FEDERAL COURT OF AUSTRALIA

Wu v Li [2014] FCA 297

THE COURT ORDERS THAT:

1.    By 30 April 2014, the appellant provide security for the respondent’s costs of and incidental to the within appeal in the amount of $60,000 and also provide security in the amount of $30,000 in respect of post-judgment interest which has accrued and continues to accrue on the judgment ordered by Jagot J on 6 November 2013 in proceeding ACD 54 of 2011 in the amount of $1,170,387.73 (comprising the principal sum of $976,866.80 and interest thereon of $193,520.93), such security to be provided by cash or in the form of a bond or guarantee issued by an appropriate financial institution licensed to operate as such in Australia in a form to be agreed between the parties or, failing agreement, to be settled by a Registrar.

2.    Upon condition that the security required to be provided by Order 1 above is provided by 30 April 2014, execution on and proceedings under the judgment and order ordered in pars 2 and 3 of the Orders made by Jagot J on 6 November 2013 in proceeding ACD 54 of 2011 and execution on and proceedings under the order made by Jagot J on 29 November 2013 in the same proceeding be stayed until the determination of the Appeal and Cross-Appeal herein, or until further order of the Full Court.

3.    The costs of and incidental to the Interlocutory Application filed by the appellant on 25 February 2014 be reserved.

4.    Both parties have liberty to apply on two (2) days’ notice or on such shorter notice as a judge might allow.

5.    The Appeal and Cross-Appeal be listed for directions at 9.15 am on 2 May 2014 before Foster J.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By Notice of Appeal filed on 25 November 2013, the appellant, Mr Wu, appealed from final orders made by a judge of this Court on 6 November 2013. By those orders, judgment was entered against Mr Wu in favour of the respondent, Mr Li, in the sum of $976,866.80 plus interest. The orders made on 6 November 2013 gave effect to Reasons for Judgment of the primary judge published on 22 October 2013 (Li v Wu [2013] FCA 1067) (the principal judgment).

2    On 29 November 2013 the primary judge ordered Mr Wu to pay Mr Li’s costs of the proceeding before her. Her Honour delivered Reasons for Judgment in support of that order on the same day (Li v Wu [2013] FCA 1265).

3    By Amended Notice of Appeal filed on 2 December 2013, Mr Wu also appealed from the order for costs made against him. Mr Wu intends to challenge the costs order made by her Honour even if his attack on the principal judgment fails entirely.

4    On 19 December 2013, Mr Wu was served with a Bankruptcy Notice (BN167939) which had been issued by the Official Receiver on 6 December 2013 (Bankruptcy Notice). The Bankruptcy Notice was founded upon the orders made by the primary judge on 6 November 2013.

5    On 20 December 2013 Mr Wu filed an Application for an Extension of Time to Comply with the Bankruptcy Notice. On 27 February 2014, the Registrar extended the time for compliance with the Bankruptcy Notice until 24 April 2014. Mr Wu’s Application for an Extension of Time was adjourned to that date. I have been informed that the Court has recently brought forward the next listing of that Application to 17 April 2014.

6    On 9 December 2013 Mr Li filed a Notice of Cross-Appeal (Cross-Appeal).

7    On 24 March 2014, pursuant to leave granted by me on 18 March 2014, Mr Wu filed a Further Amended Notice of Appeal (current Notice of Appeal).

8    The Appeal and Cross-Appeal have been fixed for hearing before a Full Court on 22 May 2014. Directions have been made designed to ready both the Appeal and Cross-Appeal for hearing. The parties are presently engaged preparing both matters for that hearing.

9    By Interlocutory Application filed by Mr Wu on 25 February 2014, Mr Wu seeks an order staying the orders made by the primary judge on 6 November 2013 and 29 November 2013 pending the hearing and determination of his Appeal.

10    These Reasons for Judgment determine Mr Wu’s application for a stay.

The Principal judgment

11    The hearing of the proceedings before the primary judge occupied ten days. Mr Li was the applicant in the proceedings below. Mr Wu was the respondent.

12    In the final iteration of his Statement of Claim (the Second Further Amended Statement of Claim filed on 19 September 2013), Mr Li made a number of claims against Mr Wu ranging across several transactions and involving dealings between the two men which took place over a number of years.

