Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd

Judgment

1. The appellant (WGC) by a notice of motion filed 2 May 2016 seeks orders staying the execution of the judgment and certain orders made by the primary judge (Ball J) in proceedings in the Technology and Construction List. In those proceedings the first respondent (TZI) claimed damages from WGC and the second respondent (AMT) for defective concrete paving in the construction of the container terminal at Molineux Point, Port Botany. WGC cross-claimed against AMT for the negligent design of that paving.
2. The terminal was built in 2003 and 2004 on land owned by Sydney Ports Corporation and leased to P&O Trans Australia Holdings Limited (P&O). That work was undertaken pursuant to a contract between WGC and P&O. In 2004, P&O transferred its leasehold interest in the terminal to a subsidiary and on 2 December 2005, that subsidiary transferred the interest and associated assets to TZI. On the same day, by a deed between P&O, TZI and the subsidiary, P&O purported to assign to TZI the benefit of the warranties given by WGC under its contract for the construction work.
3. Some of the paving (referred to as the P2 pavement) developed cracks and spalling. As a result concrete slabs had to be replaced or repaired. The primary issue in the proceedings was whether TZI had been effectively assigned the claims for breach of warranty in respect of the defective paving that had arisen before the date of assignment. There was also an issue as to whether the whole of the P2 pavement had to be replaced, as TZI maintained.
4. The proceedings were commenced in 2009. In April 2014, orders were made for the provision by TZI of security for the costs of WGC and AMT. By the conclusion of the trial $1.5m was held by TZI's solicitors as security for the costs of WGC and AMT, being $750,000 as to the costs of each.
5. The hearing proceeded in November and early December 2015. On 12 February 2016, the primary judge delivered judgment, concluding that TZI was entitled to damages calculated by reference to the cost of replacing the P2 pavement, and that AMT was liable to pay WGC the amount the latter was to pay to TZI: Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd [2016] NSWSC 50.
6. On 18 March 2016, judgment was entered in favour of TZI against WGC and in favour of WGC against AMT, in each case in the amount of $11,612,013 (excluding cents). TZI's claim against AMT was dismissed. On 24 March 2016, WGC filed and served a notice of appeal from that judgment.
7. The orders made on 18 March did not resolve all of the issues remaining between the parties. Those issues were addressed in further argument which proceeded over two days and included the costs of the proceedings; whether there should be a stay of the primary judgment pending the appeal; and whether the security for costs provided by TZI should be released.
8. Judgment on those issues was delivered on 29 April 2016: Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd (No 3) [2016] NSWSC 526. The orders made included: (8) Subject to order (9), the order for security for costs made on 7 April 2014 in favour of the first defendant is discharged and the solicitor for the plaintiff is at liberty to release to the plaintiff the sum of $750,000 held as security for costs in respect of the costs of the first defendant. (9) Order (8) is conditional on the plaintiff filing in court and serving on the first defendant a signed undertaking substantially in the form of Annexure A to this judgment. … (11) The judgment obtained by the plaintiff against the first defendant be stayed until the later of: (a) 13 May 2016. (b) The date on which the plaintiff files with the court and serves on the first defendant a signed undertaking substantially in the form of Annexure A to this judgment. … (14) Stay the operation of order (8) until 4pm on Wednesday 4 May 2016.
9. The undertaking referred to in orders 9 and 11 was filed on 29 April 2016 and was in the following terms: IN FAVOUR OF the Court and the first defendant, Walker Group Holdings Pty Ltd, we, Terry Tzaneros and Anne Tzaneros of … Darling Point NSW, each on our own behalf and, in respect of the following companies and trusts: (1) by Terry Tzaneros as director and for and on behalf of TZI 1 Pty Ltd in its own capacity and as trustee of ACFS Trust; (2) by Terry Tzaneros as director and for and on behalf of Z Group Pty Ltd in its own capacity and as trustee of the Z Group Trust; (3) by Terry Tzaneros as director and for and on behalf of Tzaneros Investments Pty Ltd in its own capacity and as trustee of the Tzaneros Investments Trust; do undertake: (1) to meet any order made by the Court of Appeal in proceedings 2016/9152 ("Appeal Proceedings"), for repayment of the judgment sum of $11,612,013.53 (or part thereof) plus any interest thereon plus any adverse costs order made by the Court of Appeal in respect of the Appeal Proceedings or the proceedings at first instance (2009/298899), against the plaintiff, if and to the extent that the plaintiff fails to meet such an order within 28 days of any such order being made (unless stayed) or any other obligation that the plaintiff make such payments; (2) until the conclusion of the Appeal Proceedings and repayment of the judgment sum (if so ordered), not to take any action, including the encumbrance or further encumbrance of property, conveyance, transfer or gift or other disposal of real or personal property (including shares or units), that will cause, permit or result in the total net assets in Australia of Terry and Anne Tzaneros and the aforementioned trusts being reduced to a level below A$25,000,000; and (3) to deposit the judgment sum (if and when paid by or on behalf of the first defendant) in the Tzaneros Investments Trust, and until the conclusion of the Appeal Proceedings and repayment of the judgment sum (if so ordered) not to make any distribution of any part of the judgment sum to any beneficiaries of that trust and to use those funds only in the ordinary course of the trust other than the making of distributions.
