Argyle Building Services v Franek (Stay Application)
[2020] VSC 207
•23 April 2020
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE COMMERCIAL COURT COMMERCIAL LIST – DIGBY J | Not Restricted |
S ECI 2020 0604
| ARGYLE BUILDING SERVICES PTY LTD (ACN 151 322 520) | Plaintiff |
| v | |
| MARK FRANEK & ORS | Defendants |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 23 April 2020 |
CASE MAY BE CITED AS: | Argyle Building Services v Franek (Stay Application) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 207 |
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PRACTICE AND PROCEDURE – Application for stay of judgment – Unsuccessful application for the continuation of a freezing order affecting assets of eight defendants – special or exceptional circumstances - Whether arguable foreshadowed grounds of appeal – Inferred prejudice to defendants – Application for stay refused – Operation of orders deferred for short period of time to allow applicant to approach Court of Appeal.
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The papers filed:
Plaintiff’s Submissions dated 20 and 22 April 2020
First Defendant Group’s Submissions dated 21 April 2020
Second Defendant Group’s Submissions dated 21 April 2020
HIS HONOUR:
Background
On 11 February 2020 the plaintiff obtained certain freezing orders, ex parte. Inter partes, those orders were extended on 17 February, 28 February and 13 March 2020.
On 17 April 2020 Reasons for Judgment in the matter were published and the plaintiff’s application for the continuance of freeing orders which it had obtained ex parte on 11 February 2020 (extended on 17 February, 28 February and 13 March 2020) was rejected and orders were foreshadowed, including orders discharging the subject freezing orders.[1]
[1]Argyle Building Services v Franek [2020] VSC 166.
By written submissions dated 20 April 2020 (and Reply Submissions dated 22 April 2020) the plaintiff applied for a stay of proposed orders to discharge the freezing orders of 11 February 2020, pending an application by the plaintiff for leave to appeal to the Court of Appeal.
Plaintiff’s submissions in support of a stay of judgment
The plaintiff submits that there are special or exceptional circumstances in this case that justify the Court granting a stay.
The plaintiff submits that unless there is a stay on the proposed order to discharge the freezing orders over the defendants’ assets made in this proceeding on 11 February 2020 (as extended), the foreshadowed appeal will be rendered nugatory as the defendants will be at liberty to deal with those assets unhindered.
The plaintiff submits that granting the stay represents the lower risk of injustice (in the event the application for leave to appeal was dismissed, or the appeal refused), and that while the plaintiff will suffer substantial injustice if the order for discharge of the freezing order is set aside by the Court of Appeal, there having been no asset preservation measures in place in the interim, there is no evidentiary basis for the Court to conclude that the defendants would suffer any prejudice if a stay were granted. In this regard the plaintiff submits that the defendants did not contend they would suffer any prejudice in seeking to discharge the freezing orders in the underlying proceedings, and notes that the defendants have and will continue to have the right to seek a variation of the freezing orders on the usual basis.
The plaintiff submits that it has identified grounds of appeal in relation to the findings made by the Court, relating to the three causes of action in the underlying proceedings, where in each case the Court has concluded that those causes of action are not reasonably arguable.
First defendant group’s submissions opposing the stay sought by the plaintiff
The first defendant group identifies the grounds upon which it opposes the plaintiff’s stay application, broadly, as follows:
(a) the applicant has failed to identify any grounds of appeal;
(b) the plaintiff would not enjoy real prospects of success of appeal;
(c) the discretion should not, in any case, be exercised in the plaintiff’s favour.
The first defendant group submits that it is a well settled principle that a stay should not be granted unless there is at least an arguable ground of appeal.[2] In this regard, the first defendant group submits that the plaintiff has understated this requirement and it is not merely ‘relevant to the exercise of the discretion’[3] but a necessary condition. The first defendant group submits that, in any case, s 14C of the Supreme Court Act 1986 (Vic) requires a plaintiff to demonstrate that it has real prospects of success as a prerequisite to obtaining leave to appeal. In these circumstances the first defendant group submits that the plaintiff has failed to articulate or advance its grounds of appeal, and for this reason alone the application for stay should fail.
[2]Neate v Thoroughbred International Marketing Pty Ltd (2012) 34 VR 318 at 320; Maher v Commonwealth Bank of Australia [2008] VSCA 122 at [27]; Loftus v Australia and New Zealand Banking Group Limited [2016] VSCA 114 at [8]; He v Huang [2017] VSCA 102 at [44]; Uren v Uren [2017] VSCA 300 at [51].
