Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0097

CASTAWAY AVENUE PTY LTD (ACN 636 822 412)	Applicant
v
CSC1957 INVESTMENTS PTY LTD (ACN 600 333 542)	Respondent

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JUDGES:	BEACH JA and J FORREST AJA
WHERE HELD:	Melbourne
DATE OF HEARING:	28 October 2022
DATE OF JUDGMENT:	28 October 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 238

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PRACTICE AND PROCEDURE – Stay – Application for stay pending appeal – Whether special or exceptional circumstances exist – Applicant claiming specific performance of contract of sale – Respondent wishing to sell property the subject of contract of sale – Whether applicant’s proposed grounds of appeal sufficiently arguable – Whether risk or likelihood that proposed appeal would be rendered nugatory if stay not granted – Application for expedited hearing – Stay granted – Expedited hearing granted.

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Counsel
Applicant:		Mr JA Ribbands
Respondent:		Mr I Percy with Mr H Hill-Smith
Solicitors
Applicant:	Melbourne Legal Chambers
Respondent:	Stenta Legal

BEACH JA
J FORREST AJA:

In December 2019, the applicant (as purchaser) and the respondent (as vendor) entered into a contract for the sale (the ‘contract of sale’) of a residential property situated in Nicholson Street, Fitzroy (the ‘property’). The contract of sale provided that the purchase price was $3.4 million, payable by:
•a deposit of $100,000 on the signing of the contract;
•$2.213 million at settlement, which was to take place on 23 December 2019; and
•the balance of $1.087 million on 23 December 2020 (the ‘deferred payment’).
The deferred payment was to be secured by a mortgage over the property in favour of the respondent. There was, however, concern on the respondent’s part about the applicant borrowing money against the property to such an extent that the applicant would not have sufficient equity in the property to permit the respondent to recover the deferred payment when it became due. That concern was sought to be addressed by a deed of settlement (the ‘deed’) entered into between the parties at the time of the entry into the contract of sale.
By the terms of the deed, the parties acknowledged that the applicant was not providing any purchase monies apart from the deposit. Additionally, the deed provided that the applicant could obtain a mortgage over the property to a maximum value of $2.5 million. Clause 2.2.1 of the deed dealt with the rate of interest upon which the applicant could borrow money against the property. It provided:
2.2.1The obligation on the part of the purchaser to pay interest on the $2.5 million mortgage(s) must not exceed 5% per annum as an acceptable rate and not greater than 6.5% per annum as a higher rate in the event of default. The purchaser will provide proof the mortgage(s) do not exceed this requirement.[1]
The ultimate effect of the deed was that the property was to be mortgaged by the applicant to secure the amount due at settlement, and the deferred payment was to be secured by an additional lower-ranking mortgage.
[1]Emphasis added.
On or about 17 December 2019, the applicant obtained finance from two entities for the total amount of $2.5 million. Following the entering into of the contract of sale and the deed, the parties exchanged a number of communications relating to cl 2.2.1 and the applicant’s obligation to provide proof that monies borrowed by it had been borrowed at interest rates that did not exceed those set out in cl 2.2.1.
At 4:11 pm on Friday 20 December 2019, the respondent’s solicitor emailed the applicant’s solicitor alleging that the applicant had failed to comply with cl 2.2.1 of the deed (in that it failed to provide the proof required by cl 2.2.1) and saying that:
In the circumstances, and in the absence of the provision of that proof our client will not be proceeding with the sale to your client.
On the same day, the applicant lodged a caveat over the property asserting its interest in the property pursuant to the contract of sale.
On Monday 23 December 2019, the day of the proposed settlement, the respondent’s solicitors emailed the applicant’s solicitors and confirmed that the respondent would not be proceeding with the sale and the proposed settlement did not take place.
On 14 February 2020, the applicant commenced a proceeding in the Trial Division against the respondent seeking specific performance of the contract of sale and associated declaratory relief, including a declaration that it had a caveatable interest in the property.
On 14 May 2020, Keogh J made a freezing order,[2] which prohibited the respondent from disposing or dealing with the property or extending its level of indebtedness to the Commonwealth Bank of Australia in respect of a registered mortgage the respondent had previously given over the property (‘the respondent’s mortgage’).[3] The freezing order was given upon the applicant giving a number of undertakings, including to submit to any order the Court may consider to be just for the payment of compensation to any person affected by the operation of the order.
[2]Subsequently varied by Incerti J on 18 June 2020.
[3]This was preceded by an ex parte freezing order made on 7 May 2020.