10. On 2 May 2016 Barrett AJA relevantly extended the operation of order 14 in [8] above to 4pm on 9 May 2016. On that day I further extended the operation of that order to 4pm on 13 May 2016.
11. On the hearing of the application in this Court, WGC was also given leave to file an amended notice of appeal by which it seeks leave to appeal from orders 8 and 9 made on 29 April 2016. Those orders provide for the release to TZI of the amount paid as security for WGC's costs.
12. Returning to WGC's notice of motion filed 2 May 2016, the orders sought include: 6. An order, pursuant to: (a) rule 51.44(1) of the Uniform Civil Procedure Rules (NSW); and/or (b) section 67 of the Civil Procedure Act 2005 (NSW), staying the whole of the decision of his Honour Justice Ball delivered on 12 February 2016 (Decision) in the Proceedings in respect of the First Respondent's claims against the Appellant and the execution of: i. the orders entered against the Appellant in the Proceedings on 18 March 2016; ii. the costs orders entered against the Appellant in the Proceedings on 29 April 2016; and iii. the orders for the release of security provided by the First Respondent (and held in respect of any order for the Appellant's costs at first instance), entered in the Proceedings on 29 April 2016, until the hearing and determination of the appeal in Court of Appeal Proceedings No. 2016/91552 or further order of the Court.
13. Applications to this Court under UCPR, r 51.44 and CPA, s 67 require the Court, in the exercise of its discretion, to consider afresh the material before it. An often cited statement of the principles governing the grant of a stay is that in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 694-695 (Kirby P, Hope and McHugh JJA): … In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour. There are other principles to be kept in mind. … 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: … Two further principles can be mentioned. The first is that where 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: … . Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, … 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.
14. WGC submits, as it did before Ball J, that it is likely the judgment sum, if paid, will be used in whole or part by TZI to pay for rectification works to the P2 pavement. It is said that in the event the appeal is successful, TZI would not be in a position to repay that amount or to pay any costs which it is ordered to pay, for which WGC currently has the benefit of security in the amount of $750,000. Without accounting for the judgment sum and TZI's liability to repair or rectify the defective payment (which is discussed in [19] below), TZI is said to have net assets of between $2.2m and $4m. Those assets consist of its leasehold interest in a shipping container park at Matraville. The evidence of the external accountant for the Tzaneros Group, Mr Bryson, given in May 2016, is that this interest should be valued at about $4m. The leasehold interest was valued five years ago at $2.2m and for the purposes of this application may be treated as having a value of at least that amount.
15. This makes it unlikely, as Ball J observed at [77], that TZI would be in a position to repay the judgment sum in the event that a significant part of that sum is expended and the appeal allowed. No doubt for that reason undertakings were and continue to be offered by Terry and Anne Tzaneros and entities controlled by them as a condition for the refusal of a stay. They currently undertake for themselves and on behalf of TZI 1 Pty Ltd (TZI 1) and ZED Group Australia Pty Ltd (ZED Group) to 'guarantee' TZI's obligations to repay the judgment sum together with interest and any costs it might be ordered to pay.
16. WGC submits that these undertakings do not eliminate the risk that TZI will be unable to repay the judgment sum "without difficulty or delay" if the appeal is allowed. Significantly, it does not submit that there is a risk that it will fail to recover the whole of the judgment sum and interest. Nor does WGC submit that an award of interest would not sufficiently compensate it for being out of that money for some period or that it would suffer any other prejudice by paying the judgment sum and there being delay in its repayment.
