Dowell v Custombuilt Homes Pty Ltd
[2003] WASCA 176
•7 AUGUST 2003
DOWELL & ANOR -v- CUSTOMBUILT HOMES PTY LTD [2003] WASCA 176
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASCA 176 | |
| Case No: | FUL:88/2003 | 30 JULY 2003 | |
| Coram: | MASTER NEWNES | 7/08/03 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Stay granted on terms | ||
| B | |||
| PDF Version |
| Parties: | ASHLEY KEVIN DOWELL SHOANA LEANNE DOWELL CUSTOMBUILT HOMES PTY LTD (ACN 009 393 051) |
Catchwords: | Practice and procedure Stay of execution pending appeal Risk of bankruptcy Turns on own facts |
Legislation: | Nil |
Case References: | Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Croney v Nand [1999] 2 Qd R 342 Federal Commissioner of Taxation v Myer Emporium Ltd (1986) 160 CLR 220 Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79 Remta v CBFC Ltd & Ors [2000] WASCA 307 State Bank of Victoria v Parry [1989] WAR 240 Swanville Investment Pty Ltd v Riana Pty Ltd [2003] WASCA 121 Warner v Frost [1999] FCA 830 Bridge Pump Co Pty Ltd & Ors v Vincent Fazio & Ors, unreported; SCt of WA; Library No 980591; 2 October 1998 Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Cox v Simeon, unreported; FCt SCt of WA; Library No 5063; 7 September 1983 GFS Management Services Pty Ltd v Ground and Foundation Supports Pty Ltd & Ors [2001] WASC 280 Graywinter Properties Pty Ltd & Ors v Esplanade Hotel Busselton Pty Ltd & Anor, unreported; SCt of WA; Library No 980327; 8 June 1998 Kschammer v RW Piper & Sons Pty Ltd & Ors [2003] WASCA 63 National Australia Bank Ltd v Baker & Anor [2003] WASC 6 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- SHOANA LEANNE DOWELL
Appellants (First and Second Defendants)
AND
CUSTOMBUILT HOMES PTY LTD (ACN 009 393 051)
Respondent (Plaintiff)
Catchwords:
Practice and procedure - Stay of execution pending appeal - Risk of bankruptcy - Turns on own facts
Legislation:
Nil
Result:
Stay granted on terms
(Page 2)
Category: B
Representation:
Counsel:
Appellants (First and Second Defendants) : Mr P R Eaton
Respondent (Plaintiff) : Mr M A MacLennan
Solicitors:
Appellants (First and Second Defendants) : Biddulph & Turley
Respondent (Plaintiff) : Bennett & Co
Case(s) referred to in judgment(s):
Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Croney v Nand [1999] 2 Qd R 342
Federal Commissioner of Taxation v Myer Emporium Ltd (1986) 160 CLR 220
Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79
Remta v CBFC Ltd & Ors [2000] WASCA 307
State Bank of Victoria v Parry [1989] WAR 240
Swanville Investment Pty Ltd v Riana Pty Ltd [2003] WASCA 121
Warner v Frost [1999] FCA 830
Case(s) also cited:
Bridge Pump Co Pty Ltd & Ors v Vincent Fazio & Ors, unreported; SCt of WA; Library No 980591; 2 October 1998
Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Cox v Simeon, unreported; FCt SCt of WA; Library No 5063; 7 September 1983
GFS Management Services Pty Ltd v Ground and Foundation Supports Pty Ltd & Ors [2001] WASC 280
Graywinter Properties Pty Ltd & Ors v Esplanade Hotel Busselton Pty Ltd & Anor, unreported; SCt of WA; Library No 980327; 8 June 1998
Kschammer v RW Piper & Sons Pty Ltd & Ors [2003] WASCA 63
National Australia Bank Ltd v Baker & Anor [2003] WASC 6
(Page 3)
1 MASTER NEWNES: This is an application by the appellants for a stay of execution pending an appeal against a judgment of her Honour Judge French in the District Court on 30 May 2003. A notice of appeal was filed on behalf of the appellants on 20 June 2003.
2 The proceedings in the District Court arose out of a dispute between the appellants and the respondent over whether an agreement had been reached on the terms upon which the appellants were to terminate their involvement in the respondent's business. The appellants contended it had not. The respondent contended that it had and sought to recover the amount it said was payable by the appellants under the agreement.
