Accordent Pty Ltd & Portellos v Bresimark Nominees Pty Ltd - [2008] SASC 292

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ACCORDENT PTY LTD & PORTELLOS v BRESIMARK NOMINEES PTY LTD & ORS
[2008] SASC 292
Judgment of The Honourable Justice Layton
24 October 2008
PROCEDURE - JUDGMENTS AND ORDERS - ENFORCEMENT OF JUDGMENTS AND ORDERS
Application for stay of execution of Full Court costs order pending application to High Court for special leave to appeal – whether stay should be granted – consideration of principles to be applied.
Held: application dismissed – jurisdiction not enlivened as no evidence put forward to satisfy the Court that the applicants were unable to satisfy the Allocutur for costs - Court also not satisfied that the applicants would suffer irreversible or irreparable harm if stay not granted.
Enforcement of Judgments Act 1991 (SA) s17, referred to.
Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681; Duke Group Ltd (In Liq) v Pilmer [1999] SASC 373, applied.
Smith v New South Wales Bar Association (1991) 104 ALR 386; Advanced Building Systems & Anor v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121; Territory Insurance Office v Costa & Sortino (2002) 11 NTLR 212, considered.

ACCORDENT PTY LTD & PORTELLOS v BRESIMARK NOMINEES PTY LTD & ORS
[2008] SASC 292
Civil
LAYTON J
Introduction

On 22 October 2008, by interlocutory application, the applicants in this action, Accordent Pty Ltd (“Accordent”) and Sotirios Portellos (“Portellos”) sought a stay of the enforcement of an order made for costs by the Full Court on 17 July 2008. This matter came on for hearing before me the following day.
The order for costs referred to is the subject of an Allocatur issued on 25 September 2008 for the sum of $21,395.37. The judgment debt is the subject of a Creditor’s Statutory Demand (“the Statutory Demand”) issued by the first respondent, Bresimark Nominees Pty Ltd (“Bresimark”), against Accordant on 7 October 2008.
At the hearing before me the applicants, Accordent and Portellos, were represented by counsel, Mr Turner, and the first respondent by counsel Mr Minicozzi. The second and third respondents did not appear.
The evidence
The evidence before me consisted of the affidavit of Mr Turner sworn on 22 October 2008 together with two exhibits. The first respondent tendered a Creditor’s Statutory Demand issued by Sophia Takmakis (“Takmakis”) against Accordent dated 17 October 2008, as well as an ASIC company extract of Accordent dated 7 October 2008.
Following the completion of the hearing and by agreement between the parties, the applicants sought to tender three documents which I have incorporated together as an exhibit, namely, the applicant’s summary of argument in their application for special leave to appeal to the High Court, together with Bresimark’s summary of argument and the applicant’s reply.
Background
The history of this matter is set out in the Full Court judgment of Accordent Pty Ltd & Portellos v Bresimark Nominees Pty Ltd & Ors.[1]
[1] (2008) 101 SASR 286.
This matter originated in the District Court in an action for the recovery of rent arrears issued by Bresimark, the registered proprietor of the leased property, against the tenant company Smart World Enterprises Pty Ltd (“Smart World”), and Smart World’s directors, Panagiotis Galanis (“Galanis”) and Takmakis. The issue at trial was whether the directors’ guarantee securing the performance of the terms of Smart World’s lease was enforceable by Bresimark, given that Bresimark was not the original lessor. Bresimark purchased the property from the original lessors after the commencement of Smart World’s lease. The directors asserted that there had been no effective assignment of the benefit of the guarantee to Bresimark by the original lessors.
Accordent and Portellos’ involvement is attributed to a Deed of Settlement entered into with Smart World, Galanis and Takmakis, whereby the other parties to the deed agreed to indemnify Takmakis from any liability arising under the guarantee she provided in her capacity as a director of Smart World to the original lessors. Takmakis joined Accordent and Portellos to the District Court proceeding in accordance with this indemnity.