13    In the principal judgment (at [2]), her Honour described those claims in the following way:

There are four groups of claims. The first is the claim under the indemnity provisions of two shareholder agreements entered into in 2006. The second is the claim for misleading and deceptive conduct under the Fair Trading Act 1992 (ACT) (Fair Trading Act) by which Mr Wu is alleged to have induced Mr Li to enter into another agreement in February 2008. The third is the claim for alleged breaches of contract, including express and implied terms, of an agreement entered into in March 2005. The fourth is the claim for equitable compensation for loss Mr Li is said to have suffered by reason of Mr Wu’s breaches of fiduciary duties.

14    Her Honour found that Mr Li had established his claim against Mr Wu under the indemnity in cl 5 of a Shareholder Agreement dated 11 August 2006 entered into between Mr Wu, Mr Li, Ms Xiu Zhen Ji and Golden Enterprise Investments Pty Limited (GEI) (the GEI Shareholder Agreement). Her Honour found that Mr Wu was liable to pay to Mr Li the sum of $976,866.80 pursuant to the said indemnity. Her Honour also held that Mr Li was entitled to interest on that sum.

15    GEI is part of the Golden Group of Companies. The other companies in that group are Golden International Investments Pty Limited, Golden Crop Pty Limited, Golden Constructions Pty Limited and Spring Grove Enterprise Investments Pty Limited (SG).

16    The primary judge also found that Mr Wu had engaged in misleading and deceptive conduct in procuring Mr Li to enter into a further agreement in 2008 but had failed to prove any loss or damage flowing from that conduct.

17    Her Honour rejected Mr Li’s claims for damages for breach of contract.

18    Her Honour also rejected Mr Li’s claim for equitable compensation for breach of fiduciary duty on a number of grounds. In particular, her Honour refused leave to Mr Li to amend his Statement of Claim in order to plead this particular claim.

19    The primary judge held that the GEI Shareholder Agreement was entered into in effect as a joint venture agreement amongst the members of GEI (Mr Li, Mr Wu and Ms Ji) for the development of certain land at Fox Place, Lyneham, in the ACT.

20    Clause 5 of the GEI Shareholder Agreement provided that, in the event that GEI was unable to repay any “Member loan” (including interest), the other members, jointly and severally, agreed to indemnify that Member for their Proportionate Share of the loan amount. The primary judge held that GEI was unable to repay to Mr Li the total of several amounts advanced to GEI by other persons and entities at the direction of Mr Li and that accordingly cl 5 had been triggered with the consequence that Mr Wu was obliged to pay to Mr Li a share of the balance of Mr Li’s loan account with GEI. Her Honour quantified that amount at $976,866.80.

21    Her Honour also found that, as a result of a further agreement made between Mr Li and Mr Wu on or about 18 February 2008, those two parties agreed to consolidate the loan account balances of the members of GEI with the loan account balances of the members of SG and that, as a result, the balance of Mr Li’s loan account with GEI was to be determined upon the basis that GEI was indebted to Mr Li for the consolidated debt so arrived at. At [24]-[25] of the principal judgment, the primary judge said:

In other words, Mr Li and Mr Wu agreed that the amounts owed to Mr Li by GEI and SG, netted off against the losses incurred by Hong Chen and Ms Ji, were to be treated as a shareholder’s loan by Mr Li to GEI. Accordingly, as between themselves, Mr Li and Mr Wu agreed that this amount, $5,751,925.37, was a member’s loan for the purposes of the GEI shareholder agreement, “Golden” in the 2008 agreement being a reference to GEI. By this Mr Wu and Mr Li agreed that this amount was a member loan within the meaning of the GEI shareholder agreement including cl 5, the indemnity provision. The terms of the 2008 agreement also included Mr Li’s loans to SG up to that point. Hence, the figure of $5,751,925.37 is all inclusive. Mr Li cannot have any separate claim under cl 5 of the SG agreement for money he lent to SG before the 2008 agreement because the figure of $5,751,925.37 is the amount he and Mr Wu agreed represented the total owed to Mr Li and the debt was that of GEI alone. In this regard, it does not matter that GEI is not itself a party to the 2008 agreement. The 2008 agreement binds Mr Li and Mr Wu and the present claim is by Mr Li against Mr Wu.

