Zhu v Wang

Stay of past and future costs orders

1. The application for a stay of costs orders "to be made" by this Court in relation to the appeal and the proceedings below is misconceived; no orders have yet been made by the Court and the costs order made by Rothman J on 2 December 2020 was set aside by the Court of Appeal in order 4 made on 7 October 2021.

Order 2

1. The effect of order 2 was to set aside order 6 made by Payne JA on 16 July 2021. Order 6 was in the following terms: Until publication by the Court of Appeal of its reasons following the hearing on 26 August, stay the execution of the writ of levy of property issued on 22 April 2021 in proceedings 2019/00293452-010.
2. The operation of order 6 expired by its own terms on the publication of the judgment of this Court on 7 October 2021. Order 2 was made out of the abundance of caution, lest there be any doubt that the stay on the execution of the writ of levy of property expired on the date of publication of this Court's judgment.
3. The writ of levy of property referred to in order 6 was in the amount of $241,753.48, being the amount of the judgment ordered by Rothman J. On 19 October 2021, the respondents' solicitors sent a request to the Office of the Sheriff of New South Wales seeking suspension of the writ. That request recognised that the writ of levy of property could no longer be enforced for an amount which exceeded the judgment debts ordered by this Court, which were less than the amount ordered below.
4. Accordingly, to the extent that par [1] of the motion dated 14 October 2021 seeks an extension of the stay on the execution of the writ of levy of property issued 22 April 2021, that relief is unnecessary.