Bresimark succeeded on three grounds before the District Court Judge in relation to the question of enforcement of the guarantee. First, it was held that the guarantee was validly assigned at law and in equity (“first ground”). Second, the trial Judge agreed that the guarantee was properly characterised as a deed poll rather than a deed inter partes and was therefore enforceable by whoever was the lessor of the property from time to time (“second ground”). Third, the directors’ covenants pursuant to the guarantee were held to “touch and concern” the land and therefore the benefit of the covenants provided inure to the benefit of Bresimark upon the transfer of the property (“third ground”).
Accordent and Portellos appealed against the Judge’s decision to the Full Court. They were successful in relation to the appeal against the second ground, but failed in respect of the first and third grounds.
The Full Court agreed with the Judge that the guarantee had been effectively assigned in law to Bresimark. The decision on this point rests on the language used in the contract of sale for the property, and a letter sent by Bresimark’s solicitors notifying Smart World’s directors that Bresimark intended to enforce the guarantee if the rent arrears were not paid. The Full Court also agreed with the Judge’s reasons for holding that an effective assignment in equity had occurred. Again, the decision of the Full Court rested on the language of the contract of sale, the effect of the letter and the clear intention of the parties to the sale of the property to effect an assignment of the guarantee.
The legal question raised by the third ground was the subject of a unanimous High Court decision handed down after the Judge delivered his reasons: Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd and Ors (“Gumland’).[2] The High Court held that a covenant by a guarantor to guarantee payment of rent payable by a lessee under a lease could and did “touch and concern” the land the subject of the relevant lease. Accordingly, such a covenant could be enforced by a transferee of the reversion. For this reason, Bresimark and Portellos did not pursue this ground before the Full Court, but also declined to concede the dismissal of the appeal on this point in order to preserve the ability to apply to the High Court for special leave to appeal.
[2] (2008) 244 ALR 1.
The Full Court disagreed with the Judge on the second ground. The Chief Justice, with whom the other members of the bench agreed, stated that the guarantee could not be properly characterised as a deed poll. This ground is not the subject of any further contention on appeal by Accordent or Portellos therefore I will not discuss it further.
The Full Court dismissed the appeal and awarded costs to Bresimark on 17 July 2008. As I have previously observed, the enforcement of this costs order is the subject of the interlocutory application before me.
Bresimark and Portellos have now applied for special leave to appeal to the High Court. According to Mr Turner, this application is likely to be heard on 13 November 2008. A successful appeal to the High Court must overcome not only the unanimous decision in Gumland in relation to the third ground, but also must convince the High Court that neither a legal or equitable assignment of the guarantee were effected. This latter point appears to rely on the High Court drawing different inferences from the facts than those drawn by both the Judge and the Full Court in their respective decisions.
In light of the pending application, and the relatively short time period before the application is expected to be heard, Mr Turner submitted that it is appropriate to grant a stay of the enforcement of the costs order.
Legal Principles
An application for a stay pending the hearing and determination of special leave to the High Court requires the exercise of broad jurisdiction. It is a discretion to be exercised as the interests of justice requires, whether it be an exercise of the court’s inherent jurisdiction or the power conferred by s 17 of the Enforcement of Judgments Act.[3]
[3] Duke Group Ltd (In Liq) v Pilmer [1999] SASC 373.
The criteria which guide the grant of a stay pending the hearing and determination of an application for special leave in the High Court is that set out in Jennings Construction v Burgundy Royale Investments Pty Ltd (“Burgundy Royale”).[4]
[4] (1986) 161 CLR 681.
In that case, Brennan J stated:[5]
The jurisdiction to grant a stay … depends on whether a stay is necessary to preserve the subject-matter of the litigation. If an application for special leave to appeal would be futile unless a stay is granted, the jurisdiction arises.
[5] Jennings Construction v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681, 683.
Brennan J further indicated:[6]
A stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted.
[6] Ibid 684.
Brennan J continued:[7]
In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court’s discretion. In each case when the Court is satisfied a stay is required to preserve the subject matter of the litigation, it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the Court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies.
[7] Ibid 685.
