Macfarlan JA, Parker J, Following Parker J, MacFarlan JA
Source
Original judgment source is linked above.
Judgment (3 paragraphs)
[1]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[2]
Judgment
MACFARLAN JA: This is an application for a stay of execution of a judgment for $7,697,409.97 entered against the applicant ("Yolarno") in favour of the respondent ("Delisi") pursuant to two judgments of Parker J sitting in the Equity Division - Commercial List ([2022] NSWSC 17 and [2022] NSWSC 85). Yolarno is an Australian company which operates a feed-lot and meat-processing business. Delisi is a company, incorporated in China, which is not suggested to have any assets in Australia.
On 25 October 2015 the parties entered into a written contract styled the Share Sale Subscription Agreement (the "SSSA") which provided for Delisi to purchase and subscribe for shares in Yolarno. The SSSA was amended by a written supplementary agreement in the form of a letter dated 28 February 2016 (the "Extension Letter") to provide for Delisi to make an "Advanced Payment" of $6 million to Yolarno. The dispute that remains between the parties after Parker J's decisions is whether Delisi is entitled to recover from Yolarno the "Advanced Payment". Both parties accept that that entitlement depends on the proper construction of paragraph 5 of the Extension Letter which relevantly provides:
"The Parties shall each work in good faith to procure that PricewaterhouseCoopers China delivers … [the December Accounts] to [Delisi] on or before 20 May 2016. If, despite the Parties' compliance with this paragraph 5, PricewaterhouseCoopers China fails to deliver the [December Accounts] to [Delisi] on or before 20 May 2016 and Completion does not occur pursuant to the terms of the [SSSA] …, the [SSSA] may be terminated at any time by notice given by [Delisi] to the other Parties, upon which [Yolarno] shall refund the Advanced Payment to [Delisi] in full, together with all interest (if any) actually accrued."
Parker J decided the issue in Delisi's favour but clearly regarded the contrary view as being arguable. On appeal Delisi accepted that Yolarno's construction of the clause is arguable.
Yolarno Pty Ltd v Shandong Delisi Food Co Ltd [2022] NSWCA 30 | Case summary | Zoe
Following Parker J's judgments, Yolarno promptly sought a stay and Delisi sensibly consented to a stay for a sufficient period to enable this application to come before me and to be determined.
As to the principles applicable to the Court's exercise of its discretion to grant a stay pending an appeal, the parties agree that, as stated in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 693-5, and affirmed in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737 at 741; [2002] NSWCA 383 at [17], it is unnecessary for an applicant for a stay to establish special or exceptional circumstances but the applicant must nevertheless persuade the court that there is a proper basis for a stay. Further, as this Court stated in Kalifair at [17] and [18], the court must first consider the threshold question of whether there is a "real risk that [the appellant] will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal" and, if this pre-condition is established, the Court will then consider the balance of convenience and the competing rights of the parties.
In support of its application for a stay, Yolarno relies in essence on the following matters.
First, it says that if Yolarno is required to satisfy the judgment debt before determination of its appeal, there is a risk that it will be unable to recoup its payment from Delisi because, to pursue its right of recovery, it would have to take proceedings in China to enforce a restitutionary judgment in its favour. The expert evidence of Dr Jie (Jeanne) Huang, an Associate Professor specialising in Chinese law and private international law at the University of Sydney Law School, indicates at least that this may not be straightforward. To Dr Huang's knowledge, "no Australian litigant has successfully enforced a judgment of an Australian court in China" and the position remains uncertain as to any future developments regarding reciprocity.
Secondly, Yolarno submits that Delisi's interests would be adequately protected by the accrual of post-judgment interest and by Yolarno giving undertakings to the Court not to dispose of or deal with any company property otherwise than in the ordinary course of its business and to prosecute the appeal expeditiously. As to the latter, I note that Yolarno's appeal is fixed for hearing by this Court on 20 April 2022 and that Delisi rejected an earlier hearing date offered by the Court (22 or 23 March 2022) on the basis of unavailability of its counsel.
Yolarno sought to demonstrate the worth of its first proffered undertaking by referring to audited 30 June 2021 financial accounts for itself and its subsidiaries. The consolidated statement of financial position at that date shows net assets of $89,146,064 (as against $85,219,230 at the previous balance date), current assets of $155,015,851 (as against $101,366,317 in the previous year) and current liabilities of $142,193,608 (as against $108,264,243 in the previous year). Amongst the current assets are inventories of $36,818,123 ($28,353,974 in the previous year) and "Biological assets" (that is, livestock) of $52,543,946 ($33,827,426 in the previous year).
