FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE - Appeals - application for stay pending appeal - matters relevant to exercise of discretion to grant stay.

Federal Court Rules O 52 r 17

Federal Commissioner of Taxation v Myer Emporium Ltd [No 1] (1986) 160 CLR 220

Sali v SPC Ltd (1993) 67 ALJR 515

Advanced Building Systems v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121

Henderson v Amadio Pty Ltd (1996) 65 FCR 66

Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65

Ted Brown Quarries Pty Ltd v General Quarries (Gilston) (1977) 16 ALR 23

Ray Teese Pty Ltd v Syntex Australia Limited [1998] 1 QdR 104

JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237

Griffiths v Civil Aviation Authority (1996) 67 FCR 301

Cummings v Claremont Petroleum (1996) 185 CLR 124

STARBORNE HOLDINGS PTY LTD v RADFERRY PTY LTD, LOUIE ZENONOS, SAM ZENONOS AND JOHN ZENONOS

QG 125 of 1996

COOPER J

BRISBANE

21 MAY 1998

THE COURT ORDERS THAT:

1.         The applicant and Messrs Burns Jameson solicitors, within forty-eight hours, file in court, a written undertaking to the Court, that they, or either of them, will deposit in the said solicitors’ trust account, any monies recovered by the applicant or on its behalf by execution or otherwise in respect of the judgment of Drummond J given on 27 April 1988 in these proceedings and to invest the same in any authorised trustee’s investment pending determination of the appeal filed herein.

2.         The application for a stay of the judgment of Drummond J given on 27 April 1998, by notice of motion filed 12 May 1998, be dismissed.

3.         In default of the filing of the written undertaking as required by paragraph 1 above, the respondents to have liberty to apply for such further or other order as they may be advised.

4.         The applicants to the notice of motion filed 12 May 1998 pay the respondent to the motion its costs of and incidental to the motion to be taxed if not agreed.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

On 8 April 1998, Drummond J gave judgment against the respondents in favour of the applicant.  The question of the orders to be made in consequence of his judgment remained outstanding.

On 27 April 1998 Drummond J made the following orders :-

“1.       The first respondent, Radferry Pty Ltd [ACN 011 018 867], and the second respondents, Louis Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay to the applicant, Starborne Holdings Pty Ltd [ACN 071 108 453], damages in the amount of $174,268.47.

2.         The first respondent, Radferry Pty Ltd [ACN 011 018 867], pay to the applicant, Starborne Holdings Pty Ltd [ACN 071 108 453], interest in the amount of $16,059.12.

3.         The second respondents, Louis Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay to the applicant, interest in the amount of $13,243.07.

4.         The first respondent, Radferry Pty Ltd [ACN 011 018 867], and the second respondents, Louis Zenonos, Savvas (also known as Sam) Zenonos and John Zenonos, pay the applicant’s costs of the action (including reserved costs) to be taxed.”

On 27 April 1998 the applicant issued writs of execution against real property interests in the names of the first and second respondents.

On 28 April 1998 the respondents filed a notice of appeal against the whole of the judgment of Drummond J.  On 18 May 1998 the respondents filed an amended notice of appeal and on that date the applicant filed a notice of cross-appeal seeking that the damages ordered to be paid be increased.

On 29 April 1998 the respondents, by their solicitor, sought from the applicant’s solicitors agreement that no further action be taken on the judgment to allow the respondents to raise, within twenty-one days, the necessary funds to satisfy the judgment.  The applicant, by its solicitors, rejected the request, by letter of 1 May 1998, and advised that enforcement proceedings would be taken on or before 6 May 1998.

The respondents, by notice of motion filed 12 May 1998, seek orders staying the judgment of Drummond J pending disposition of the appeal, or earlier order.

The notice of motion was opposed by the applicant.  Mr McQuade, on behalf of the applicant, submitted that the relief should be refused because :-

(a)        the applicant is entitled to the fruits of the litigation pending appeal:  Federal Commissioner of Taxation v Myer Emporium Ltd [No 1] (1986) 160 CLR 220 at 222;

(b)        the respondents have not shown that a stay is necessary to preserve the right of appeal, or to prevent it from becoming nugatory in the event of a successful appeal:  Sali v SPC Ltd (1993) 67 ALJR 515 at 516;  Advanced Building Systems v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121 at 123;

(c)        the respondents have engaged in conduct in respect of real property transactions which will have the effect of defeating the applicant’s judgment:  Henderson v Amadio Pty Ltd (1996) 65 FCR 66 at 78 D-F.

