Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd

[2010] WASCA 171

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   COMPUTER ACCOUNTING AND TAX PTY LTD (in liq) -v- PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD [2010] WASCA 171

CORAM:   NEWNES JA

HEARD:   13 AUGUST 2010

DELIVERED          :   13 AUGUST 2010

PUBLISHED           :  25 AUGUST 2010

FILE NO/S:   CACV 51 of 2010

BETWEEN:   COMPUTER ACCOUNTING AND TAX PTY LTD (in liq)

First Appellant

ANGELA CECILIA THERESA FRIGGER
HARMUT FRIGGER
Second Appellants

AND

PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD (Subject to Deed of Company Arrangement)
First Respondent

DONALD CAMPBELL-SMITH as Executor of the Estate of MARTIN PAUL BANNING
Second Respondent
 

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD (Administrator Appointed) -v- COMPUTER ACCOUNTING AND TAX PTY LTD [No 3] [2010] WASC 93

File No  :COR 2 of 2010

Catchwords:

Practice and procedure - Application for suspension of enforcement of judgment - Whether special circumstances - Whether real risk that if judgment sum paid to respondent it would be irrecoverable if appeal succeeded - Turns on own facts

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 15

Result:

Enforcement of the judgment suspended

Category:    B

Representation:

Counsel:

First Appellant  :        No appearance

Second Appellants  :        Mr N D C Dillon

First Respondent  :        Mr T R Stephenson

Second Respondent  :        Mr T R Stephenson

Liquidator of the First Appellant     :        Mr D W Johns

Solicitors:

First Appellant  :        No appearance

Second Appellants  :        Dutton Legal

First Respondent  :        Holborn Lenhoff Massey

Second Respondent  :        Holborn Lenhoff Massey

Liquidator of the First Appellant     :        Freehills

Case(s) referred to in judgment(s):

Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133

Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308

Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183

Smolarek v Brian Keith McMaster As Administrator of Eznut Pty Ltd [2006] WASCA 216

1. NEWNES JA:  This is an application by the second appellants for an order that enforcement of part of the judgment of Master Sanderson of 6 May 2010 be suspended pending the determination of the appeal against the Master's decision.  The application relates to the order of the Master that the first and second respondents' costs of an application to wind‑up Computer Accounting and Tax Pty Ltd (Computer Accounting) be paid jointly and severally by Computer Accounting (out of the assets of the company) and the second appellants, fixed in the sum of $33,661.90 (the costs order). 

2. On 13 August 2010, I ordered that enforcement of the costs order be suspended until further order of the court.  I said I would provide reasons for my decision.  Those reasons are as follows.

The background

1. The proceedings below arise out of lengthy and obviously hard‑fought litigation between the appellants on the one hand and the first respondent and the late Mr Banning on the other.  It is evident that there is a good deal of ill-will between at least some of the current parties, which regrettably appears to have spilled over to some extent to some of their legal representatives.

2. The proceedings have their origin in an action commenced by Computer Accounting against Professional Services of Australia Pty Ltd (Professional Services) and the late Mr Banning in relation to the purchase of a property in Armadale. At that time, Computer Accounting was controlled by the second appellants.  The late Mr Banning was the sole director of Professional Services.

3. In May 2003, Computer Accounting purchased a property, consisting of a service station and adjacent workshop, in Albany Highway, Armadale from Professional Services for the total price of $665,000.  Subsequently, Computer Accounting brought proceedings against Professional Services and Mr Banning, alleging that Mr Banning had made a number of false representations which had induced it to purchase the property. 

4. Computer Accounting was successful at trial:  Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133. The trial judge found that Computer Accounting had made out causes of action in misleading or deceptive conduct contrary to the Trade Practices Act 1974 (Cth) and/or the Fair Trading Act 1987 (WA), in negligence and, in respect of some of the representations only, in deceit. His Honour awarded damages to Computer Accounting in the total sum of $967,202.50, plus interest of $138,824.83 and costs.

5. Professional Services and Mr Banning appealed against the assessment of damages.  On 23 October 2009, the Court of Appeal allowed the appeal and, in effect, reduced the damages by an amount of some $680,000:  Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd[No 2] [2009] WASCA 183. That also had the consequence of reducing the amount of interest to which Computer Accounting was entitled. A subsequent application by Computer Accounting for leave to appeal to the High Court against the decision of the Court of Appeal was dismissed.