3 As it appears from her Honour's reasons for judgment, the respondent was incorporated in 1989 to operate a home building business under the name Custombuilt Homes Pty Ltd. The directors and shareholders were a Gary Green and his wife Gloria Green, who had previously traded in partnership under the name Custombuilt Homes. The first-named appellant had been employed in the business from approximately 1986. He was paid for his services on a profit-sharing basis. In June 1996, the appellants acquired an interest in the business by purchasing a 50 per cent interest in the respondent. In April 1999, the appellants wished to terminate their involvement in the business so that the first-named appellant ("Mr Dowell") could work on his own account. The appellants resigned as directors and transferred their shares in the respondent at the direction of Mr Green in about June 1999. There were then discussions between Mr Green, on behalf of the respondent, and Mr Dowell about the terms upon which the appellants and respondent would part company. In essence, it was contemplated that the business of the respondent would be divided up between them and the discussions concerned how that would be done, what the financial consequences would be for each party, and how any amount payable by one party to the other would be paid. The respondent contended that the parties reached a concluded agreement by which, in exchange for certain parts of the business, the appellants agreed to pay to the respondent an amount of $160,635. The appellants, on the other hand, contended that no agreement had been reached and denied any liability to the respondent.
4 The action went to trial in the District Court on 10-13 March 2003 and her Honour delivered judgment on 30 May 2003. In the event, her Honour found that no agreement had been concluded between the parties, except in relation to certain earthmoving equipment which, her Honour found, the appellants had agreed to purchase from the respondent for the sum of $65,000. That equipment had been delivered to
(Page 4)
- the appellants. Judgment was entered for the respondent in the sum of $65,000. No order was made in respect of the costs of the action.
5 The appellants contend that her Honour was in error in two respects. First, it is said that her Honour was in error in finding that there was a discrete agreement between the appellants and the respondent for the purchase of the earthmoving equipment, separate from the overall contract terminating the appellants' involvement in the business which was alleged by the respondent. Secondly, it is contended that her Honour was in error in holding that certain correspondence marked "without prejudice" was inadmissible. It was submitted that the correspondence was admissible either on the basis that the respondent had contended there was a concluded agreement and the privilege was therefore no longer extant or, alternatively, because the correspondence contained admissions by the respondent which contradicted the case it was advancing and it would therefore be contrary to public policy for the respondent to be permitted to exclude that material by relying on the privilege.
6 The respondent has filed a notice of cross-appeal in which it seeks to have her Honour's judgment set aside and for judgment to be entered in favour of the respondent in the sum of $160,635 and costs.
7 On 9 July 2003, the respondent served on each of the appellants a bankruptcy notice claiming a debt of $80,696.12, being the amount of the judgment of $65,000 and interest on it of $15,696.12. I understand that an application has been made by the appellants to the Federal Court to set aside the notices or, alternatively, to extend the time for compliance with them until after the disposition of their appeal to this Court. That application is apparently listed to be heard in the Federal Court on 8 August 2003.
8 I did not understand the principles to be applied on this application to be seriously in issue. It is clear that the appellants need to show that "special circumstances" exist. Special circumstances will exist where there is a real risk that it will not be possible to restore the appellants substantially to their former position if a stay is not granted and their appeal is successful: Federal Commissioner of Taxation v Myer Emporium Ltd (1986) 160 CLR 220 per Dawson J at 222 - 3; Hamersley Iron Pty Ltd v Lovell (No 2) (1998) 20 WAR 79 at 89. The Court must consider whether there is an arguable case for appeal to ensure that the appeal has not been lodged simply to delay execution: Croney v Nand [1999] 2 Qd R 342 at 348 - 349. The onus is on the applicant to demonstrate a proper basis for a stay which will be fair to all parties, and
(Page 5)
- the Court will weigh the balance of convenience and the competing rights of the parties: Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 694; Swanville Investment Pty Ltd v Riana Pty Ltd [2003] WASCA 121 per Malcolm CJ at [5].
9 It was submitted by their counsel that the appellants have a strong case on appeal. I accept, however, the contention by counsel for the respondent that, on the material before me, it is not possible for me to reach that view and that, at this stage, all that can be said is that the appeal appears reasonably arguable.