For these reasons as at 18 February 2008, by entry into the 2008 agreement, Mr Wu admitted and is bound by the provision of the agreement to the effect that Mr Li had lent to GEI as member’s loans the sum of $5,751,925.37 and that such loans were subject to the indemnity in cl 5 of the GEI shareholder agreement. The figure of $4,520,349.20 on which Mr Li relies is also set out in the 2008 agreement. That agreement records that Mr Li in fact lent GEI $4,520,349.20 “excluding amounts used for O’Malley, personal amounts and amounts used for the farm”. On the same principle it is not now open to Mr Wu, a party to that agreement, to resile from the position recorded therein. Although Mr Li relied on this latter figure it is clear from the 2008 agreement that the deal between Mr Li and Mr Wu went further and treated all loans by Mr Li to GEI and SG as loans to GEI within the meaning of the GEI shareholder agreement. As between themselves Mr Li and Mr Wu were free to make that agreement and both remain bound by it.

22    It was common ground before the primary judge that virtually all of the payments made to GEI and SG which were ultimately found by her Honour to be loans made by Mr Li to those corporations were made by persons or entities other than Mr Li himself. Notwithstanding these facts, her Honour found that those payments were properly characterised as loans made by Mr Li to the relevant corporations. At [28] of the principal judgment her Honour said:

Where a party (A) causes another party (B) to transfer money to a third party (C) then the character of the transaction is also to be found in the nature of C’s obligation of repayment. In the present case there is no real doubt on the evidence that Mr Li and GEI operated on the basis that GEI was bound by repayment obligations to Mr Li and not to any intervening entity that Mr Li caused to make the transfers. It is not the case, as Mr Wu’s submissions would have it, that there is no evidence about the intervening entities. There is evidence that Mr Li and Mr Li alone caused those entities to transfer money to GEI. None of those entities, some of which Mr Li controls, have made any contrary claim to repayment. Moreover, by its conduct in allocating such funds to Mr Li’s loan account in its books and records, GEI accepted that it had an obligation of repayment to GEI. In these circumstances the issue about intervening entities is a distraction. GEI’s own books and records are an admission that Mr Li lent money to GEI which GEI had an obligation to repay to Mr Li. The same general conclusions apply in respect of Mr Li’s loans to SG.

23    At [32]-[34] of the principal judgment, her Honour gave reasons for the conclusions which she expressed at [28].

The Current Notice of Appeal

24    In his current Notice of Appeal, Mr Wu specified seven grounds of appeal. Those grounds may be summarised as follows:

(a)    The primary judge erred in characterising payments made by third parties to GEI as “Member loans” within the meaning of cl 5 of the GEI Shareholder Agreement (Ground 1).

(b)    Her Honour erred regarding the consolidated loan account position referable to both GEI and SG as a proper foundation for the calculation of the balance of Mr Li’s Member loan with GEI (Ground 2).

(c)    Her Honour erred in holding that the true construction of the 2008 Agreement was to the effect that the sum of $4,520,349.20 represented the indebtedness of GEI to Mr Li after deducting personal expenses paid to or for Mr Li (Ground 3).

(d)    Her Honour erred in finding that GEI had allocated payments made by third parties to GEI to Mr Li’s loan account in its books (Ground 4).

(e)    Her Honour erred in failing to correctly appreciate the relationship between GEI, SG and other companies in the Golden Group and thus the likely dividend to be received from those other companies (Grounds 5 and 6).

(f)    Her Honour erred in making the usual order as to costs in circumstances where Mr Wu had succeeded in resisting most of the claims brought by Mr Li against him (Ground 7).

The Notice of Cross-Appeal

25    In his Cross-Appeal, Mr Li challenges the primary judge’s quantification of his claim under cl 5 of the GEI Shareholder Agreement. He contends that he is entitled to $1,144,470 plus interest pursuant to that claim, not $976,866.80 plus interest, which was the amount calculated by her Honour. In addition, Mr Li presses all of the other claims which her Honour rejected.

The Relevant Principles

26    Rule 36.08(2) of the Federal Court Rules 2011 provides that an appellant or interested person may apply to the Court for an order to stay the execution of a proceeding until the appeal is heard and determined.

