Stay Granted Pending Appeal Outcome

The Court of Appeal granted a stay of orders entered against the claimant pending the outcome of an appeal. The claimant argued that without a stay, the appeal would become abortive due to potential bankruptcy proceedings.

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: [NAME] v [COMPANY] [2018] NSWCA 285 Hearing dates: 19 November 2018 Date of orders: 23 November 2018 Decision date: 23 November 2018 Before: Macfarlan JA Decision: (1) Order that order (1) of the orders made by McDougall J on 7 September 2018 be stayed until determination of the appeal or until further order. (2) Order that orders (1) to (3) of the orders made by McDougall J on 30 October 2018 be stayed until determination of the appeal or until further order. (3) Order that the costs of this application be costs in the appeal. Catchwords: APPEAL – enforcement of primary judgment stayed – risk that appeal would have been rendered abortive if no stay Legislation Cited: Bankruptcy Act 1966 (Cth), s 60(2) Corporations Act 2001 (Cth), s 206B(3) Uniform Civil Procedure Rules 2005 (NSW), r 51.44 Cases Cited: [NAME] v [COMPANY] (1985) 2 NSWLR 685 Category: Procedural and other rulings Parties: [NAME] (Applicant) [COMPANY] (Respondent) Representation: Counsel: [redacted] [NAME] (Respondent)

Solicitors: [redacted] [NAME] (Respondent) File Number(s): CA 2018/299894 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity – Commercial List Citation: [2018] NSWSC 1363 Date of Decision: 5 September 2018 Before: McDougall J File Number(s): SC 2017/80166

[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.]

Judgment 1. HIS HONOUR: This is an application by [NAME] for a stay of a judgment entered against him on 10 September 2018 in favour of [COMPANY] ("[NAME]"), the present respondent, in the amount of $1,110,594.23. [NAME] also seeks a stay of consequential costs orders made against him on 30 October 2018.

2. The reasons for judgment of McDougall J, sitting in the Commercial List in the Equity Division, were published on 5 September 2018 ([2018] NSWSC 1363). The proceedings before his Honour were for damages resulting from [NAME]' allegedly misleading and deceptive conduct which induced [NAME] to purchase from him shares in [NAME], a company incorporated in the British Virgin Islands. [NAME] has appealed against McDougall J's decision and [NAME] has conceded, for the purposes of the present application, that the appeal is arguable. It is listed for a one day hearing before this Court on 14 February 2019.

3. On 22 October 2018 [NAME] served a Bankruptcy Notice on [NAME]. In response, [NAME] applied to the Federal Court for an order extending the time for compliance with the Notice until 28 days after the determination of the appeal to this Court. That application is listed for hearing on 28 November 2018, the time for compliance with the Notice having been extended, on an interim basis, until that date.

4. On the present application, [NAME] contends that if a stay is not granted, there is a risk that his appeal will prove abortive.

5. The commencement of an appeal does not automatically stay orders made below but the Court has a discretion to grant a stay (r 51.44 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR")). It is not necessary that the applicant for a stay establish special or exceptional circumstances but it is necessary for it to demonstrate a reason why the stay should be granted ([NAME] v [COMPANY] (1985) 2 NSWLR 685 at 694). It is relevant that the applicant for a stay has an arguable case on its appeal, as is accepted here, and that "there is a risk that the appeal will prove abortive if the appellant succeeds and the stay is not granted" (ibid at 695).

6. At the hearing of his application, [NAME] read affidavits of his solicitor who gave evidence on information and belief as to [NAME]' assets. The only asset of a size that is significant, bearing in mind the magnitude of the judgment against [NAME], comprises shares in a company known as [COMPANY]. It is incorporated in Singapore and is not listed on any public stock exchange. It is a technology start-up company and is currently attempting to raise capital. I accept that these shares are not readily realisable. 7. [NAME] submitted that [NAME]' disclosure of assets was unsatisfactory, including because he only disclosed some of the assets after an affidavit had been filed on behalf of [NAME] referring to their existence. Whilst this was unsatisfactory, it does not lead me to reject [NAME]' evidence concerning his asset position as the additional assets were not of a value that is significant in the present context. I am prepared to infer that their late disclosure occurred through oversight or a belief as to their immateriality.

8. Another point made by [NAME] is that the relative paucity of [NAME]' present assets is surprising in light of his undoubted success over many years as a high profile businessman. That observation does not however assist [NAME] on the present application as it does not provide a basis for concluding that there are other assets which have not been disclosed. [NAME]' current financial position may have come about through losses he incurred or through disposals of assets he made to family members or other persons. The apparent absence of a reflection in his list of assets of the amount of $941,703.38 which [NAME] paid him in 2015 for the purchase of shares in [NAME] is capable of explanation in the same way.

9. For the following reasons, I have concluded that the stay sought by [NAME] should be granted.

10. First, there is a substantial risk that if a stay is not granted, the Federal Court might not extend the time for compliance with the Bankruptcy Notice served on [NAME].

11. Secondly, if the time for compliance with that Notice is not extended, it is likely that [NAME] will be unable to comply with it and, as a result, will commit an act of bankruptcy. This would cause him some reputational damage and would provide the foundation for [NAME] to commence bankruptcy proceedings.

12. Thirdly, in light of the communications between the parties, it is likely that [NAME] will take prompt action to commence bankruptcy proceedings if [NAME] commits an act of bankruptcy.

13. Fourthly, if such proceedings are commenced, there is a substantial risk that they might be determined, and a sequestration order therefore made, before the appeal to this Court is heard and determined.

14. Fifthly, if [NAME] is declared bankrupt, he will lose control of the appeal because it will be for his trustee in bankruptcy to elect whether to prosecute or discontinue the appeal (see s 60(2) of the Bankruptcy Act 1966 (Cth)).

15. Sixthly, there is a substantial risk that such a trustee in bankruptcy would not elect to proceed with the appeal.

16. Seventhly, if [NAME] is declared bankrupt, he will automatically be disqualified from taking part in the management of any corporation (see s 206B(3) of the Corporations Act 2001 (Cth)). [NAME] would also be likely to suffer significant damage to his reputation.

17. Eighthly, there is no evidence that [NAME] will suffer significant prejudice if a stay is granted. For example, there are no assets which [NAME] presently has which could now be attached to satisfy the judgment (if it were not stayed) and which might not be available in the future when the stay is lifted. Indeed, the fact that [NAME] has chosen to issue a Bankruptcy Notice, rather than take any other enforcement step, tends to confirm its unawareness of any presently realisable assets that [NAME] has.

18. Ninthly, the stay will only be for a limited period as the appeal has been fixed for an early hearing, on 14 February 2019.

19. Tenthly, it is not appropriate, as [NAME] seeks, for the stay to be conditional on [NAME] paying the whole, or indeed any significant part of, the judgment amount into Court. The evidence does not suggest that he would be able to fulfil such a condition.

20.

For these reasons, I make the following orders:

1. Order that order (1) of the orders made by McDougall J on 7 September 2018 be stayed until determination of the appeal or until further order.

2. Order that orders (1) to (3) of the orders made by McDougall J on 30 October 2018 be stayed until determination of the appeal or until further order.

3. Order that the costs of this application be costs in the appeal.

********** 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: 23 November 2018