Addstead Pty Ltd & Ors v Liddan Pty Ltd & Ors No. Scgrg-95-1880 Judgment No. S6495

[1997] SASC 6495

ADDSTEAD PTY LTD v SIMIONATO HOLDINGS PTY LTD & OTHERS

Debelle J (ex tempore)

This is an application pursuant to rule 95.17 of the Supreme Court Rules for a stay of execution pending the hearing of an appeal for the High Court of Australia. No application for a stay was made to the Full Court which made the order from which leave to appeal to the High Court was sought.  Hence, this application is made pursuant to rule 95.17(b).

The decision of the Full Court was published on 7 October 1997.  The Court unanimously dismissed an appeal from Lander J.  The application for leave to appeal to the High Court was filed and served on 3 November 1997.  This application for a stay was made on 9 December, just over two months after the Full Court had published its decision and more than one month after the institution of the application for special leave to appeal.

The jurisdiction to grant a stay ought to be exercised by this court if it believes that a stay of execution is appropriate pending disposal of an application for special leave to appeal to the High Court: Jennings Construction Ltd v Burgundy Royal Investments Pty Ltd (No 1) (1986) 161 CLR 681 at 684 and DeL v Director-General NSW Department of Community Services (1996) 136 ALR 201. The factors bearing upon the exercise of the Court's discretion were described by Brennan J in Jennings in these terms at 685:

“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.”

In this action, Lander J declared that the defendants received as constructive trustees and hold on trust for the 27 plaintiffs named in the order the payment of $4.6 million made by Elfic Limited, Lensworth Properties Pty Ltd and EFG Finance Limited to the defendants on 17 March 1995.  He further declared that Liddan Pty Ltd (“Liddan”) held, pursuant to a constructive trust for the 27 plaintiffs, certain parcels of real estate and other assets named in the order. Three of those parcels of real estate were in South Australia and one is in Queensland.

This application for a stay relates to two parcels of real estate.  The first is a substantial property at Cape Jervis. The second is a large parcel of undeveloped land at Mission Beach in Queensland.  The other two properties in South Australia are a small farm property at Mount Barker and a house property at 707 Greenhill Road, Glenside.

In action number 1465/97, the liquidator sought possession of the three South Australian properties, that is to say, the properties at Mount Barker, Burnside and Cape Jervis. In those proceedings, Mr Emanuele, who is formerly a director of the plaintiff companies, sought to restrain the liquidator from entering into possession and selling them. He failed in those proceedings.  In those proceedings Mr Emanuele was represented by Mr Ardalich, his solicitor in these proceedings. The application by the liquidator was heard by me and in the course of the proceedings, I referred to the fact that there had been no application for a stay so that the liquidator should not be prevented from proceeding with the administration of the liquidation.  Mr Emanuele was in court when those observations were made. 

The liquidator has sold the Mount Barker property and that contract is complete.  He has sold the Burnside property at auction and that contract is to be completed on 19 December.  There is no application for a stay in relation to either the Mount Barker property or the Burnside property.  The liquidator has put the Cape Jervis property up for sale by public auction.  The sale has been advertised and there has been a degree of publicity of the auction.  It is proposed that the auction be conducted on 18 December next.  As already mentioned, the land at Mission Beach is a large parcel of undeveloped land.  There is evidence that it is proposed to develop the land by subdivision and realise that profit. Mr Emanuele has lodged a caveat preventing any dealing in the land.  The liquidator has instituted proceedings to recover possession of the land so that he may sell it.  Those proceedings are adjourned pending the resolution of an application by Mr Emanuele for legal aid.

I heard the liquidator's application for possession of the land at Mission Beach.  My recollection is that, in the course of those proceedings also, reference was made to the fact that there was no stay of the order of the Full Court and that the liquidator should not be prevented from proceeding with the administration of the liquidation.  I have not checked my recollection with the transcript.  Even if I am wrong, the simple fact is that Mr Emanuele and those advising him have been aware for some time of the fact that the court has observed that there has been no application for a stay.  It is, I think, reasonable to infer that Mr Emanuele is very much involved in the application for leave to appeal to the High Court.  He has instructed Mr Ardalich.  Mr Ardalich is solicitor both in this application and Mr Emanuele's solicitor in the earlier application in action No 1465/97 relating to the properties in South Australia.  Mr Emanuele is present in court today for the purpose of this application or during the hearing of this application.  It strains credulity to breaking point to believe that the present applicants are not aware of the views of this court so far as the absence of any application for a stay.  It is, therefore, quite remarkable that there has been no application for a stay until the application made on 9 December.  I will return to that matter.