10 The substantive ground of this application was the appellants' contention that there was a real risk it would not be possible to restore them substantially to their former position if a stay were not granted. The appellants relied upon an affidavit of Mr Dowell, sworn on 3 July 2003. In that affidavit, Mr Dowell says that he and the second-named appellant ("Mrs Dowell") are the directors of a company, Dowell Nominees Pty Ltd, which is the trustee of the Dowell Family Trust. The Trust carries on business as builders and subcontractors in the building industry. Mr Dowell says that the appellants' only income is as directors of the company and as beneficiaries of the Trust.
11 There is annexed to Mr Dowell's affidavit a set of accounts of the Dowell Family Trust for the financial year ended 30 June 2002. They show that the Trust business incurred a loss of $21,855, after payment of wages of $15,000 to Mr Dowell. The total turnover of the business was $77,267. Mr Dowell says that Mrs Dowell is not in paid employment, as she looks after the appellants' two children.
12 According to Mr Dowell, the appellants sold their family home in April 2003 for $310,000, but after existing debts were met there was a balance left of only $34,322.05. Some of those funds have been used to discharge credit card debts incurred by the appellants for living expenses. Mr Dowell says that currently the appellants have no assets, but liabilities, which he sets out, in the order of $70,000.
13 Mr Dowell says he believes that the appellants would be able to raise a loan to enable the judgment sum and interest to be paid into Court. His mother has agreed to guarantee the loan to enable those funds to be raised. He has had approval "in principle" from two banks to such a loan. Mr Dowell says, however, that the appellants would not take that course if a stay were not granted because they believe the respondent would not
(Page 6)
- have the financial capacity to repay the money if the appellants' appeal succeeded and, in those circumstances, the money would simply be lost.
14 In support of his contention as to the respondent's financial circumstances, Mr Dowell has annexed to his affidavit a balance sheet of the respondent for the financial year ending 30 June 1999. That shows current assets of $153,617, fixed assets of $78,206, intangible assets of $100,700 and current and deferred liabilities of $366,921, leaving an excess of liabilities over assets of $34,398. However, Mr Dowell says that in the current assets of $153,617 there is included an amount of $55,551 said to be owing by him to the company, but that liability is disputed. Mr Dowell also says that the fixed assets of $78,206 include earthmoving equipment to the value of $65,000, which is the equipment that was the subject of the District Court proceedings. In addition, Mr Dowell says that the goodwill figure of $100,00, which makes up almost all of the intangible assets of $100,700, is, based on his experience as a director of the company, "extremely dubious".
15 In opposition to the application, an affidavit of Gary Green, sworn 17 July 2003, has been filed on behalf of the respondent. Mr Green and his wife are the sole directors and shareholders of the respondent. In answer to the statements made in Mr Dowell's affidavit regarding the respondent's financial circumstances, Mr Green says that the respondent has recorded a profit in each year since July 1999 and it made a profit of approximately $32,000 for the financial year ended 30 June 2002 which has not been distributed to the respondent's shareholders. He says the respondent continues to service its financial commitments.
16 Mr Green does not, however, exhibit the respondent's financial statements for the financial year ended 30 June 2002, or any other year. In argument, counsel for the respondent submitted that there was no obligation on the respondent to do so. He argued that it could not, however, be inferred that the current financial position of the respondent was the same, or much the same, as that set out in the 1999 balance sheet. There was simply no evidence as to the respondent's current financial position and no inferences could be drawn as to it. Accordingly there was no evidence that the respondent could not repay an amount of $80,000 if the appellants' appeal was successful.
17 In my view, if in response to the appellants' evidence the respondent chooses not to disclose its more recent financial statements, or any further information as to its assets and liabilities, I must proceed on the basis of the material that is before me. That reveals that in 1999 the respondent
(Page 7)
- had an excess of liabilities over assets of at least $34,398. It is likely that, in truth, the excess is much larger than that. There is no evidence that the position has improved, or improved substantially, since. Although Mr Green says that the respondent has made a profit in each year since the appellants left the company in 1999, he avoids saying how much that profit has been, except for the financial year ended 30 June 2002 in which he says it was approximately $32,000.
18 Counsel for the respondent also relied upon the statement by Mr Green in his affidavit that "my wife and I have the capacity to return any monies paid to the Respondent pursuant to the judgment if the Appellants were successful in their appeal". That statement was described as "coy" by counsel for the appellants, who observed that it was one thing to have the capacity to do so (about which there was no evidence) and quite another thing actually to do it. He pointed out that the Greens had no legal obligation to put the respondent in funds for that purpose if the appellants were successful in the appeal and had given no undertaking to do so.