[3]Plaintiff’s Submissions, 20 April 2020, [6(d)].
In addition, the first defendant group submits that the order to discharge the freezing orders was of an interlocutory nature, and represents an exercise of discretion, and therefore is reviewable on the ground that a substantial wrong has in fact occurred.[4] The first defendant group notes that the freezing order is one that is either discharged or simply lapses. In those circumstances, it is not an order that may be stayed.
[4]See for example, House v R (1936) 55 CLR 499 at 504–5; Lovell v Lovell (1950) 81 CLR 513 at 533; Commissioner of State Revenue v Landrow Properties Pty Ltd [2010] VSCA 197; Northern Health v Kuipers [2015] VSCA 172 at [6]–[16]; Melbourne City Investments Pty Ltd v Treasury Wine Estates Ltd [2017] FCAFC 98..
The first defendant group submits that, whatever the plaintiff’s proposed grounds of appeal may be, an appeal is unlikely to enjoy a real prospect of success. The first defendant group submits this is so given the fact that there were several independent bases for the conclusion in the underlying proceedings that there was no arguable case in respect of each cause of action. The first defendant group says that this is particularly so given this is a proposed appeal of an interlocutory decision that is discretionary in nature, thereby the House v King standard applying.
The first defendant group submits that even where special or exceptional circumstances exist, including where there is a real risk that the appeal, if successful, would be rendered nugatory, a residual discretion remains to refuse the stay.[5] In these circumstances the first defendant group say that the plaintiff’s submission that special or exceptional circumstances arise where, as in the plaintiff’s submission in the circumstances of this case the granting of a stay carries the lower risk of injustice if it transpires that the application for leave for appeal is dismissed,[6] is misconceived. The first defendant group submits that this test is not applicable in the current circumstances and contradicts the high standard applied to stay applications in Victoria.
[5]Neate v Thoroughbred International Marketing Pty Ltd (2012) 34 VR 318 at 320.
[6]Plaintiff’s Submissions, 20 April 2020, [6(e)].
The first defendant group submits that the defendants would suffer substantial prejudice if the discharge of the freezing orders were stayed, and that the extraordinary restriction on the use by each relevant defendant of its assets (which has already lasted some 10 weeks) is a significant prejudice and does not require proof. In these circumstances the first defendant group submits that the freezing order application has been heard and determined, and defendants as the successful party are entitled to the fruits of judgment.[7]
[7]Maher v Commonwealth Bank of Australia [2008] VSCA 122 at [27], as cited in Neate v Thoroughbred International Marketing Pty Ltd (2012) 34 VR 318 at 320.
Second defendant group’s submissions
The second defendant group opposes the plaintiff’s application for a stay, and endorses the submissions of the first defendant group. The second defendant group submits that the draconian nature of the freezing order provides a logical inference in respect of prejudice to the defendants by reason of any stay.
The second defendant group submits that it is significant that there are eight defendants to the plaintiff’s proceeding, including both corporate entities and the individuals behind those corporate entities, and therefore the plaintiff’s submission that there is a risk that the intended object of the freezing order will be rendered inutile if a stay is not granted ought be rejected.
The second defendant group further opposes the orders sought by the plaintiff in respect of the costs of the first and second defendant groups’ security for costs applications on the following bases:
(a) at no stage has the plaintiff offered to provide security for costs, at whatever quantum;
(b) the plaintiff resisted the security for costs application on the basis that it was not possible to assess the merits of the case, such an assessment being necessary before a security for costs order can be made; and
(c) contrary to the plaintiff’s submissions, both the first and second defendant groups sought security for costs, allowing for taxation on a standard basis.
Plaintiff’s reply
The plaintiff submits in reply that the central and distinguishing feature between its application for stay and the cases cited by the first defendant group, is that this application was made on an urgent basis, on the first business day after the reasons in the underlying proceeding were delivered, and in circumstances where the plaintiff has not yet filed an application for leave to appeal. The plaintiff submits that in these circumstances the difficulty of requiring a Judge to effectively consider the merits of their own decision must be recognised.
The plaintiff identifies what it says are arguable grounds for appeal being based in findings made by the Court regarding the impugned transactions that it says are central to, and permeate, the Court’s decision.