6. It appears that in the meantime the full amount of the original judgment had been paid to Computer Accounting.  Following the decision of the Court of Appeal, Professional Services and Mr Banning sought to recover the amount by which the damages and interest had been reduced on appeal.  Their endeavours were unsuccessful.  Two statutory demands were then served on Computer Accounting in respect of the outstanding sums.  One of those statutory demands was subsequently satisfied and one was not. 

7. On 21 January 2010, on the application of Professional Services, the court appointed a provisional liquidator to Computer Accounting: Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [2010] WASC 38.

8. On 28 April 2010, an application by Professional Services to wind‑up Computer Accounting was heard by Master Sanderson.  The application was opposed by the second appellants, as directors of Computer Accounting, who appeared by counsel. 

9. On 6 May 2010, the Master ordered that Computer Accounting be wound‑up.  The Master also made, amongst others, the costs order which, as I have mentioned, provided, in effect, that Computer Accounting (to the extent of its assets) and the second appellants were jointly and severally liable to pay the first and second respondents' costs of the winding‑up application, which the Master fixed in the sum of $33,661.90.  The Master published reasons for his decision that Computer Accounting should be wound‑up but, it appears, did not give any reasons for his decision as to costs.

10. The second appellants seek leave to appeal against the costs order, in substance, on the grounds first, that the Master erred in law in ordering the second appellants to pay the costs; secondly, that the Master erred in law in fixing the costs; and thirdly, that the learned Master failed to provide any or any adequate reasons for his decision to award costs against the second appellants and for fixing the costs at the quantum he did.  I should mention that the appeal originally appeared to include an appeal against the winding‑up order but that aspect of the appeal has not been pursued.

The relevant principles

1. Under s 15 of the Civil Judgments Enforcement Act 2004 (WA), a person against whom a judgment is given may apply for an order suspending the enforcement of a judgment. The court may only make such an order if there are special circumstances that justify it doing so: s 15(3).

2. The principles applicable to an application under s 15 are not materially different from those which applied to an application for a stay of execution before the introduction of the Act: see Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203 [3]; Smolarek v Brian Keith McMaster As Administrator of Eznut Pty Ltd [2006] WASCA 216 [33].

3. The general principles which are applicable were summarised by Murray and Parker JJ in Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308, as follows:

   1.The successful litigant at first instance will ordinarily be entitled to enforce the judgment pending the determination of any appeal.

   2.It is for the applicant for a stay to move the court to a favourable exercise of its discretion.

   3.It will not do so unless special circumstances are shown justifying the departure from the ordinary rule.

   4.The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation, or where refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal.  It is often put shortly that it will first and foremost be necessary to establish that without the grant of a stay, the right of appeal, whether upon the grant of leave or special leave or not, will be rendered nugatory. 

   5.If that can be demonstrated, the stay will generally still be refused unless it can be established that the appeal process, whether upon the grant of leave or special leave or not, has ultimately reasonable prospects of success so as to result in the grant of relief to the appellant.

   6.If that hurdle can be overcome, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant; where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted [9].

4. While those principles provide guidance in the exercise of the discretion they are not inflexible or exhaustive, and at all times the ultimate question must be whether there are special circumstances which justify the court ordering a stay.

The disposition of the application

1. The second appellants seek the suspension of the enforcement of the costs order on the ground that, if the costs were paid to Professional Services and this appeal were to be successful, it is unlikely the second appellants would be able to recover the money.   

2. Professional Services is currently in administration and Mr Banning died some time after the events giving rise to the original proceedings between the parties.  In opposing this application, the respondents relied on an affidavit of Mr Campbell‑Smith, dated 27 July 2010.  Mr Campbell‑Smith is a Certified Practicing Accountant.  He is the executor of the estate of the late Mr Banning (the Estate) and a director of Professional Services.  The second appellants relied on several affidavits sworn by Mrs Frigger, the last of which was filed the morning of the hearing of this application.

3. In his affidavit, Mr Campbell‑Smith denies that if payment were made by the second appellants under the costs order they would not be able to recover the money in the event the appeal was successful.  Mr Campbell‑Smith says that an asset of the Estate is one of the two issued shares in Banning Holdings Pty Ltd, a company formerly controlled by Mr Banning.  (The right to the other share in Banning Holdings is the subject of a dispute between the parties.)  In par 5 of the affidavit, Mr Campbell‑Smith refers to an annexed 'combined statement of assets and liabilities of the Estate, [Professional Services] and Banning Holdings Pty Ltd which demonstrates that there is a surplus of assets over liabilities of $620,180.55 [sic $620,185.55]'. 

