Duke Group Ltd (in Liq) v Pilmer & Ors No. Scgrg-92-1874 Judgment No. S6716
[1998] SASC 6716
•15 June 1998
DUKE GROUP LTD (IN LIQ) v PILMER & ORS
Civil
Mullighan J
Following the entry of judgment in this action against all of the defendants in the sum of $93m, each of them, with the exception of the defendants Quilty and Singleton, has appealed against the judgment and seeks a stay of execution of the judgment pending determination of the appeal. I granted a stay on an interim basis pending hearing of the applications. The plaintiff has settled its claim against Quilty on terms which have not been disclosed. The first and fifth defendants (together referred to as “the Nelson Wheeler defendants”) maintain their third party claim against him, but it is unnecessary to consider the full implications of Quilty’s position for present purposes. If there is a stay of enforcement of the judgment against the Nelson Wheeler defendants, they will have nothing to enforce against Quilty and so the stay will operate to his benefit in that way. The same may be said of the defendant Singleton so far as the third party claim is concerned. He has not appealed the judgment and has not sought a stay and so I am not concerned with his position. The plaintiff is at liberty to apply to discharge the order granting a stay of execution against Singleton if it is so advised. I shall hereafter refer to the defendants Harold Abbott, Lee-Steere and Somes as “the director defendants”.
Having considered the evidence adduced on the applications for a stay of execution and the comprehensive and helpful submissions, I have reached the conclusion that the interim order should be confirmed and that it should be made clear that it extends to all of the other defendants, except Quilty and Singleton. I have had doubts about some of the defendants. I shall discuss their applications shortly but in the end I have resolved those doubts in their favour. The only question is what, if any, conditions should be imposed. In these reasons when I refer to the defendants, I exclude Quilty and Singleton as they do not make any application.
It is appropriate to first say something about the nature of the appeals lodged by the defendants. All defendants, except Harold Abbott, challenge the judgment on liability. In respect of each of them if the appeal succeeds, the action against each of them will fail and that is a matter of significance. All defendants also appeal against the assessment of damages and, if successful, the damages will be reduced substantially and probably below the extent of insurance cover. The consequence is that each of the defendants, if successful on appeal, will not be ruined financially. On the other hand, if the judgment is now executed, financial ruin is almost inevitable. That is a matter of considerable importance. Also, it must be acknowledged that the appeals raise important questions. Although I have answered those questions in particular ways, that is not to say that there are not important issues to be decided by the Appeal Court and that the defendants do not have reasonable arguments and contentions to advance.
The power to grant a stay of execution is to be found in r95.16 of the Supreme Court Rules 1987. In addition, the Court has an inherent power to grant a stay in circumstances such as the present: Dwyer v National Companies & Securities Commission (No 2) (1988) 15 NSWLR 285 at p287. The principles to be applied in the exercise of the discretion whether or not to grant a stay were examined by the Court of Appeal in New South Wales in Alexander & Ors v Cambridge Credit Corporation Ltd (Receiver Appointed) & Anor (1985) 10 ACLR 42. In that case the amount of the judgment was $145m and the Court considered an appeal from an order granting a stay of execution pending an appeal. The Court concluded that “exceptional” or “special” circumstances were no longer required to justify a stay. Prima facie, a successful party is entitled to the benefit of the judgment obtained and is entitled to commence with the presumption that the judgment is correct but they are not matters of rigid principle and each case must be considered on its merits. The party applying for a stay must demonstrate an appropriate case: see Re Middle Harbour Investments Ltd (In Liq) (unreported, Court of Appeal, NSW, 15th December 1987) approved in Cambridge Credit at p50. In Cambridge Credit the Court accepted further principles. The onus is upon the applicant to demonstrate a proper basis for a stay which will be fair to all parties. The mere filing of the appeal is insufficient. The discretion to be exercised by the Court includes the terms upon which the stay would be fair. The Court must weigh considerations such as the balance of convenience and the competing rights of the parties before it: The Attorney-General v Emerson & Ors (1889) 24 QBD 56. If there is a risk that the assets of the applicant will be disposed of if a stay is granted, it may be refused. The Court may, as a condition of the stay, where funds are available, impose upon the applicant the payment of the whole or part of the judgment sum to the judgment creditors: Andrews & Anor v John Fairfax & Sons Ltd [1979] 2 NSWLR 184. Obviously the Court may impose a condition that the judgment sum, or part thereof, be paid into Court. The Court may require the applicant to give security to the judgment creditor. If there is a risk that the appeal will prove abortive or nugatory if the appellant succeeds and a stay is not granted, the discretion will normally be exercised in favour of granting a stay. As to the merits of the appeal, the Court said at p51:
“...... although courts approaching applications for a stay will not generally speculate about the appellant’s prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case.”