27    In Philip Morris (Australia) Limited v Nixon [1999] FCA 1281, the Full Court said (at [17]):

The general principles governing an application for a stay pending the determination of an appeal or application for leave to appeal are not in doubt. The party seeking a stay must demonstrate a reason, or an appropriate case, to warrant the exercise of a discretion in his or her favour. This requirement is not satisfied by the mere filing of an appeal or an application for leave to appeal: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 (CA), at 694. The Court has a discretion whether or not to grant the stay, and if so, as to the terms that will be fair. In the exercise of the Court’s discretion, it weighs consideration such as the balance of convenience and the competing rights of the parties, in particular whether prejudice will be caused by reason of the grant or withholding of a stay: Alexander, at 694; Jennings Constructions Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 (Brennan J), at 685. Within this framework, the Court exercises a broad discretion, and the party seeking a stay does not have to establish “special” circumstances: Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 (FC), at 66, per Burchett J. In general, a party which has succeeded at the trial is entitled to the benefit of a judgment and thus to commence with the presumption that the judgment is correct: Powerflex, at 66. The question on the present application is how these principles apply to the unusual circumstances of the present case.

28    In Kalifair Pty Limited v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737, at 741 [16], the NSW Court of Appeal held that a stay of execution may properly be granted where an order for the winding up a corporate appellant is likely to render that appellant’s appeal nugatory. The Court expressed that opinion after considering a number of authorities (at 739-741 [4]-[15]).

29    At 741-742 [17]-[26], the Court said:

17    In Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed), (1985) 2 NSWLR 685 this Court (Kirby P, Hope, McHugh JJA) restated the principles to be applied in exercising this Court’s jurisdiction to grant a stay pending an appeal. The Court said (694, 695):

“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 … demonstrates a reason or appropriate case to warrant the exercise of discretion in his favour …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 … Two further principles may 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 … 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”.

18    Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience.

19    The overriding principle is that stated by Lord Cairns in Rodger v Comptoir d’Escompte de Paris (1871) 3 LR PC 465, 475:

“… one of the first and highest duties of all Courts is to take care that the act of the Court does no injury to any of the Suitors and when the expression ‘the act of the Court’ is used, it does not merely mean the act of the primary Court, or of any intermediate Court of Appeal, but the act of the Court as a whole, from the lowest Court which entertains jurisdiction over the matter up to the highest court which finally disposes of the case. It is the duty of the aggregate of those Tribunals … to take care that no act of the Court in the course of the whole of the proceedings does an injury to the suitors in the Court”.

20    This passage was referred to in TCN Channel 9 Pty Ltd v Antoniadis [No 2] (1999) 48 NSWLR 381 where this Court considered the principles governing a stay of execution pending an appeal and the restitution to be ordered in favour of a successful appellant.

21    In the present cases if stays are refused the judgment creditor would be free to serve statutory demands and proceed to winding-up. The prosecution of the appeals would then be stayed automatically and the stays would continue unless and until the liquidator elected to prosecute the appeals. The directors would lose control of the litigation and the creditors, including the judgment creditor, would have a say in any decision to proceed.

22    The directors would thus suffer delay and difficulty and incur additional expense in securing a decision from the liquidator to proceed with the appeals.

23    Three of the four appellants have no assets and in these cases the real purpose of any winding-up proceedings can only be to stop the appeals. However the remaining company, McLean, has assets of $1.7 million and its appeal raises different considerations which will be dealt with later in these reasons.

24    The judgment creditor and its solicitors evidently believe that the winding-up of the three appellants would be to their advantage. The Court should therefore infer that there is a real risk that the making of winding-up orders would prevent the prosecution of these appeals.

25    Where the appellants have no assets the judgment creditor, as it has conceded, will not suffer any relevant prejudice if a stay is granted. The loss of its right to proceed to winding-up to prevent the appeals being heard on their merits does not constitute relevant prejudice for present purposes. The appellants may be required to give security for the judgment creditor’s costs of these appeals, but the judgment creditor will not otherwise be financially prejudiced if the appeals proceed and fail on their merits.

26    On the other hand the appellants would suffer irremediable prejudice if they were unable to prosecute appeals which might have succeeded. The prejudice would include not only the loss of the chance of having the adverse judgments set aside, but also the loss of the chance of obtaining money judgments against one or other of the respondents. These losses would be irrecoverable as the appeals are their only avenue of legal redress.