4. In fact, the statement of assets and liabilities appears by its terms to deal with the respective financial positions of Banning Holdings and the Estate.  Moreover, it is by no means self-explanatory and refers to notes which are not included in the annexed document.  It appears, however, that what is meant by Mr Campbell-Smith is not that the entities referred to have a combined surplus of assets over liabilities of $620,185.55, but that the Estate has such a surplus, principally through its entitlement to one of the two issued shares in Banning Holdings.  The statement of assets and liabilities of Banning Holdings shows net assets in the sum of $1,203,077.10.  The value of the Estate's share in Banning Holdings is shown as $601,538.55.

5. Counsel for the second appellants challenged the financial position of Banning Holdings.  Counsel drew attention to an amount of $850,000 included in the statement of assets and liabilities as an asset of Banning Holdings and which is described as 'repayment due by Computer Accounting and Tax Pty Ltd (in liquidation)'.  Counsel submitted that it was uncertain that Computer Accounting, being in liquidation, had the capacity to pay any amount. 

6. If that amount were excluded it follows that the surplus of assets over liabilities of Banning Holdings would be reduced from $1,203,077.10 to $353,077.10.  As Mr Banning's Estate holds one of the two shares in Banning Holdings, the value of that share would be reduced from the $601,538.55 shown in the financial statements to $176,538.55. 

7. Counsel for the second appellants also submitted that the statement of assets and liabilities appears to be based on an assumption that the Estate's liability for the legal costs of the proceedings between the parties, an amount estimated in the financial statements at $350,000, would be off-set by its entitlement to recover an equivalent amount from Computer Accounting.  That was an unjustified assumption in circumstances where Computer Accounting had been successful after a substantial trial and the appeal in which the Estate and Professional Services were successful concerned only the amount of damages to which Computer Accounting was entitled.  It was further submitted that there were other entries in the accounts of Banning Holdings which were inherently uncertain, including estimates as to the costs of administration. 

8. The second appellants also relied on an affidavit of Mrs Frigger filed on 13 August 2010.  Mrs Frigger is an accountant.  In her affidavit, Mrs Frigger takes issue with the conclusion of Mr Campbell‑Smith as to the financial position of the Estate, Professional Services and Banning Holdings and annexes a statement of assets and liabilities of those entities which she has prepared.  Mrs Frigger says it is taken from information contained in Mr Campbell‑Smith's statement.  Mrs Frigger arrives at a consolidated balance of those entities of (minus) ‑$1,838,522.90. 

9. Perhaps not surprisingly, counsel for the respondents took issue with the manner in which that figure had been arrived at.  However, I do not think it is necessary to canvass the figures in the statement of assets and liabilities prepared by Mrs Frigger.  In my view, the appellant's case on this application is sufficiently made out on the financial figures produced by Mr Campbell-Smith on behalf of the respondents.

10. It was acknowledged by counsel for the respondents that the prospect of the debt of $850,000 owed by Computer Accounting being recovered depends upon the success of claims against the second appellants, in substance, that they transferred assets out of that company in order to defeat the claims of Professional Services and the Estate.  That is denied by the second appellants.  It is not possible on the material before me to make any realistic assessment of the prospect of the debt being recovered. 

11. On what is currently before me there would also appear to be a real question as whether, when the costs of the various proceedings between the parties are finally determined, the amount of the costs for which Professional Service is liable will be the same as the amount which it is entitled to recover.  

12. In my view, taking into account the necessary uncertainties in the financial position of the entities referred to by Mr Campbell-Smith, there appears to be a real risk that ultimately the Estate will be found to be insolvent and that if the costs were paid by the second appellants, the money would be irrecoverable if the appeal were to be successful.  In those circumstances, the appeal would be rendered nugatory.

13. On the question of the merits of the appeal, it was contended by counsel for the respondents that, at best, only ground 2 of the appeal was arguable and if the appeal were to be successful on that ground it would result in only a small reduction in the amount fixed by the Master.  To the extent it is material, I am not persuaded that the latter submission is made out.  It appears to be based upon the proposition that on taxation the respondents would be entitled to the maximum amount allowable under the relevant costs determination.  That is not obviously the case.  Nor do I consider that it can be said at this stage that the other grounds of appeal do not have a reasonable prospect of success.   

14. It was for those reasons that I made an order suspending the enforcement of the costs order until further order.