In support of the stay, the respondents, by their counsel Mr Hanson QC, submitted :-

(a)        the appeal is bona fide, brought in a timely manner, and one which will be prosecuted with all due diligence;

(b)        the respondents have good prospects on appeal and, if successful, the applicant will recover nothing, or at best, a substantially reduced sum;

(c)        there is a risk that if the damages are paid pending determination of the appeal, they will be irretrievable because the applicant and its controllers will dispose of the funds, and are themselves without substantial assets to satisfy any order to repay the amounts paid under the judgment;

(d)        proceedings for bankruptcy and winding up have been threatened;

(e)        by filing a cross-appeal, the applicant lost the right to enforce the judgment pending determination of the appeal and cross-appeal.

Mr Hanson QC submitted that each of the above circumstances, or the totality of them, was a reason, or constituted an appropriate case, for the grant of a stay of the judgment pending appeal.

The relevant principles applicable to the exercise of the discretion to stay or not to stay the judgment pending appeal, were considered by a Full Court of this Court (Burchett, Heerey and Whitlam JJ) in Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65.  In a judgment of the Court, their Honours said (at p 66) :-

“The principles applicable depend on the terms of O 52, r 17 of the Federal Court Rules 1979 (Cth).  Rule 17(1) provides :

            ‘An appeal to the Court shall not:

(a)        operate as a stay of execution or of proceedings under the judgment appealed from;  or -

            .....

            except so far as the Court or a Judge or the court below may direct.’

The language of that rule suggests no limitation upon a broad discretion inhering in the Court.  Several judges of the Court, most recently Heerey J in Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 have followed the decision of the Court of Appeal of New South Wales in Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685, where, at 694, that Court said it was ‘sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour’.  The Court of Appeal also referred with approval to a statement of Mahoney JA in Re Middle Harbour Investments Ltd (In liq) (unreported, Court of Appeal, NSW, 15 December 1976) where, with the concurrence of the other members of the Court, Mahoney JA said:

            ‘Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case.  Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct.  These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party.’

Notwithstanding that in the Supreme Court of Victoria a more stringent test has generally been applied (see Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653;  Lagarna Pty Ltd v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1995] 1 VR 150), we think we should follow the decision in Alexander v Cambridge Credit ...”

Applying those principles, the fact of a bona fide and timely appeal does not of itself justify the grant of a stay.

The case before Drummond J concerned the sale of a coffee shop to the applicant by the first respondent, and allegations that the respondents, in making representations as to the takings of the business, engaged in fraudulent conduct and conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth).

His Honour found that the actual trading figures supplied to Mr Jacobsen, a principal of the applicant, “were deliberately inflated to deceive Mr Jacobsen”.

The applicant had tendered valuation evidence that the coffee shop had no value at all.  His Honour rejected that evidence.  He said :-

“... The respondents, though fraudulent, must be given credit in the assessment of the damages they are liable to pay, for the real value which I think the business had at contract date ...”

His Honour stated the applicable principle to the assessment of damages in cases of the type with which he was dealing, in the following terms :-

“In an action of deceit, where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, ‘the measure of damages usually applicable is the difference between the real value of the property at the time of purchase and what the plaintiff paid for it’”  Gould v Vaggelas at 220, per Gibbs CJ.  But, as the Chief Justice went on to point out:  ‘The usual rule is, however, only a special application of the general principle that “[i]n an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant” ...’.  This can, I think, be taken in the present case as providing a guide to the proper measure of damages recoverable by the applicant under s 82 of the Trade Practices Act, also:  see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526.  Provided effect is given to this principle, these damages can be assessed on approaches different from the usual one:  see Gibbs CJ’s approval of the method adopted in Doyle’s case in Gould v Vaggelas at 222 - 223.”

His Honour assessed damages by reference to the difference between the represented profits and the notional profits which could have been achieved if the business had been conducted in such a way as to realise its full potential.  In order to achieve these notional figures, he disregarded certain items of expenditure incurred, which he regarded as abnormal or items of personal expenditure for Mr and Mrs Jacobsen.

The respondents will contend on appeal that, having rejected the evidence of valuation tendered by the applicant, the Court should have found that there was no evidence of loss and dismissed the claim:  Ted Brown Quarries Pty Ltd v General Quarries (Gilston) (1977) 16 ALR 23.

They will also contend that his Honour erred in deciding that there was a sufficient basis in the evidence to enable an assessment to be made.  Rather, it was submitted, it was open to, and an obligation of, the applicant, to prove its damage with as much certainty and particularity as is reasonable (Ray Teese Pty Ltd v Syntex Australia Limited [1998] 1 QdR 104 at 110) which it failed to do, and the Court was not required nor permitted to make an assessment on insufficient materials:  Ray Teese Pty Ltd at 109 - 110;  JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241 ff.