30    The Court went on to fashion the stay order in that case with a view to protecting the judgment creditor as much as was possible consistent with granting a stay.

Consideration

31    Counsel who appeared for Mr Wu before me submitted that the following matters should lead the Court to exercise its discretion in favour of a stay:

(a)    The appeal was lodged bona fide and is based upon reasonably arguable grounds;

(b)    The continued prosecution of the appeal will be stultified if a stay is refused because Mr Li, as judgment creditor, will vigorously pursue Mr Wu in the Bankruptcy jurisdiction of this Court or the Federal Circuit Court of Australia thus rendering the appeal negatory; and

(c)    Although there may theoretically be the potential for some prejudice to be caused to Mr Li by the grant of a stay, there is no evidence of actual prejudice. By way of contrast, Mr Wu will suffer irremediable prejudice by having his appeal rendered nugatory.

32    In support of his application for a stay, Mr Wu swore that he did not presently have sufficient assets to satisfy the judgment debt and that, if he were made bankrupt, he would almost certainly be unable to prosecute his appeal. He offered to provide security for Mr Li’s costs of the appeal in the amount of $60,000 and also offered to provide security in the amount of $26,200 in respect of interest which continues to accrue on the judgment debt.

33    In a subsequent affidavit filed on behalf of Mr Wu (his Affidavit of 24 March 2014), Mr Wu said (at pars 3 to 7):

I do not own any real property, personal property or assets in Australia in which there is any significant equity or in relation to which I am able to provide an undertaking [referring to an undertaking not to deal with or dispose of assets].

The property located at 17 Pindari Crescent, O’Malley (the Property) is subject to a mortgage to AMP, and the equity in that Property is presently worth approximately $300,000.

The Property is owned by my wife, Yaji Feng.

I receive ongoing financial support from my wife and from friends in Australia and China. This support allows me to pay my debts as they fall due (with the exception of the judgment sum and costs awarded to Mr Li). In particular, the financial support from my wife and friends has enabled me to retain DibbsBarker and Counsel to act for me in these and related proceedings, and enables me to pay the fees of my legal representatives.

The financial support from my wife and friends in Australia and China is voluntarily given. I am not able to demand or compel my wife or friends to continue providing that financial support.

34    Mr Wu also endeavoured to explain the delay in filing his application for a stay. He said that, in response to a request for instructions from his former solicitor, on or about 28 November 2013, he instructed that solicitor to make application to the Court to stay the judgment until the appeal had been determined.

35    He said that he terminated the retainer of his former solicitors on 19 February 2014 and retained his present solicitors the very next day. He did not explain why he terminated the retainer of his former solicitors nor did he offer any explanation as to why his instruction to apply for a stay given on 28 November 2013 had not been put into effect before 25 February 2014.

36    Mr Wu has also foreshadowed an application to adduce fresh evidence from Mr Kazar at the hearing of the Appeal and Cross-Appeal. He wishes to argue that, if that evidence is admitted, the true position concerning intercompany debts in the Golden Group of companies would become apparent. In particular, Mr Kazar will testify that, if the debt owed by Mr Li to Golden Constructions Pty Limited is promptly and fully repaid, the dividend to be paid to the creditors of GEI will be 63 cents in the dollar. This is because the funds due from Mr Li to Golden Constructions will flow back into GEI. These matters have an impact on the extent to which Mr Wu is truly liable under the indemnity (if at all).

37    I pause to observe that I do not propose to deal with Mr Wu’s application to adduce fresh evidence on appeal in these Reasons for Judgment. That application will be dealt with by the Full Court in due course. It is sufficient for present purposes merely to note that such an application will be made and to note the purpose of it.

38    It was also submitted on behalf of Mr Wu that Mr Li has not indicated to the Court or to Mr Wu that he will abandon his Cross-Appeal if Mr Wu’s application for a stay is refused. I must therefore proceed upon the basis that Mr Li intends to press his Cross-Appeal, come what may. By his Cross-Appeal, Mr Li challenges the primary judge’s rejection of his claims for damages for misleading and deceptive conduct and for breach of contract as well as her Honour’s rejection of his claim for equitable compensation on account of Mr Wu’s alleged breach of fiduciary duty. As I have already mentioned at [25] above, Mr Li also wishes to challenge her Honour’s calculation of the amount due to him under the indemnity provided for in cl 5 of the GEI Shareholder Agreement.