I first consider whether the applicants have any real prospect of success in the application for leave to appeal to the High Court.  The applicant’s summary of argument required by Rule 6(2) of Order 59A of the High Court Rules lists three points which are said to be the special leave questions arising in the application. In substance, the special leave point is said to be that the issues in this action were complex and lengthy and that the applicants were denied a proper opportunity of presenting their defence.  It is said that the principles of case management were used to shut them out from presenting an arguable defence and thereby precluded the proper determination of issues between the parties.

The procedural history of the action is set out at great length in the reasons of Lander J and also in the reasons of Perry J in the Full Court.  The recital of that history shows that the applicants were given a number of opportunities to present their defence.  They failed to do so.  Lander J believed that the stage had been reached where he had no alternative but to proceed to hear the matter.  The reasons of both Lander J, and of Perry J also, clearly show that the case against the applicants was an extremely strong one and, indeed, that they had no arguable defence.  For those reasons I do not believe that the applicants have any real prospect of success in their application for special leave to appeal.

In making that observation, I am deeply conscious of the fact that, to some extent, I am sitting in judgment on my own reasons in the Full Court.  However, viewing the whole matter as objectively as I can, I do not believe that there are real prospects of success or that the decision of the Full Court is attended by sufficient doubt to justify a grant of leave to appeal.

Next, I examine the question of prejudice.  I deal first with the Cape Jervis property.  The applicants have not pointed to any particular prejudice in respect of the sale of this land.  The property is held by Liddan.  Mr Emanuele claimed a life interest in the property but it was held  that the claimed life interest did not exist.  There is no appeal from that decision.  There is, I think, no reason why the liquidator should not be permitted to allow the auction to proceed and the land to be sold.  I think, however, that the liquidator should be required to retain the proceeds of the sale pending the resolution of the application for leave to appeal. If the liquidator retains the proceeds of the sale pending the resolution of the application for leave to appeal, there would be very little prejudice to Liddan.  I turn to the Mission Beach property.

Liddan has borrowed money for the purpose of purchasing the land at Mission Beach.  It is in default in the payment of interest.  The arrears of interest are $28,093.45.  The mortgagee has issued notice of default and has given notice that it intends to sell the property within 30 days of the service of the notice.  The notice was dated 26 November 1997. It seems to have been served either on that day or shortly thereafter. There has been subsequent correspondence between Mr Emanuele and the solicitors acting for the mortgagee.  A letter from the mortgagee’s solicitor sent by facsimile transmission on 15 December 1997 states that the mortgagee will not proceed with its notice if the sum of $39,905.95 is paid.  That sum will liquidate all arrears and pre-pay interest until the end of February 1998.  Thus, there is a substantial sum due and owing to the mortgagee. Liddan has no assets and is not itself in a position to pay the arrears of interest.  It is said, on its behalf, that Mr Emanuele and others will rely on the goodwill of associates and seek financial assistance from them to pay the arrears due under the mortgage.  There is no evidence of how this could be achieved.  The proposal has to be described as ephemeral.  It is not of sufficient substance for this court to rely upon it.  Thus, whatever else might be said about the issues and the question  whether the property at Mission Beach should be sold, it is plain that even if not sold by the liquidator, it would, in all likelihood, be sold by the mortgagee.  I do not think that there should be a stay of the intended sale by the liquidator of the land at Mission Beach.  The sale by the liquidator may be able to be conducted more advantageously than a mortgagee’s sale. The development prospects which are said to exist in this property are all subject to the fact that Liddan has no assets and that it would have to rely on the goodwill of the associates, not only to pay the arrears but also, it seems, any future payments of interest to the mortgagee.  That is wholly unrealistic.  I am not persuaded, therefore, that there should be a stay. 