As an alternative argument, the respondents will argue on appeal that there was nothing in the references to Gould v Vaggelas or Wardley, cited in the extract from his Honour’s reasons for judgment set out above, which would justify the approach taken by his Honour.  His Honour, it was submitted, had not attempted to put the applicant, so far as is possible, in the position it would have been had it not acted on the fraudulent inducement.  Rather, it was submitted his Honour had attempted to ascertain the “prejudice or disadvantage”, by reference to notional shortfalls in past and future net profit, over the whole duration of the lease under which the business was carried on.  Such an approach, it was submitted, is impermissible in principle and in carrying out the exercise, it was submitted, his Honour failed to compare like with like, to the detriment of the respondents.

Depending on how abnormal items are treated, and bringing to account an arithmetic error, it was submitted by the respondents that the notional achievable net profits exceeded the represented net profits, and that in consequence no finding of damage ought to have been made.

An application for a stay is not the occasion to finally consider and weigh the strength of each ground of appeal.  Mr McQuade did not suggest that the respondents had no arguable basis for the appeal.  Instead, he submitted that there was nothing in the argument which displaced the prima facie view that judgment was correct and that the applicant was entitled to the fruits of it.  That is, applying the approach taken in Alexander v Cambridge Credit Corporation Ltd, and adopted by the Full Court in Powerflex Services, the existence of an arguable case on appeal does not of itself justify the granting of a stay.  I agree.  Without a careful consideration of the evidence and his Honour’s reasons, it is not possible to determine whether there is a high probability of success on appeal.  A cursory examination leaves the matter in the speculative or argumentative state referred to by Mahoney JA in the extract cited above.

The respondents submitted that if the judgment was satisfied, then the money paid over would be irrecoverable in the event of a successful appeal.  This, it was submitted, was demonstrable from the financial statements of the applicant.

The principal creditors of the applicant are Mr and Mrs Jacobsen.  Excluding that debt, the principal assets of the applicant are the coffee shop and attendant plant and equipment.  That business, according to his Honour and the respondents, is something of value.  More importantly, the applicant’s solicitor by Mr McQuade, has undertaken that any money received in satisfaction of the judgment will be placed in a trust account and invested pending determination of the appeal.  In the context in which Mr McQuade gave the undertaking, I understand it also to be an undertaking of the applicant that any money it receives, directly or indirectly in satisfaction of the judgment, will be paid into the trust account.  In these circumstances, I am not satisfied that there is any risk that the whole or partial satisfaction of the judgment prior to a successful appeal, would lead to the respondents’ appeal rights being rendered nugatory.

The respondents, in order to obtain a stay, offered undertakings to file an affidavit of their assets and not to deal with those assets other than in certain circumstances contained in the draft undertakings.  Although initially attracted to such a course, the response of the respondents’ solicitors to the concerns expressed regarding the real property dealings lodged the day after the judgment, satisfies me that no useful purpose would be achieved in following such a course.  It is clear that there is a major issue between the parties as to who is the beneficial owner of the real property the subject of the writs of execution.

The respondents have not demonstrated that the case is an appropriate one for the granting of a stay pending appeal.  To grant a stay would be a real burden to the applicant if the execution of the warrants of execution were stayed, with the result that the land was dealt with in a way which defeated the applicant’s judgment, should the applicant have a present entitlement to execute.  To refuse a stay, having regard to the undertakings to have any funds recovered in satisfaction or partial satisfaction, paid into the solicitor’s trust account and invested, pending determination of the appeal, involves no burden on the respondents.

It was submitted that threats of bankruptcy and winding up have been made.  However, that in itself is no reason to grant a stay of the judgment pending appeal.  The appeal rights, should matters proceed to sequestration, may be enforced by the trustee or liquidator for the benefit of the estate:  Griffiths v Civil Aviation Authority (1996) 67 FCR 301 at 323 - 324;  Cummings v Claremont Petroleum (1996) 185 CLR 124 at 138 - 139.

The threat of proceedings in bankruptcy or winding up do not, in my view, justify a stay in this case.

Finally, it was submitted that the institution of the cross-appeal to increase the amount of the damages awarded operated to prevent the judgment being enforced pending appeal.  I do not know of any matter of principle or discretion which would dictate such a result, and none was forthcoming in argument in support of the submission.

The applicant and its solicitors will be ordered to file in court, within forty-eight hours, a written undertaking to deposit in the solicitors’ trust account any monies recovered by execution or otherwise in respect of the judgment of Drummond J given on 27 April 1988, and to invest the same in any authorised trustee’s investment, pending determination of the appeal filed herein.  Otherwise the application is dismissed with costs.

Associate:

Dated:              21 May 1998