The criteria to be considered for a grant of stay before special leave is obtained is more onerous than that to be considered after special leave is obtained. In particular, a stay sought before special leave is obtained will only be granted if “exceptional circumstances” are demonstrated.[8]
[8] Duke Group Ltd (In Liq) v Pilmer [1999] SASC 373, [11]; Smith v New South Wales Bar Association (1991) 104 ALR 386, 388; Advanced Buildings Systems & Anor v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121, 122-123; Territory Insurance Office v Costa & Sortino (2002) 11 NTLR 212, 219.
Brennan J, in setting out the criteria guiding the granting of a stay, was not attempting to exhaustively indicate all of the circumstances that may enliven the jurisdiction.[9] The jurisdiction is enlivened if the enforcement of a judgment will result in significant irreversible loss or harm to the applicant.[10]
[9] Duke Group Ltd (In Liq) v Pilmer [1999] SASC 373, [19].
[10] Ibid [19].
Further, not all of the criteria are required to be satisfied in order for a stay to be granted. The weight to be afforded to the factors is a matter to be assessed, having regard to the particular facts in a case.[11]
[11] Territory Insurance Office v Costa & Sortino (2002) 11 NTLR 212, 227..
The fact that an appellant cannot establish that there is a “substantial prospect” that special leave will be granted by the High Court, is not necessarily fatal to an application to grant a stay.[12] It may be that prospects of the grant of special leave are no more than “not insubstantial” or “an arguable case”.[13]
[12] Ibid 228.
[13] Ibid 225 and 228.
A further consideration is the subject matter which is sought to be preserved by the granting of the stay. Is it the preservation of a right of appeal itself which is being sought, or is it seeking to preserve some other related subject matter which may adversely impact upon a right of appeal; for example, an application for an order to stay enforcements of a costs order?[14]
[14] For example Advanced Building Systems & Anor v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121, 123; Territory Insurance Office v Costa & Sortino (2002) 11 NTLR 212.
To the extent that an application is made to stay enforcement of a costs order, the court would need to be satisfied that if a stay was not granted, the applicant would suffer irreversible and irreparable harm; that the applicant not be able to be restored to its former position; or that the appeal would be rendered nugatory or futile.[15]
[15] Duke Group Ltd (In Liq) v Pilmer [1999] SASC 373, [19]; Advanced Building Systems & Anor v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121, 123; Territory Insurance Office v Costa & Sortino (2002) 11 NTLR 212, 227-229.
The Chief Justice in Duke Group Ltd (In Liq) v Pilmer (“Duke Group”)[16] indicated that before considering the four factors referred to by Brennan J in Burgundy Royale, it was first necessary to see whether the jurisdiction was enlivened either by the need to preserve the subject matter of the litigation, or if the enforcement would result in significant irreversible loss or harm to the applicant should a stay be refused and should an appeal ultimately succeed. I will similarly take this approach.
[16] [1999] SASC 373.
Is there a basis for stay?
It is submitted by Mr Turner that the Statutory Demand is likely to be the subject of an application to a court for the winding up of Accordent. This was inferred from a letter from Mr Minicozzi on behalf of Bresimark dated 7 October 2008[17] and confirmed by Mr Minicozzi in the course of his submission. Mr Minicozzi accepted that, allowing for a period for service, an application to wind the company up could be made by Bresimark after 30 October 2008.
[17] Exhibit A1, FMBT2.
Mr Turner submitted that by reason of a charging order obtained by Takmakis over the real estate assets of both applicants (these real estate assets were not identified), the applicants “don’t have ability to refinance or obtain or use those properties to obtain credit to seek to pay out … the amount being sought by the first respondent, Bresimark Pty Ltd”[18] and that “the applicant’s [sic] hands are tied because of a charging order.”[19] This charging order was not in evidence before me. I inferred that both the applicants were submitting that they were therefore financially unable to pay the costs, although this was not specifically articulated. The submission continued that as a consequence, Accordent will become the subject of an application to wind up and it would thereby suffer significant harm unless the stay was granted. The adverse effect identified was that there would need to be a further application by Accordent to a court to set aside the winding up notice and that the cost of filing the application was close to $1,500 which with other costs could eventually be in the order of $5,000 to $6,000”[20]. Such costs could be avoided if the stay was granted.