19 It was submitted on behalf of the appellants that whether or not this Court grants a stay of the judgment of the District Court will be a significant factor in their application to the Federal Court to set aside or extend the time for compliance with the bankruptcy notice. Failure to obtain a stay may well lead to the Federal Court refusing their application. Counsel presumably had in mind what has been said in that connection in cases such as Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 and Warner v Frost [1999] FCA 830. See also Pak Sun Liew v JNS Technologies [1999] FCA 1428.
20 In Byron v Southern Star Group Pty Ltd, Lehane J, in considering the approach the Court should take on an application to extend the time for compliance with a bankruptcy notice relating to a debt which was the subject of a judgment in another court, said (at 270):
"The debtor has not made any application for a stay of proceedings pending the appeal. Why he has not done so is not clear to me but the judgment which has been recovered against him is a final judgment and execution of it has not been stayed. It would seem to me to require quite special circumstances before a court exercising jurisdiction in bankruptcy would, in effect, do what has not been done in the court in which judgment has been obtained by extending the time for compliance with the bankruptcy notice when no application to
(Page 8)
- stay the judgment has been made. If one were to contemplate the taking of such a course, one would usually require evidence of the means of the debtor and would wish to consider whether or not it were appropriate to order security for the amount of the judgment should be provided. Those are matters which a court exercising jurisdiction to stay the execution of the judgment would wish to consider."
21 In Warner v Frost it appeared that the court in which the judgment had been obtained had refused a stay of execution because the judgment debtor was unable to put up sufficient security. Hely J reviewed the matters relied upon by the applicant on the application for an extension of time to comply with the bankruptcy notice and said:
"In my view these factors are insufficient to outweigh the proposition that the court in which this judgment was obtained has declined to stay its execution and something more than an arguable appeal needs to be shown before the Bankruptcy Court would grant an extension of time for compliance with the bankruptcy notice, which would produce a similar effect to the granting of a stay."
22 It was submitted that if this application were refused that may, in turn, lead to the appellants' bankruptcy. Bankruptcy, it was argued, would have a serious consequence for the appellants, as it would deprive them of their capacity to be directors of Dowell Nominees Pty Ltd and to be actively involved in the Trust's business. That would deprive them of their only source of income.
23 It was accepted by both parties that the risk of bankruptcy is not, in itself, normally a reason for granting a stay: Remta v CBFC Ltd & Ors [2000] WASCA 307 and State Bank of Victoria v Parry [1989] WAR 240. It is, however, in my view, a relevant consideration that the effect of bankruptcy would be to deprive a person of their income and to put their business activities in jeopardy.
24 On behalf of the respondent, it was submitted that, first, an act of bankruptcy was a less serious matter than the making of a sequestration order and, secondly, it would not be in the interests of the respondent and other creditors of the appellants for a stay to be granted because, if ultimately the appellants' appeal fails and a sequestration order is then made, the act of bankruptcy would occur later rather than earlier.
(Page 9)
25 It appears counsel for the respondent was relying upon the following passage in the judgment of Lehane J in Byron v Southern Star Group Pty Ltd (supra) at 270:
"The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order; and there is also to be taken into account the interest of both the judgment creditor and other creditors of the judgment debtor in ensuring that, if ultimately a sequestration order is made, the relevant act of bankruptcy occurs earlier rather than later."
26 Those comments were, of course, made in respect of an application to extend the time for compliance with a bankruptcy notice, in circumstances where, as his Honour had earlier noted, the applicant had not sought a stay of execution on the judgment which gave rise to the debt.
27 The respondent's essential submission, as I understood it, was that the stay should not be granted because the financial position of the appellants is likely to continue to deteriorate and a stay would work to the significant prejudice of the respondent in the event the appeal by the appellants is unsuccessful.
28 While I accept there is some force in that submission, on the other hand if payment of the judgment debt, or any substantial part of it, were to be made before the appeal is determined, on the evidence before me there is a real risk that, if they were successful on the appeal, the appellants would not be able to recover the money from the respondent.
29 In the circumstances, it seems to me, on balance, that the appropriate order is that there be a stay of execution on the judgment debt pending the appeal, subject to the appellants paying into Court the amount of the judgment debt and interest to date, to await the outcome of the appeal.
30 I will hear counsel on the time within which payment into Court should be made and on the costs of this application.