17. As to the form of undertaking accepted by Ball J, WGC makes three further submissions. First, it says that the undertaking does not state a time by which payment should be made. Secondly, it says that it is not clear that the total net assets of Mr and Mrs Tzaneros and the trusts of which TZI 1 and ZED Group are trustees presently exceed $25m, or that Terry Tzaneros has the capacity to give an undertaking not to encumber or reduce those assets or make distributions, given his fiduciary duties as director of those companies and their roles as trustees. Finally, WGC says that the remedy for breach of the undertaking lies only in contempt proceedings, which if successful could result in a fine or imprisonment but not repayment of the judgment sum.
18. The evidence relied upon by the parties in relation to the financial position of the Tzaneros entities is the same as that which was led before Ball J. Having considered that evidence, I agree in substance with his Honour's conclusions (at [82]-[88]) as to the likely value of the net assets of those various entities.
19. I have dealt with the leasehold asset held by TZI as trustee of Tzaneros Investments Trust. I have also referred to its existing obligations to undertake rectification work to the P2 pavement. Those obligations arise in two ways. In February 2015, TZI transferred its leasehold interest in the terminal land to Trust Company (Australia) Limited (TCAL). Under the Contract for Sale, TZI is required to repair the P2 pavement, to the extent that repairs are reasonably necessary. In addition, and at the same time, TZI and TCAL entered into a Works Side Deed under which TZI is required to commence what are described as "supplementary" works with respect to the repair or replacement of that pavement. Those works have to be commenced before 31 December 2016 and completed by 31 December 2017.
20. By a Business Purchase Agreement dated 10 April 2015, ACFS Port Logistics Pty Ltd (ACFS Port Logistics) acquired the "landside logistics business" of TZI 1 (formerly Australian Container Freight Services Pty Ltd). It then became sub-lessee of the terminal land from TCAL. The evidence shows that company to be one of Australia's largest container logistics operators, moving over 350,000 TEU (container units) annually and employing over 500 staff nationally. As a result of the purchase transaction, ACFS Port Logistics became owned as to 50% by Patrick Container Ports Pty Ltd, a wholly owned subsidiary of Asciano Ltd, and as to 50% by entities in the Tzaneros Group. The substantial part of that interest (45%) is held by TZI 1 as trustee of a unit trust - the Australian Container Freight Services Trust. Of the 21,750,100 units in that trust (each having equal rights to income, capital and voting), 21,750,040 are held by ZED Group, as trustee of Z Group Trust, a discretionary trust of which Mr and Mrs Tzaneros are appointors, and they and their families beneficiaries. The value expressly attributed to that 45% shareholding in the Business Purchase Agreement was $44.48m. Mr Bryson's evidence is that this shareholding interest still has that value.
21. Mr and Mrs Tzaneros are the owners of a residential property at Darling Point, having a value of approximately $23.5m. That property is security for liabilities or facilities granted by St George Bank totalling approximately $17m. They include facilities granted to two companies whose assets have not been included in the assessment of the likely net worth of Mr and Mrs Tzaneros.
22. Finally, ZED Group, as trustee of Z Group Trust, also holds 100% of the shares in AGS Group Holdings Pty Limited (AGS Group Holdings), which through a wholly owned subsidiary carries on a wholesale freight forwarding business. Mr Bryson estimates the value of that 100% holding to be at least $15m. ZED Group acquired 70% of the shares in that company in March 2016. The purchase price ($10.7m) remains outstanding and is secured by a charge in favour the vendor over all of the AGS Group Holdings shares held by ZED Group.
23. I agree with Ball J that Mr and Mrs Tzaneros and the entities offering undertakings are shown to have net assets in excess of $25m. Although I consider WGC has an arguable case on appeal, the balance of convenience does not favour the granting of a stay. It is my view taking account of the financial positions of the parties giving the undertaking and notwithstanding the nature of the assets they hold, that WGC is not likely to experience any significant difficulty or delay in obtaining repayment of the judgment sum in the event that its appeal is successful. To the extent that there is any delay, WGC will be sufficiently compensated by the payment of interest.
24. I accept, however, that the form of undertaking should be altered to take account of two of the arguments made by WGC. The power of the Court to require undertakings as a condition for declining to grant a stay arises from the nature of its discretion: see the discussion as to the development of the equity practice in respect of undertakings as to damages in Mansfield v Director of Public Prosecutions for Western Australia [2006] HCA 38; 226 CLR 486 at [29]-[34].
25. Separate undertakings should be given by TZI 1 and ZED Group, each in its own capacity and as trustee. The terms of those should make clear that any non-party giving an undertaking to pay submits to an order of the Court that it do so within 28 days of any failure of TZI to comply with an order of the Court. If the undertaking is engaged the Court may then make an order for payment in accordance with its terms. UCPR, r 39.49 provides that such an order may be enforced as if the non-party was a party to the proceedings.