[18] Transcript p 4.
[19] Transcript p 9.
[20] Transcript p 5-6.
The focus of Mr Turner’s submission was on the circumstances of Accordent, but he also indicated that there was “a threatened application for bankruptcy” in relation to Portellos and that similar action would be required to be taken in relation to him, with similar costs being incurred.
Mr Minicozzi during his submission stated that “[a]t this point no proceedings have been started to attempt recovery” against Mr Portellos.[21] No other information, let alone evidence, was given on this topic.
[21] Transcript p 19.
It was submitted by counsel for the applicants that this significant prejudice to both applicants could be prevented if the court were to grant a stay which was only required for a very limited period of time namely up until 13 November (or a few days later) when the application for special leave was due to be heard. It was highlighted that special leave by its nature is dealt with summarily on the date of the hearing. The submission continued that:
·Bresimark was unable to commence proceedings for a winding up of Accordent until 30 October 2008 and that the only prejudice was preventing such an application for a period of approximately two weeks.
·There was no evidence of real loss to Bresimark caused by this short period of the granting of the stay. Indeed, counsel for Bresimark candidly admitted this.[22]
[22] Transcript p 20.
In relation to the submissions made on behalf of the applicants, my concern is that apart from submissions made from the bar table by counsel, there was no evidence before me as to the overall financial circumstances of either Accordent or Portellos. This situation was in complete contrast to the information provided by the applicants in Duke Group Ltd (In Liq) v Pilmer. The evidence supplied included affidavits and exhibits filed by the applicants as to their assets and liabilities such that it enabled the Chief Justice to find that the applicants were not able to satisfy the judgment (being that which was sought to be preserved). Further, the Chief Justice was able to find on the evidence before him, that the service of a bankruptcy notice, with the subsequent sequestration order which would be likely to follow, would cause irreversible and irreparable harm. The applicants in that case were practising accountants and the bankruptcy notice and subsequent sequestration would also have a significant adverse effect on their ability to earn income. Therefore the Chief Justice was satisfied that there was a basis to enliven the Court’s jurisdiction to grant a stay with regard to the applicant accountants.[23]
[23] The Chief Justice was not so satisfied with regard to the estate of a Mr Stokes and that at best it would result in inconvenience and disruption such that the Chief Justice was not satisfied any significant loss would be suffered.
I had no such information before me. I am in a situation similar to that which was faced by McHugh J in Advanced Building Systems & Anor v Ramset Fasteners (Aust) Pty Ltd,[24] in that there was no evidence which could satisfy me that either Accordent or Portellos is unable to raise funds either individually or between them, to satisfy the Allocatur. The simple reference to the existence of a charge over unspecified real estate assets does not of itself satisfy me that either or both of the applicants do not have other means to obtain or raise funds to pay the costs. McHugh J at least had some material before him as to the solvency of the applicant company. The information before him included affidavits about approaches made by the applicant to lending institutions which applications were refused. Nonetheless, his Honour was not satisfied on the material before him.
[24] (1997) 145 ALR 121.
The first respondent in its submission drew attention to this deficiency of information. In addition, the first respondent argued that regardless of whether an application was made by it to wind up Accordent, that company was already in significant financial difficulty quite apart from the enforcement of the statutory demand. A document was tendered before me which indicated that a Creditor’s Statutory Demand had been made on 17 October 2008 by Takmakis in respect of the judgment debt of $274,552.64 (inclusive of interest).[25]
[25] Exhibit R2.
Further, counsel for the first respondent tendered an ASIC search of Accordent which indicated that the company had been under external administration by a controller being appointed since 18 March 2008. Also two charges are registered on assets of the company to R.M.B.L. Investments Limited, being the company of the controller, on 19 August 2005 and a further charge registered by Gold Earthmovers Pty Ltd on 5 September 2005 which do not appear to have been discharged as at 7 October 2008 when the ASIC extract was obtained.