Order 4

1. The applicants seek a stay of the judgment debts the subject of order 4 while an application is made to the High Court to seek special leave to appeal from the decision of the Court of Appeal. The applicants have not yet filed the necessary papers with the High Court. Ms Zhu says that she intends to do so by 3 November 2021.
2. The application was made to this Court in accordance with the procedure approved in Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681 at 684; [1986] HCA 84, namely, that an application for a stay pending determination of a special leave application to the High Court should be made to the Court from which the appeal is to be brought. The principles on which the Court should approach such an application for a stay are set out in Rinehart v Welker (2012) 83 NSWLR 347; [2012] NSWCA 1 at [42] ff. A stay should be granted only in exceptional circumstances and subject to the usual considerations that apply to stays pending appeal. These considerations are: (1) the necessity to protect the subject matter of the litigation; (2) the prospects of success on appeal; and (3) the balance of convenience having regard to both the detriment likely to be caused to the applicant and to the respondent respectively were the stay to be granted or not granted.
3. An assessment of the prospects of success directs attention to the criteria for granting special leave to appeal set out in s 35A of the Judiciary Act 1903 (Cth). These include whether the proceeding to which the judgment relates involves a question of law that is of public importance, whether because of its general application or otherwise, or because it is necessary to deal with differences of opinion between different courts as to the state of the law; and whether the interests of the administration of justice generally, or in a particular case, require consideration by the High Court.
4. Since no application has yet been filed in the High Court, there is no draft summary of argument available explaining the basis upon which special leave is to be sought by the applicants. Nevertheless, having considered Ms Zhu's affidavit of 14 October 2021, which is in the form of a submission, her written submissions of that date, and further written submissions dated 25 October 2021, it is apparent that none of the matters identified by Ms Zhu as proposed grounds of an application for special leave to appeal are unusual, or involve a question of law of public importance, or raise a matter where there are differences of opinion between different state courts.
5. Proposed ground 1, in substance, is that the judges of appeal came to the wrong conclusion on the question of construction as to the correct parties to an agreement referred to as the Acquisition Agreement. Other than the bare assertion that the Court misconstrued who were the correct contractual parties in rejecting the applicants' claims for damages for the respondents' alleged repudiation of certain agreements, Ms Zhu's affidavit and written submissions fail to identify any particular instance of error. Further and importantly, the written submissions did not identify any particular error in rejecting the applicants' contention that the respondents repudiated certain agreements.
6. Proposed grounds 2 and 3 complain of alleged misleading or deceptive conduct and unconscionable conduct by the respondents contrary to ss 18 and 20 of the Australian Consumer Law (NSW) in their dealings with the applicants in relation to the Acquisition Agreement involving three stores in Queensland. This is a new claim by the applicants. There were no grounds of appeal in this Court relying upon any such alleged conduct by the respondents, nor was that an issue at trial.
7. In my view, the prospects of the applicants obtaining special leave to appeal to the High Court are remote at best.
8. Addressing the subject matter of the litigation, Ms Zhu says in her written submissions that if the applicants satisfy the judgment (contrary to her submission that the applicants are without the financial means to do so), and succeed in obtaining special leave to appeal, and also succeed on appeal to the High Court, there are no reasonable prospects of having the money returned to the applicants promptly because the first respondent, Mr Wang, has sold his shares in the second respondent to a third party, and now resides in China.
9. There is no evidence establishing the factual assertions contained in this submission, but even assuming the assertions concerning Mr Wang to be correct, that is not to the point. The judgments in order 4 are in favour of the second respondent, De Rucci International, not Mr Wang. There is no evidence of any risk that if the judgment amounts were paid by the applicants to De Rucci International, that company would not be in a position to repay the judgments if the applicants ultimately succeeded on appeal to the High Court.
10. Next, Ms Zhu submitted that she is entitled to an amount of $160,000 based on an unpaid fee of $5,000 per month from De Rucci International, which amount should be set off against the judgments in order 4. The "fee" claim is based on a document signed by Ms Zhu styled the Loan Confirmation Agreement. As stated at [46] of the Appeal Judgment, the Loan Agreement Confirmation relevantly provided as follows: "Under mutual agreement, the commencement date of the subject management agreement has been deferred to 31/12/2016. Accordingly, [Ms] Zhu agrees that the bank guarantee funds of $107,317.90 provided by De Rucci [International] are converted to an interest free personal loan from De Rucci [International] to her. [Ms] Zhu is responsible to repay this loan as soon as possible. Accordingly De Rucci [International] further agrees to make a monthly interest payment of $5000 to [Ms] Zhu provided that both of these conditions are met: 1. [Ms Zhu] has made full payment of $107,317.90 to De Rucci [International]. 2. De Rucci [International] has commenced the management of HQ Living Moore Park store as per the Management Agreement dated 20/10/2016. Furthermore De Rucci [International] agrees that it will waive the penalty cost of $100,000 for Singways as a result of the delayed business commencement date from 01 November 2016 to 31/12/2016 specified under Clause 9 in the above mentioned Management Agreement."
11. Ms Zhu says that since the Court has now ordered the amount of the bank guarantee loan of $107,317.90 to be paid by her and the second applicant (order 4(b)), she is to be treated as the "owner" of the bank guarantee for the whole time that the Management Agreement was in effect (being January 2017 to August 2019) and therefore is entitled under the Loan Confirmation Agreement to payment by the respondents of the monthly fee for that period, which equates to $160,000. This argument is misconceived.
12. First, Ms Zhu's entitlement to a monthly fee of $5,000 from De Rucci International was conditional on two matters, one being that the loan of $107,317.90 was repaid. There was no accrued right to receive the monthly fee prior to satisfaction of both conditions. The first condition relating to the repayment of the loan was never satisfied in the period January 2017 to August 2019 for which Ms Zhu claims the monthly fee. Second, aside from the difficulty that the Management Agreement is no longer in force, even if the judgment the subject of order 4(b) is paid by Ms Zhu, that would not retrospectively satisfy the conditions for payment of the monthly fee at an earlier time.
13. If it were necessary to consider the question of the balance of convenience or the balance of hardship, the position is relatively finely balanced. The applicants say that given their limited or impecunious financial circumstances, refusal of a stay would stultify the proposed application for special leave to appeal because the respondents have threatened enforcement action against Ms Zhu by way of bankruptcy proceedings and the corporate applicants by way of winding up proceedings. Ms Zhu gave high level evidence that her liabilities exceed the small value of her assets, which are mostly limited to household contents, and she is the recipient of the government's disaster payment of $750 per week in the last three months due to the Covid-19 lockdown.
14. Ms Zhu also gave evidence that the second applicant ceased trading in January 2020 at the start of the Covid-19 outbreak and has an overdraft debt to its bank in an amount of approximately $46,000. The third applicant has no bank account, nor any active trading since 2018. Ms Zhu did not address in her evidence whether there are other possible sources of finance available to her.
15. Accepting that the applicants have no material assets, De Rucci International as the judgment creditor will not suffer any relevant prejudice if a stay is granted. That is because the loss of the right to proceed to bankruptcy or winding up to prevent the appeals being heard on their merits does not constitute relevant prejudice for present purposes: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [24].
16. Against this, the applicants have not yet filed an application for special leave to appeal, there are no evident prospects of success of obtaining special leave if an application is filed, and the applicants have made no offer to pay any part of the judgments into court as a condition of a stay. In my view, the balance of convenience slightly favours the respondents who, prima facie, are entitled to the fruits of the judgment in favour of De Rucci International.
17. In all the circumstances, the applicants have not demonstrated exceptional circumstances to obtain a stay of the judgment debts ordered by this Court pending any application for special leave to appeal to the High Court.

Orders

1. I make the following orders: 1. Notice of motion filed 14 October 2021 be dismissed. 2. The applicants to pay the respondents' costs of the motion.

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: 29 October 2021