Thirdly, Yolarno submits that, although it has $11.6 million cash at bank, $9.7 million of that is held in a dedicated capital expenditure account which, by reason of a loan agreement with a shareholder from which the funds were sourced, it is unable to use for purposes other than capital expenditure, at least without the consent of the shareholder. As a result, Yolarno would either have to obtain that consent or realise other current assets to satisfy the judgment debt in favour of Delisi.
Fourthly, Yolarno relies upon the timing considerations to which I have referred above in [7], namely, that the date for the hearing of the appeal by this Court is 20 April 2022 and that Delisi rejected an even earlier date that the Court offered. As well, Yolarno points out that Delisi in any event waited almost four years before commencing its proceedings for recovery of the Advanced Payment.
Delisi's submissions in response are as follows.
First, Delisi undertook in argument a detailed examination of Yolarno's end of year financial statements, emphasising in particular that Yolarno suffered a deficiency in net cash used in operating activities of over $10 million in the year to 30 June 2021. It submitted that, whilst "[Yolarno's] cash position is presently sufficient for it to meet the judgment debt, the evidence provides no comfort that that position will remain".
I do not accept however that, bearing in mind the short time frame in which Yolarno's appeal is likely to be determined, Delisi has successfully cast any significant doubt over Yolarno's ability to pay the judgment amount to Delisi. In particular, I do not consider that the Court should extrapolate from a net cash deficiency from trading in one year to a conclusion that there is a significant risk of such a deficiency being repeated, to the point where Yolarno's financial viability is in doubt. I note also in this respect that Delisi relied in argument on management accounts for the September and December quarters of the calendar year 2021. Delisi referred to them for other purposes, but I note that they show positive earnings by Yolarno in those quarters.
Secondly, Delisi contended that, unlike many other cases in which a stay is sought, there is no evidence that Yolarno would be unable to prosecute its appeal in the event that a stay is refused.
Thirdly, Delisi submitted that there is no reason to believe that Delisi would not honour a restitutionary judgment debt obtained against it in New South Wales and that, having voluntarily contracted with Delisi, Yolarno "should not now be heard to say that [Delisi] should be treated any differently in this Court because it is domiciled in China". I consider however that it is relevant to consider Yolarno's position if Delisi refused to pay such a debt and the practicality of enforcing an Australian judgment in a foreign jurisdiction, namely, the People's Republic of China.
Fourthly, Delisi proffered an undertaking to the Court that it will keep the amount of the judgment award of Parker J in cleared funds in an Australian bank account pending the resolution of the appeal and submitted that if the Court did not regard such an undertaking as sufficient, it should grant a stay on the condition that Yolarno pay the amount of the judgment against it into Court.
Finally, Delisi submitted that the undertaking proffered by Yolarno not to dispose of any of its property other than in the ordinary course of its business would be inadequate in the absence of security to support the undertaking.
Having taken these matters into account, as well as the more detailed expositions of them in the written submissions and oral argument, I have concluded that I should exercise my discretion to grant a stay. The following factors are, in my view, of particular importance.
First, the stay sought is required for only a limited period and would have been required for an even more limited period if Delisi had not wished to have a hearing date that suited its counsel.
Secondly, Delisi waited a long period (almost four years) before commencing proceedings to enforce its alleged rights. It could have been expected to take much prompter action if it had doubts about Yolarno's viability in the past. Any such doubts can therefore be inferred to have arisen only recently.
Thirdly, the evidence indicates that Yolarno is a company with substantial net assets. Its undertaking to the Court not to dispose of any assets otherwise than in the ordinary course of its business in my view provides sufficient protection to Delisi.
Fourthly, Yolarno has at least an arguable case to advance in support of its appeal.
Fifthly, due to the constraint on the use to which it can put most of the cash at bank that it holds (see [9] above), there is a significant prospect that Yolarno would have to dispose of current assets in order to satisfy the judgment in favour of Delisi. There is in my view no reason in the circumstances of this matter why Yolarno should have to incur that potential prejudice, which might well not be rectified by Yolarno's success on appeal.
For the reasons above, I make the following orders:
1. Upon Yolarno's undertakings to the Court referred to in paragraph (2) below, extend, until the determination of Yolarno's appeal to this Court, the stay presently in force in respect of the judgment and costs order entered and made by Parker J on 7 February 2022.
2. The undertakings to the Court referred to in paragraph (1) above are as follows:
1. that Yolarno will not dispose of or deal with any company property otherwise than in the ordinary course of its business; and
2. that Yolarno will prosecute its appeal expeditiously.
1. Order that the costs of Yolarno's motion for a stay be costs in the appeal.
[3]
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Decision last updated: 04 March 2022