The principles applied in Cambridge Credit were also accepted by the Full Court of the Federal Court in Powerflex Services Pty Ltd & Ors v Data Access Corporation (1996) 137 ALR 498. The Rule of Court applicable in each of these cases is similar to r95.16. Also, there was the discretionary power to make such an order within s17 of the Enforcement of Judgments Act 1991 which provides that such an order may be made if the Court is satisfied that there is proper reason to do so, the same principles should be applied in exercising the discretion under that section.
My attention was drawn to the decision of the Court of Appeal in Linotype-Hell Finance Ltd v Baker (Practice Note) (1993) 1 WLR 321 where Staughton LJ said that the nineteenth century cases do not reflect the current practice of the High Court of England. He went on to say at p323:
“..... I would have thought it was such to be desired that all the nineteenth century cases should be put on one side and that one should concentrate on the current practice. It seems to me that if a defendant can say that without a stay of execution he will be ruined and that he has an appeal which has some prospect of success, that is a legitimate ground for granting a stay of execution.
The passage quoted in paragraph 59 13/1 of the Supreme Court Practice 1991 from Atkins v Great Western Railways Co (1886) 2 TLR 400:
‘As a general rule the only ground for a stay of execution is an affidavit showing that if the damages and costs were paid, there is no reasonable probability of getting them back if the appeal succeeds’,
seems to be far too stringent a test today.”
That approach accords with the principles discussed in Cambridge Credit.
Here, the size of the judgment sum and the novelty of some of the issues raised and the lack of appellate Court authority on other issues, satisfies any such requirement. In my view, it is appropriate to apply those principles to the various applications.
In the present case, the director defendants do not have recourse to insurance. The amount to be paid by them must be met from their own resources. The Nelson Wheeler defendants have recourse to some insurance cover. The evidence adduced on the hearing of those applications does not permit a precise finding as to the extent of that insurance cover. However, the following is clear. The Nelson Wheeler defendants have, at least, three layers of cover relevant to the judgment sum. The first layer is for $10m with CE Heath Casualty & General Insurance Ltd. The second layer is for $10m with GIO Australia and the third layer is for $30m with various insurers through Lloyds’ Underwriters. The total cover through all of these arrangements is $50m. In addition some of the Nelson Wheeler defendants have additional cover of $25m with FAI General Insurance Company Limited which is relevant to the judgment sum. If the Nelson Wheeler defendants are entitled to full indemnity under these arrangements, there remains a substantial sum, nearly $20m, which will have to be found from the financial resources of all of the defendants should their appeals fail.
Evidence was adduced as to the present position of indemnity under the various layers of insurance cover. There is some uncertainty on the evidence as to the attitude of each insurer to indemnity and the extent of indemnity and that uncertainty has not been resolved by further evidence. For present purposes, I accept that the position is that the first layer insurer has accepted indemnity and the sum of $10m is available to meet such liability of the Nelson Wheeler defendants as stands after the appeals. It has been suggested that this amount includes the liability of the Nelson Wheeler defendants for their own costs but it is unlikely to be the true position. The second and third layer insurers “continue to reserve their position on the question of indemnity. FAI General Insurance will indemnity those of the fifth defendants who are parties to the policy “provided there was no material non disclosure prior to the inception of the Policy of the circumstances which have given rise to the claim against them in those proceedings. Also, that insurer indicated that an issue may arise as to the amount of indemnity available under the policy by reason of double insurance.
Each of the defendants have filed affidavits setting out their respective financial position. The degree of disclosure varies but in most cases I am satisfied that reasonably accurate disclosure has been made.
The plaintiff seeks injunctions against each defendant in the nature of a Mareva injunction. The defendants have given undertakings that they will not dispose of assets pending the appeals. In most instances I regard those undertakings as adequate but in others, where the disclosure is not sufficient or for other reasons, an order with injunction should be made.
There is one further matter of principle to be discussed before considering the application of each defendant. The plaintiff contends that if a stay is to be granted, the order and the conditions of the order should be fashioned in a manner so as to permit the plaintiff to proceed with bankruptcy proceedings to the point of, at least, commencing the proceedings so as to prevent prejudice to the plaintiff in such proceedings by reason of delay which may compromise recovery of assets and admit of creditors who would come into existence as such at a date subsequent to the present time. It is submitted that the “relation-back” period under bankruptcy law, be it six months or five years depending upon the nature of the transaction, does not come into effect until a bankruptcy petition is filed. I have some sympathy with the liquidator of the plaintiff who wishes to have every opportunity to obtain that to which he is entitled, but I think it would be unfair to the defendants, in the relevant sense, to permit enforcement of the judgment to the point of the commencement of bankruptcy proceedings. It is submitted that a stay could be granted at that stage by the Court exercising the bankruptcy jurisdiction. It was submitted by the Nelson Wheeler defendants that such a Court may not be able to stay the execution of a judgment of this Court. I do not think it is necessary to embark upon the resolution of that issue. The matter to be decided is whether this court should grant a stay. In my view, the plaintiff should not be permitted to commence enforcement of the judgment. Much damage may be done to the Nelson Wheeler defendants which could not be undone by success in the appeal if bankruptcy occurred. In Cambridge Credit the Court acknowledged at p52:
“Furthermore, bankruptcy would threaten the livelihood of the opponents, their membership of professional associations and their entitlement to perform their professional duties. In such circumstances, consequences so drastic should not be visited upon them until necessary, at the completion of the litigation. It would inflict upon them such a serious injury both in their professional and domestic lives that could not effectively be undone if the appeal were to succeed. A stay should be granted to avoid such a result: McBride v Sandlan (No 2) (1918) 25 CLR 369 at 375; see also FAI Insurances Ltd v Registrar of Workers’ Compensation Commission of New South Wales [1982] 1 NSWLR 239 at 242-3.”