It was submitted by Mr Minicozzi that Accordent was therefore in significant financial difficulties apart from the effect of the Statutory Demand. Further, insofar as there was a charge over the real estate property by Takmakis preventing that real estate from being utilised for the purposes of obtaining finance, it was questionable as to what equity the applicants had in the real estate to begin with, and whether even if the charge was not on the real estate, it would be sufficient to enable funds to be obtained to satisfy the costs.
In short it was submitted by the respondent that the deficiency of information as to whether the applicants were able to satisfy the costs order; combined with the fact that the applicants were not at risk of liquidation or sequestration proceedings being instituted by reasons of the costs order alone, the application should be refused.
In view of the paucity of financial information before me, I am not satisfied that the applicants have enlivened the jurisdiction of this court. I am unable to be satisfied at the very basic level, namely, that they are unable to pay the costs.
Bearing in mind that applications such as this necessarily are taken out in circumstances of urgency, and that sometimes there can be a lack of appropriate material by reason of that urgency alone, I will not simply reject this application on the basis of the lack of financial information and I will continue in my reasoning.
Assuming for the purposes of argument that the applicants are unable to pay the costs and that applications will be made in court for a winding up in the case of Accordent and an application for sequestration in the case of Portellos, the issue is whether such action would cause significant irreversible loss or harm to both of them if a stay was refused.
I will then turn to consider the features which Brennan J indicated should guide the court in the exercise of a discretion to grant the stay.
First factor: Is there a substantial prospect that special leave to appeal will be granted?
Mr Turner candidly indicated that he was not confident that the applicants would be able to make out that there was a “substantial prospect” of special leave to appeal being obtained. This candid admission would not, on the authority of Territory Insurance Office v Costa & Sortino,[26] be fatal to the application for a stay. The Full Court in that case relied upon the written summary of argument proposed to be presented to the High Court.
[26] (2002) 11 NTLR 212, 228-229.
Taking a similar approach to the Full Court in that case, the outlines of argument before me and the impression that they have given me suggests that it is not a strong prospect, but the prospects are “not insignificant” either, to use the expression used by Hayne J in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 2).[27]
[27] (1998) 72 ALJR 869, 871.
Second factor: Have steps been taken in the court which made the order?
In relation to the second of the factors referred to by Brennan J, there has been no failure by the applicants to take whatever steps were necessary to secure the stay before this court.
Third factor: Will the grant of a stay cause loss to the respondent?
I am satisfied by reason of the arguments put on behalf of the applicants, and also the concession made by the first respondent, that there is little if any loss which will be caused to the first respondent as a result of the very short period of the operation of the stay, namely at best, two weeks after any application could be made by Bresimark for a winding up.
Fourth factor: Where does the balance of convenience lie?
This factor raises again whether I can be satisfied that the applicants would suffer irreversible and irreparable harm or that the appeal would be rendered nugatory or futile unless a stay is granted. This of course harks back to whether the applicants have enlivened the jurisdiction of this court, being the starting point.
The first respondent submits that no such loss would be caused to the applicants if the stay was refused. Mr Minicozzi submitted that even if an application was taken out to an order for winding up of Accordent after 30 October 2008, such an application would be unlikely to come on for hearing until sometime in December and by that time the outcome of the application for special leave would be known. Accordent at that time, if it was successful in its application for special leave, could take out an application to oppose the winding up and it would not therefore be prejudiced by the absence of a stay being granted.
In short, there would be no irreversible or irreparable harm caused to the applicants by the refusal to grant a stay. Although no loss was caused to the first respondent, similarly there would be no loss with regard to the applicants.
Conclusion
In conclusion I am not satisfied that exceptional circumstances arise upon which I should grant a stay of the costs orders. The absence of a stay would not render the application for special leave to be futile nor would it cause irreversible or irreparable harm to the applicants. The application is refused.