39    As a result of some probing on my part, both Counsel made detailed submissions directed to the question of whether the appeal had sufficient merit to justify a stay in the circumstances of the present case.

40    Counsel for Mr Li opposed the grant of a stay on the following grounds:

(a)    The appeal has little merit;

(b)    Mr Wu did not apply for a stay promptly after the primary judge made her orders and has not explained why this was not done;

(c)    The grant of a stay will inevitably cause financial loss to Mr Li;

(d)    The balance of convenience does not lie in favour of the grant of a stay; and

(e)    Mr Li has not yet provided security for the costs of the appeal, notwithstanding that he had previously indicated he would do so.

41    In two sets of Written Submissions (the first of which is dated 5 March 2014 and the second of which is dated 18 March 2014) Counsel for Mr Li put detailed submissions as to why the appeal lacked merit. He also addressed me orally at some length on that question on 6 March 2014 and on 18 March 2014.

42    Counsel also submitted that an application for a stay should have first been made to the trial judge. In support of that proposition, he cited a passage from Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681 at 684 per Brennan J.

43    I do not think that Mr Wu was obliged, as a matter of principle, to apply to the primary judge for a stay before coming to the Full Court. The passage from Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) relied upon by Counsel for Mr Li is a passage directed to the peculiar circumstances of appeals to the High Court and should not be interpreted as having general application to appeals from a single judge of this Court to the Full Court of this Court.

44    In addition, Mr Wu has endeavoured to explain his delay by proffering evidence of his instruction to his former lawyer to apply to the Court for a stay. That instruction was given in late November 2013. Mr Wu does not explain, however, why the instruction was not carried out. Although this evidence from Mr Wu does not provide a complete picture of what occurred, I think that it is sufficient to dispel any suggestion that Mr Wu did not take any steps to apply for a stay until he was served with the Bankruptcy Notice.

45    Counsel for Mr Li also submitted that I should give little weight to the additional evidence which Mr Kazar has indicated he would give if allowed to do so on appeal. Counsel submitted that the evidence was unlikely to be allowed to be led and in any event was directly contradictory to findings made by the primary judge. I agree that I should not give weight to the foreshadowed evidence of Mr Kazar.

46    Counsel for Mr Li also submitted that the fact that Mr Wu had not provided a full statement of his financial position and had not offered security for the judgment sum were powerful circumstances militating against the grant of stay. It was also submitted on behalf of Mr Li that the amount offered as security for interest was not sufficient. There is some force in these submissions. However, I think that they are substantially outweighed by the countervailing factors relied upon by Mr Wu.

47    It was also submitted that Mr Li was a person of substance who had assets in Australia in which he has equity of approximately $1.2m. Presumably this submission was designed to support the proposition that the judgment debt could be repaid if paid by Mr Wu to Mr Li. But Mr Wu cannot or will not pay the judgment debt. This submission adds nothing.

48    The mere filing of an appeal does not lead to the automatic grant of a stay. The party seeking a stay must demonstrate a reason, or appropriate case, to warrant the exercise of a discretion in his or her favour. In considering an application for a stay pending the determination of an appeal, the Court exercises a broad discretion. The Court’s consideration of the exercise of that discretion commences with the proposition that the judgment creditor is entitled to the benefit of the judgment which he or she has obtained and is entitled to have the Court approach the matter (at least initially) upon the basis that the judgment below is correct.

49    During the course of hearing of the stay application, there was considerable discussion between Counsel and me as to the merits of Mr Wu’s appeal. That discussion, for my part, was principally undertaken for the purpose of assisting me to understand whether the appeal had sufficient merit to warrant the grant of a stay in all the circumstances of the case. In my view, the grounds of appeal now relied upon by Mr Wu are arguable. I will defer further consideration of the merits of those grounds until I have expressed my views in relation to the other relevant considerations.