The plaintiff however submits that the Court should recognise that ‘the ultimate correctness of those grounds is strictly a matter for determination by the Court of Appeal in the foreshadowed application for leave to appeal. Beyond identifying the potential grounds of appeal, [the plaintiff] does not expect the Court to evaluate the merits of those grounds’.[8]
[8]Plaintiff’s Submissions, 22 April 2020, [5].
In these circumstances the plaintiff submits that the Court’s proposed order to discharge the freezing orders rests on the conclusion that the plaintiff did not have a reasonably arguable case in respect of any of the causes of action which it advanced, and that this conclusion was based on findings of facts and law which are the subject of the application for leave to appeal. It submits that if it be held that the findings of fact and law upon which that conclusion was reached were not open to the Court, it necessarily follows that the exercise of the discretion miscarried, warranting appellate intervention.
The plaintiff contends that the defendants’ submission that they would suffer substantial prejudice if the proposed order for the discharge of the freezing orders were stayed is a bare assertion, and is not supported by any evidence. The plaintiff submits that the circumstance that the defendants did not put on evidence of prejudice as a basis to discharge the freezing orders serves to erode the force of the defendants’ assertion.
Legal principles
The principles governing the grant of a stay are well settled:
(a) An application for leave to appeal or appeal does not operate as a stay.
(b) In deciding whether to order a stay, the court has a wide discretion – it is required to take into account all of the circumstances of the case.
(c) The party applying for a stay bears the onus of demonstrating that a stay is justified. The power to order a stay will generally not be exercised unless the applicant demonstrates that there are special or exceptional circumstances.
(d) Whether special or exceptional circumstances exist are particular to each case; relevant to the exercise of the discretion is the prospect that the appeal may be rendered nugatory and that there is at least an arguable ground of appeal.
Considerations
The plaintiff’s application for freezing orders has been heard and determined.
The successful defendants (being the first defendant group and the second defendant group) are the beneficiaries of a judgment to that effect in relation to the freezing orders of 11 February 2020, and also in relation to partial security for costs up to and including mediation in this proceeding.
Accordingly, the defendants are immediately entitled to the benefit of judgment in their favour in this matter.
An application for leave to appeal or an appeal do not operate as a stay.[9]
[9]Supreme Court (General Civil Procedure) Rules 2015, r 64.39.
Further, in my view the Court should readily infer that there has been and will continue to be substantial prejudice to the defendants as a result of the continuation of the freezing orders obtained by the plaintiff on 11 February 2020. The imposition and continuation of the subject freezing orders constitutes an imposition of an inherently draconian nature, and as is clear on the terms of the subject orders alone, further profoundly interferes with the defendants’ capacity to enjoy and deal with their assets affected by the freezing orders.[10]
[10]The first, second, fifth, sixth, seventh and eighth defendants (first defendant group) in their Submissions dated 21 April 2020 at [25] point out that the plaintiff’s stay application has been made on short notice and submit that if the question of whether to grant a stay is likely to turn upon the question of prejudice, then the first defendant group would seek an opportunity to file affidavits to depose to specific prejudice. On 20 April 2020 the Court gave directions in this matter in relation to the plaintiff’s foreshadowed application for a stay including the programing of submissions. In the circumstances, sufficient time has been afforded to the first defendant group to put on material relating to specific prejudice to the defendants. Further, the short stay of the effect of orders to be authenticated in this matter will afford a further opportunity to the first defendant group to file and serve material specifically going to prejudice, before the plaintiff’s foreshadowed applications to the Court of Appeal of the Supreme Court of Victoria.
I do not accept the plaintiff’s submission that because the defendants have not put on specific evidence of prejudice in this application, that erodes the force of this obvious inference. Nor do I consider that it meets the point for the plaintiff to assert that because the defendants are at liberty to apply for a variation of the freezing orders there is, or hypothetically can be, an amelioration of any prejudice to the defendants.
The sole purpose of freezing and related ancillary orders when granted under r 37A of the Supreme Court (General Civil Procedure) Rules 2015, or the Court’s inherent powers, is to preserve assets from dissipation so as to prevent the frustration of the Court’s processes. In this matter that sole purpose is illusory because from a point in time well before the occurrence of the facts and circumstances relied upon by the plaintiff to establish its asserted fraudulent design and related allegations, there were no relevant assets accessible to the plaintiff (even if wholly successful on the loss of opportunity and related claims in its Indorsement of Claim) in respect of which it could satisfy judgment obtained in this proceeding.