The trial of the applicant’s proceeding was heard by Gorton J over three days in August 2022. On 10 October 2022, pursuant to reasons delivered on 15 September 2022,[4] his Honour dismissed the applicant’s proceeding, made a declaration that the contract of sale was validly terminated by the respondent, ordered the applicant to lodge a withdrawal of the caveat, and discharged the freezing order. Essentially, his Honour concluded that the contract of sale was validly terminated by the respondent because the applicant had not provided the proof required by cl 2.2.1 of the deed.[5]
[4]Castaway Avenue Pty Ltd v CSC1957 Investments Pty Ltd [2022] VSC 547 (‘Reasons’).
[5]Gorton J considered that the deed and the contract of sale formed a single agreement, and that non-compliance with cl 2.2.1 of the deed constituted a breach of an essential term of that agreement: Reasons, [39]–[42].
At the time he dismissed the applicant’s proceeding, the judge stayed the operation of the order requiring the applicant to lodge a withdrawal of the caveat and the discharging of the freezing order until 4:00 pm this day. This was on the basis that the applicant had previously indicated an intention to appeal his Honour’s decision.
On 23 October 2022, the applicant filed an application for leave to appeal and a written case in support thereof. The applicant’s proposed grounds of appeal are:
1.His Honour erred in the construction of cl 2.2.1 of the deed in determining what was required to be done by the applicant so as to provide ‘proof’ within the meaning of that clause.
2.His Honour erred in finding that the respondent was entitled to, and in fact did, terminate the contract of sale:
(a)as a consequence of the alleged failure on the part of the applicant to satisfy the requirements of cl 2.2.1 of the deed; and
(b)without first providing a notice of default in accordance with general condition 27 of the contract of sale.
The applicant now applies to this Court for a further stay of Gorton J’s orders pending the hearing and determination of its application for leave to appeal and (if leave is granted) its appeal. Additionally, the applicant seeks an expedited hearing of its proposed appeal. The respondent opposes the application for a stay, but consents to the application for expedition. At the same time, the parties have agreed to an order being made that the applicant provide security for costs in the sum of $45,000 within 7 days.
The applications for a stay and expedited hearing
The applications for a stay and expedited hearing are supported by an affidavit sworn by Alexanndar Gulabovski,[6] a director of the applicant and the second defendant by counterclaim in the proceeding below. Mr Gulabovski exhibits to his affidavit a number of documents emanating from the respondent.[7] On the basis of these documents, Mr Gulabovski notes that:
•the respondent has no assets of value other than the property;
•the respondent’s mortgage is in default, the current loan balance being in excess of $2.6 million;
•the respondent’s indebtedness under the mortgage is increasing;
•the respondent has expressed a desire to sell the property; and
•if the respondent disposes of the property, the applicant will be unable to obtain the primary relief he seeks, specific performance.
[6]
[7]Specifically, a letter from the respondent’s solicitor to the applicant’s solicitor dated 4 October 2022, and an affidavit sworn by the sole director of the respondent on 5 October 2022.
The applicant seeks a stay of the trial judge’s orders in order to prevent the respondent from disposing of the property (as it has indicated it wishes to), so as to ensure that its proposed appeal is not rendered nugatory. It seeks an expedited hearing so that the matter can be determined by this Court before the respondent’s indebtedness under its mortgage rises to such a level that the applicant is unable to obtain sufficient funds to enable the discharge of the respondent’s mortgage so as to enable the applicant to complete the purchase.
The respondent opposes the stay application. Relying upon affidavits sworn by Luke Faba, the solicitor for the respondent, the respondent submits that:
•the applicant cannot demonstrate special circumstances justifying a stay;
•the property ‘is not irreplaceable or of special significance such that damages are not adequate compensation’;
•specific performance of the contract of sale may be unavailable even if the applicant were to be successful in its application for leave to appeal and any appeal; and
•if a stay is ordered, the respondent will face significant financial disadvantage and risk relating to the likelihood of the property continuing to decline in value[8] and the possibility that the Commonwealth Bank of Australia may exercise its power of sale for a value lower than the respondent could achieve were it to sell the property.
[8]The likelihood of the property declining (and continuing to decline) in value, ‘in the near and foreseeable future’ was deposed to in an affidavit relied upon by the respondent and sworn by Paul Harrison, the managing partner of Nelson Alexander, Ascot Vale and Flemington Real Estate Agents.
In support of its contention that specific performance is unlikely to be available, the respondent noted the applicant’s concession that, at present, the contract of sale could not be specifically performed strictly in accordance with its terms because there is no capacity for the respondent to pay the amount required to discharge the respondent’s mortgage at settlement.