26. Accordingly, I propose to make the following orders:
27. On condition that the first respondent file in the Registry and serve on the appellant duly executed undertakings of Terry and Anne Tzaneros, TZI 1 Pty Ltd, ZED Group Australia Pty Ltd and of itself, those undertakings to be substantially in the form attached to these reasons, by 4pm on 13 May 2016, dismiss the appellant's notice of motion filed 2 May 2016.
28. In the event that duly executed undertakings are not filed in accordance with 1, order that execution of (a) the judgment and orders entered against the appellant in proceedings 2009/298899 on 18 March 2016; (b) the cost orders entered against the appellant in those proceedings on 29 April 2016; and (c) order 8 entered in those proceedings on 29 April 2016 be stayed until further order.
29. Order costs of the appellant's notice of motion filed 2 May 2016 be costs in the appeal.

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FORM OF UNDERTAKING

1. Undertaking by TZI 1 Pty Ltd TZI 1 Pty Ltd of Unit 1, 2 Simblist Road, Port Botany, in its own capacity and as trustee of Australian Container Freight Services Trust, undertakes to the Court and for the benefit of the appellant, Walker Group Constructions Pty Ltd, to submit to an order that it pay to the appellant within 28 days any amount that the first respondent fails, in whole or in part and within 28 days, to pay in satisfaction of any order of this Court for the repayment of the judgment sum and any interest thereon or for the payment of costs of any party to these proceedings or the proceedings at first instance [This undertaking to be executed in accordance with subs 127(1) or (2) of the Corporations Act 2001 (Cth).]
2. Undertaking by ZED Group Australia Pty Ltd ZED Group Australia Pty Ltd of 'A1 Tax' Suite 1307,109 Pitt Street, Sydney, in its own capacity and as trustee of Z Group Trust, undertakes to the Court and for the benefit of the appellant, Walker Group Constructions Pty Ltd, to submit to an order that it pay to the appellant within 28 days any amount that the first respondent fails, in whole or in part and within 28 days, to pay in satisfaction of any order of this Court for the repayment of the judgment sum and any interest thereon or for the payment of costs of any party to these proceedings or the proceedings at first instance [This undertaking to be executed in accordance with subs 127(1) or (2) of the Corporations Act 2001 (Cth).]
3. Undertaking by first respondent (TZI) The first respondent in its own capacity and as trustee of Tzaneros Investments Trust undertakes to the Court and for the benefit of the appellant, Walker Group Constructions Pty Ltd, to deposit the judgment sum (if and when paid by or on behalf of the appellant) into a bank account of Tzaneros Investments Trust and, until the conclusion of these appeal proceedings and repayment of the judgment sum (if so ordered), not to make any distribution of any part of the judgment sum to any beneficiary of that Trust and otherwise to use those funds only for the purposes of and in the ordinary course of the business of that Trust. [This undertaking to be executed in accordance with subs 127(1) or (2) of the Corporations Act 2001 (Cth).]
4. Undertaking by Anne Tzaneros Anne Tzaneros of Darling Point undertakes to the Court and for the benefit of the appellant, Walker Group Constructions Pty Ltd, to submit to an order that she pay to the appellant within 28 days any amount that the first respondent fails, in whole or in part and within 28 days, to pay in satisfaction of any order of this Court for the repayment of the judgment sum and any interest thereon or for the payment of costs of any party to these proceedings or the proceedings at first instance; Signed
5. Undertaking by Terry Tzaneros Terry Tzaneros of Darling Point undertakes to the Court and for the benefit of the appellant, Walker Group Constructions Pty Ltd: (a) to submit to an order that he pay to the appellant within 28 days any amount that the first respondent fails, in whole or in part and within 28 days, to pay in satisfaction of any order of this Court for the repayment of the judgment sum and any interest thereon or for the payment of costs of any party to these proceedings or the proceedings at first instance; and (b) until the conclusion of these proceedings and repayment of the judgment sum (if so ordered), not to take any action, including by encumbering or further encumbering property or by conveyance, transfer, gift or other disposal of real or personal property (including shares or units in a trust), that will cause, permit or result in the total net assets in Australia of Terry and Anne Tzaneros, Australian Container Freight Services Trust, Z Group Trust and Tzaneros Investments Trust being reduced to a level below $25,000,000. Signed 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: 12 May 2016