Put another way, from well before the alleged occurrence of the facts and circumstances relied upon by the plaintiff to found the freezing orders it obtained ex parte, registered security interests over the assets which the plaintiff asserts should be frozen to ensure they are accessible to satisfy the judgment the plaintiff seeks, substantially exceeded the value of those assets, Lots 1, 5 and 6 at 13 Wilson Street, Brighton in the State of Victoria. There were therefore, at all material times, no relevant assets of the ninth defendant to dissipate.
As a result of the matters referred to in the last two preceding paragraphs there is no prejudice to the plaintiff which justifies the stay order sought by the plaintiff on this application.
The plaintiff submits that it intends as soon as practicable to seek to prosecute an appeal of the present judgment in this matter and also submits an outline of a number of grounds for its proposed application for leave to appeal.
The plaintiff expressly submits that it does not expect the Court to evaluate the merits of its proposed grounds of appeal.[11]
[11]Plaintiff’s Submissions, 22 April 2020, [5].
Further, for the purpose of considering and exercising my discretion in relation to the plaintiff’s present stay application, I am not persuaded that the plaintiff has in respect of any of its foreshadowed grounds of appeal, a prospect of being granted leave to initiate and prosecute its foreshadowed appeal in relation this matter.
I accept the plaintiff’s submission that for the purpose of considering whether or not a stay of judgment should be granted that requisite special or exceptional circumstance may be established on the basis that there is a real risk that the appeal which the unsuccessful party, or judgment debtor, intends to pursue, if successful, would be, or is at risk of being, rendered nugatory if a stay of judgment is not ordered. I observe that the onus in this regard, and generally on the plaintiff’s stay application, is on the plaintiff. In this matter however I am not satisfied, for the reasons earlier mentioned, that at any material time there was any equity in Lots 1, 5 or 6 which would have to be available to satisfy the judgment pursued by the plaintiff in this proceeding, and therefore the plaintiff cannot sensibly argue that not grating it the stay it seeks may render its proposed appeal nugatory.
I do not however accept in this context that a special or exceptional circumstance would necessarily arise if the refusal of a stay would give rise to greater injustice to the plaintiff than might be caused to the defendants if the stay were granted.[12]
[12]Plaintiff’s Submissions, 20 April 2020, [6(e)].
Decision
Accordingly, for the reasons which I have outlined in paragraph [23]-[36] above, I reject the plaintiff’s application for a stay and dismiss the plaintiff’s application of 20 April 2020, reserving the question of costs on that application. I direct the parties to file and serve by 4:00pm on Friday 24 April 2020, any submission (limited to one page) they wish to make as to these costs.
However, to afford the plaintiff a short period of time in which to move the Court of Appeal in relation to this matter, I shall defer the effect of the below orders earlier referred to in the Reasons for Judgment on 17 April 2020 in this proceeding, until 5:00pm on Monday 27 April 2020.
Orders
Accordingly, I order that, subject to the following Orders being stayed in effect until 5:00pm on Monday 27 April 2020:
(a) The plaintiff’s Summons dated 7 February 2020 is dismissed.
(b) The freezing orders made against the first to eighth defendants on 11 February 2020, and extended on 17 February 2020, 28 February 2020 and 13 March 2020, are discharged.
(c) The plaintiff’s undertakings provided in relation to the orders made from time to time referred to in paragraph [2] are discharged.
(d) By 4:00pm on Friday 1 May 2020, the plaintiff provide security for the costs of the first, second, fifth, sixth, seventh and eighth defendants in the sum of $39,000, up to and including the time of the mediation in this proceeding.
(e) By 4:00pm on Friday 1 May 2020, the plaintiff provide security for the costs of the third and fourth defendants in the sum of $16,000, up to and including the time of the mediation in this proceeding.
(f) In default of compliance by the plaintiff with paragraphs [d] and [e] above, the plaintiff’s proceeding against the defendants concerned be stayed.
(g) The plaintiff pay the first to eighth defendants’ costs of and associated with the application made by Summons dated 7 February 2020, together with any reserved costs, on a standard basis.
(h) The plaintiff pay the costs of and associated with the first, second, fifth, sixth, seventh and eighth defendants’ application for security for costs made by Summons dated 18 February 2020, together with any reserved costs, on a standard basis.
(i) The plaintiff pay the costs of and associated with the third and fourth defendants’ application for security for costs made by Summons dated 18 February 2020, together with any reserved costs, on a standard basis.
(j) The parties have liberty to apply.
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