Stay application principles

The application for a stay is made under rr 64.39 and 66.16 of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’). The principles relating to such an application are well established and not in dispute.[9] As was said by Whelan and Kaye JJA in Loftus v Australia and New Zealand Banking Group Ltd:[10]
Prima facie, a successful party is entitled to the benefit of the judgment obtained below. Accordingly, an applicant for a stay is required to demonstrate special or exceptional circumstances to remove the case from the general rule that an appeal, and an application for leave to appeal, do not operate, of themselves, as a stay. In particular, special circumstances may be found to exist where the applicant is able to demonstrate that there is a real risk that it will not be possible to restore the applicant substantially to his or her former position if the judgment against the applicant is executed before the conclusion of the appeal.
In order to justify the grant of a stay, an applicant should also demonstrate that there is at least an arguable ground of appeal. However, ordinarily, the court does not have before it sufficient materials to consider, in detail, the merits of the grounds of appeal relied on in the application for leave to appeal. In such a case, unless there is no arguable ground of appeal, or the appeal is not bona fide, the court ordinarily will focus on matters relevant to the enforcement of the judgment, rather than matters that are relevant to its validity or correctness.[11]
[9]See generally Maher v Commonwealth Bank of Australia [2008] VSCA 122, [20]–[27] (Dodds-Streeton JA, Redlich JA agreeing at [1]); Cross Country Realty Victoria Pty Ltd v Ubertas 350 William Street Pty Ltd [2015] VSCA 347, [79]–[90] (Kyrou and McLeish JJA); Michos v Eastbrooke Medical Centre Pty Ltd [2019] VSCA 140, [29] (Kyrou and T Forrest JJA); Amcor Ltd v Barnes [2020] VSCA 57, [10] (Ferguson CJ and Beach JA) (‘Amcor’); Yuanda Vic Pty Ltd v Fascade Designs International Pty Ltd [2020] VSCA 269, [23]–[26] (McLeish, Niall and Sifris JJA) (‘Yuanda’); V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2022] VSCA 77, [36] (Sifris and Macaulay JJA).
[10][2016] VSCA 114, [7]–[8], cited with approval in Yuanda [2020] VSCA 269, [25] (McLeish, Niall and Sifris JJA).
[11]Citations omitted. See also Amcor [2020] VSCA 57, [10] (Ferguson CJ and Beach JA).
Stay and expedition applications: discussion and conclusions
This is not the occasion on which to make any considered appraisal of the merits of the applicant’s proposed appeal. It is sufficient for us to say that, having considered all of the material, we are of the view that the proper construction of cl 2.2.1, the question of whether the applicant was in breach of the clause, and the respondent’s entitlement to terminate the contract of sale in the manner it did are arguable. Put shortly, we accept that the applicant’s proposed grounds of appeal are sufficiently arguable to justify staying the trial judge’s primary orders, if the failure to grant a stay would deprive the applicant of the ability to obtain the primary relief it seeks in this proceeding.
There are a number of contestable issues between the parties, including the prospect of the applicant obtaining any order for specific performance. The freezing order in force in the months leading up to the trial, and currently still in force, preserved the subject matter of the litigation so that the applicant’s claim for specific performance was not rendered inutile by the respondent disposing of the property to a third party. We are persuaded that the possible loss of the applicant’s ability to seek specific performance if the stay sought by it is not granted constitutes special or exceptional circumstances sufficient to enliven the jurisdiction to grant a stay.
Balancing the competing considerations in this case, we think that justice is best served by the continued operation of the freezing order (upon each of the undertakings given by the applicant to obtain that order) pending the resolution of the proceeding in this Court, and that the application for leave to appeal (and any appeal) should be expedited as far as reasonably possible. To that end, we propose to grant the application for a stay pending the resolution of the application for leave to appeal and any appeal, and to order that the matter be given such priority as the Registrar considers appropriate, in the expectation that the application for leave to appeal and appeal will be listed for hearing in this Court in February 2023.

Conclusion

We will make the following orders:
(1)The stay ordered in paragraph 5 of the orders of Gorton J made 10 October 2022 is hereby extended until the determination of the application for leave to appeal and any appeal, or further order.[12]
[12]For completeness, we note that, while the stay order we will make results in the continuation of the undertakings set out in the freezing order, the stay order will also be made upon the undertakings given by Mr Gulabovski (set out in paragraph 11of his second affidavit) that, in the event that the respondent is not successful, Mr Gulabovski will pay any adverse costs order made in favour of the respondent, and also pay any damages that may be incurred by the respondent in respect of the stay.
(2)The application for leave to appeal and any appeal is to be fixed for hearing with such priority as the Registrar is reasonably able to afford the matter.
(3)By 4:00 pm on 4 November 2022, the applicant provide the Associate Judge who is the Senior Master, by payment into Court or in another form acceptable to the Associate Judge who is the Senior Master, security for the respondent’s costs of the application for leave to appeal and any appeal in the sum of $45,000.
(4)Liberty to apply.
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Sworn 23 October 2022. For completeness, we note that Mr Gulabovski swore a second affidavit on

27 October 2022.

[2022] VSCA 238

28 October 2022