It is necessary to deal with one other matter. Mr Simionato, a director of Liddan and other applicant companies, asserts that Mr Emanuele is in the process of formulating and filing an application to the Federal Court of Australia, pursuant to s.411(1) of the Corporations Law to convene a meeting of creditors of the Emanuele Management Pty Ltd in liquidation. The object of the scheme is said to be to take the Emanuele group of companies out of liquidation, and to appoint a scheme administrator, with a view to bringing to an end all of the litigation, including this litigation. Liddan is one of the companies within the Emanuele group of companies. In this way, it is proposed to preserve all of the properties owned by Liddan.

Mr Simionato asserts that there is a strong possibility  of the scheme being approved.  It is to be noted, however,  that the scheme was first proposed as early as 15 February 1997, some ten months ago.  Even  allowing for the fact that it would be a substantial scheme, ten months is more than long enough in which to bring such a scheme to a state where it could be submitted  to creditors.  In my view, this is yet another of the somewhat  ephemeral proposals advanced by Mr Emanuele with a view to  seeking to stave off the inevitable.  There is, in my view, no substance in it.  If there had been substance the  proposal would have been in a far more complete stage.  It  is to be noted that even a draft of the scheme has not been  proved. 

I have referred earlier to the fact that the applicants  have not prosecuted properly this application for a stay.   In the ordinary course, such application would have been  made to the Full Court when it delivered judgment.  No  such application was made.  More than two months have been  allowed to elapse since.  No application was made upon the institution of the application for leave to appeal  to the High Court.  Even allowing for what are said to be the financial  difficulties of the applicants, they do not, in my view,  satisfactorily explain the delay.  The applicants’ delay is another factor telling against their success in this  application, particularly as from an early date they have  been alerted to the need by this court to apply for a stay  if they sought to prevent the liquidator from proceeding  with the administration of the liquidation. 

For these reasons the application for a stay will be  refused. I am encouraged to refuse the application, also,  by reason of the fact that the liquidator is seeking to  preserve the assets, in the sense that he is seeking to  sell them to advantage before they are sold at a mortgagee’s  sale. 

I think, however, that regard should be had to the fact  that the plaintiff companies are in liquidation and have no assets.  If the land at Cape Jervis and Mission Beach is sold, then the proceeds should, I think, be held in trust by the liquidator pending the resolution of the application  for leave to appeal.  In this way, the proceeds will be  available to the applicants should their application for  leave be successful and their ultimate appeal be  successful. It should, however, be a term of the order  that the applicants should prosecute the application for  leave to appeal with all reasonable urgency to seek a  hearing at the earliest opportunity.  There will also be  liberty to apply, so that either the applicants or the  liquidator can make such applications as might be necessary  to deal with any contingencies which might arise in the  future. 

There will be orders:

(1)        Application dismissed.

(2)The liquidator shall retain the proceeds of the sale of  the Cape Jervis property and sale of the land at Mission Beach in an interest bearing account pending the determination of  the application for special leave to appeal.

(3)........ In para.2 of this order the expression “proceeds of sale” means those monies remaining after payment of the  expenses of the sale, payment of monies due to any  mortgagee and any adjustments as between vendor and  purchaser.

(4) ....... It is a condition of this order that the  applicants shall prosecute this application with all  reasonable urgency and shall seek a hearing at the earliest  opportunity.

(5)         Liberty to apply. 

MR BLUE:  We seek an application that the  applicants pay our costs of the application.  They have  failed on their application for a stay.  Your Honour has  ordered that the liquidator hold the proceeds, but there  was no substantial contest to that.  Given that they have  failed in the application for a stay, we seek the order.

MR CLAYTON:                   The applicants have been partly successful. Each party should bear their own costs.

HIS HONOUR:  I wonder whether the appropriate order is that the costs should be the costs of the application  for leave to appeal.  If you fail Mr Clayton, you pay the  costs of this application, and if you succeed, then you  would have the costs.

MR CLAYTON:                   I would suggest that that would be an  appropriate order.

MR BLUE:  We agree with that.

HIS HONOUR:  (6)  The costs of this application shall follow the costs of the application for leave to  appeal.

(7)  Fit for counsel.