Act 2001 (Cth) or s 51AA of the Trade Practices Act 1974 (Cth). Even accepting that Icehot and Mr Buggy will succeed in those allegations, it is not at all clear that they will succeed in establishing that the freeze of 16 days was critical to the sale of the development at a price which would have discharged the debt owed to VSCL. In my opinion, what Icehot and Mr Buggy needed to do in the face of cl 7.2(a) of the Deed of Guarantee and Indemnity and provisions to a similar effect in the mortgage (and leaving aside delay) was to take the court through material that had been presented to the ACT Supreme Court to demonstrate that, as the case currently stands, there is a sufficiently strong case that they will ultimately be relieved of any obligation they have to VSCL that they should be permitted to pursue that case notwithstanding the agreement they reached. Icehot and Mr Buggy did not do that. Instead, they sought to rely on allegations made in a second further amended statement of claim which are not clear and on evidence which, to a large extent, has either not been adduced in the ACT proceedings or been rejected in those proceedings. That material did not demonstrate that the plaintiffs had a strong case. 19 The defendants' motion filed on 7 October 2010 should be dismissed with costs.

Victorian Securities Corporation Limited v Icehot Pty Limited & Anor

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