50    The most powerful reason for granting a stay is the circumstance that, if no stay is granted, Mr Li will vigorously pursue his efforts to bankrupt Mr Wu with the inevitable consequence that the Appeal will very likely be rendered nugatory. I well understand that Mr Li may not have sufficient time to procure the sequestration of Mr Wu’s estate before the determination of the Appeal although there is a real possibility that he will be able to achieve that result in the time available. In addition, if no stay is granted, it is likely that no further extension of the time for compliance with the Bankruptcy Notice will be granted by the Court. In that event, Mr Wu will inevitably commit an act of bankruptcy based upon a judgment which is the subject of challenge on appeal. The commission of an act of bankruptcy has serious consequences for the person concerned. These matters engage the reasoning of the NSW Court of Appeal in Kalifair Pty Limited.

51    Other factors tending towards the grant of a stay are:

(a)    The hearing of the Appeal and Cross-Appeal is imminent – it is less than two months away.

(b)    Mr Wu has offered to provide security for Mr Li’s costs of the Appeal and for the additional interest running on the judgment debt occasioned by the grant of a stay.

(c)    There is no demonstrable prejudice to Mr Li. On the evidence before me, Mr Wu is unable to pay the judgment debt or, at least, unable to pay it in full. While I accept that that evidence is not supported by a detailed statement of Mr Wu’s financial position, nonetheless there is some evidence suggesting that he is unable to pay the judgment debt. The short delay occasioned by the grant of a stay is hardly likely to prejudice Mr Li given Mr Wu’s incapacity to pay the judgment debt in any event.

(d)    Mr Li has filed a Cross-Appeal which constitutes an extensive challenge to the primary judge’s judgment. That Cross-Appeal will have to be determined whether or not a stay is granted. The effect of the lodgment of that Cross-Appeal is that, one way or another, her Honour’s entire judgment is under challenge.

52    I think that the factors which I have listed at [50] and [51] above operate strongly in favour of a stay provided that the Appeal is reasonably arguable. I do not consider that the arguments advanced on behalf of Mr Li overcome the strength of these factors. I have already indicated my view that I think that the grounds of appeal are arguable (in the sense of not being hopeless). Indeed, Counsel for Mr Li did not argue that the Appeal was hopeless. His submission was that it had little merit and Mr Wu’s prospects on appeal were weak. In light of the fact that the factors which I have listed at [50] – [51] above strongly point to the grant of a stay, I do not think that it is necessary or desirable to enter into an assessment of the merits of the grounds of appeal to be relied upon by Mr Wu at the hearing of the Appeal. It is sufficient, in my view, for me merely to indicate that those grounds are reasonably arguable and are sufficiently strong to merit the grant of a stay in all the circumstances of the case.

Conclusion

53    For the reasons which I have endeavoured to explain, I propose to grant a stay of the orders made by the primary judge on 6 November 2013 and on 29 November 2013 pending the determination of the Appeal and the Cross-Appeal, or until further order. I propose to do so upon condition that Mr Wu promptly provide security in an appropriate form in the amount of $90,000 comprising $60,000 on account of Mr Li’s costs of the Appeal and $30,000 on account of interest that has accrued and continues to run on the judgment debt. There will be orders accordingly.

54    Mr Wu has succeeded in obtaining a stay. Mr Li strenuously opposed the grant of a stay. It seems to me that the main reason that Mr Wu was compelled to apply for a stay was the fact that Mr Li had moved to bankrupt Mr Wu on the judgment debt immediately after orders were made in his favour and, I infer, in the face of Mr Wu’s Appeal. I cannot help but think that Mr Li’s efforts were specifically directed to stultifying Mr Wu’s Appeal. In those circumstances, I think that Mr Li should have consented to a stay being granted and ought not to have opposed the grant of such an order. Mr Li seeks the costs of Mr Wu’s stay application. Mr Wu, on the other hand, is content for the costs of that application to abide the outcome of the Appeal. My present view is that, in line with Mr Wu’s position, the costs of the stay application should be costs in the Appeal. However, because the stay is, in effect, conditional upon Mr Wu putting up security, I propose to reserve the question of costs for further consideration in light of events as they unfold.

55    I therefore propose to grant a stay but on terms that it will only come into effect if the security to which I have referred is provided by no later than 30 April 2014. I expect that Mr Li will consent to a further extension of the time for compliance with the Bankruptcy Notice in order to accommodate the timetable which I have in mind. I will grant liberty to apply. I will also list the matter for directions before me on 2 May 2014 in order to ensure that the matter is on track.

56    There will be orders accordingly.

Associate:

Dated:    28 March 2014