As in Cambridge Credit, the Nelson Wheeler defendants and Somes are practising accountants and I think it is likely that the commencement of bankruptcy proceedings even without sequestration would cause hardship to them. The Full Court will probably hear the appeals within about four months and any disadvantage to the plaintiff by reason of postponement of any relation-back period whilst important is not significant if the appeal was not to be heard for a long time. I reject the contention of the plaintiff.
I first consider the first defendants who were members of the Nelson Wheeler Perth. Each of them except the personal representatives of the defendant Stokes have filed affidavits deposing as to their respective financial positions. Whilst the information provided lacks detail and, in some instances, there is a lack of explanation of the absence of assets which a practising accountant might be expected to own, I am satisfied that they do not have sufficient assets to pay the judgment sum and that execution of the judgment will cause great hardship to them, including bankruptcy. Each of the defendants Pilmer, Martino, Messer, Gray and Crawford has given an undertaking in the following terms:
“1....... On the basis that the plaintiff agrees that it will not execute its judgment against any of the fifth defendants pending the determination of this matter on appeal the fifth defendants against whom the plaintiff has judgment (the fifth defendants) undertake not to sell, give or otherwise dispose of any asset in which they have a legal or beneficial interest, except:
1.1..... in the ordinary course of their day to day business; or
1.2..... in the ordinary course of their day to day living expenses, including those living expenses of their dependants or spouse; or
1.3..... for the purpose of discharging or servicing their debts, liabilities, including liabilities under guarantees, present or contingent; or
1.4..... for the purpose of any legal expenses:
........... 1.4.1 incidental to this action; or
........... 1.4.2 in relation to an appeal of this action including,
but not limited to, any cross appeal or ground
........... of contention.
2......... The fifth defendants agree to abide by this undertaking until the determination of their appeal in this action.
3......... The fifth defendants reserve the right to seek a variation of this undertaking by agreement between the parties, such agreement not to be unreasonably withheld, or failing agreement by application to the court.”
I consider the defendant Munachen and the personal representatives of the defendant Stokes separately. In my view, execution of the judgment against the other of the first defendants should be stayed.
.................... On 3rd February 1998, three days after judgment was entered in liability and damages, Munachen caused two caveats to be lodged over real property owned by the defendant Munachen being the house property situated at 4 Leslie Street, Mount Lawley in Western Australia, one by Kala Nominees Pty Ltd and the other by Helen Mary Mulroney. Kala Nominees is the trustee of the Munachen Family Trust which, as the name suggests, is the family trust of the defendant Munachen. Munachen says that he separated from his wife in April 1995 and the marriage was dissolved on 14th January 1997. He lives with Mulroney in a defacto marriage relationship. He purchased the property in February 1996 for about $270,000 and claims to have borrowed some of the purchase price from Kala Nominees. Mulroney is said to have contributed to the maintenance of the property. Munachen did not complete the financial settlement with his former wife until 3rd February 1998 when orders by consent were made by the Family Court of Australia. A previous order restraining him from dealing with the property was then discharged. Munachen claims that the caveats were lodged on that day for that reason. In practical terms the beneficiaries of the Trust are Munachen and his daughter. The assets of the Trust are said to be the advance to Munachen to purchase the property. During the trial, it was established that Kala Nominees had many assets and investments but there is no explanation as to what has happened to them. The caveats have since been withdrawn.
.................... It appears that Munachen caused the caveats to be lodged to prejudice the plaintiff upon enforcement of the judgment by attempting to prefer others. He offers an undertaking in different terms than that offered by others. I do not think the undertaking is entirely acceptable. It seeks to exclude the liabilities of the first mortgage on the house and to Kala Nominees, to solicitors in matrimonial proceedings and sufficient monies to enable him to pay sundry debts and to make renovations on the house property. A stay should not be granted on that basis. Other creditors should not be preferred to the plaintiff. I am troubled about Munachen’s position. I do not think he has assisted the Court by disclosing everything about his financial position and that of the Trust. He has offered no explanation about what has happened to the substantial assets which he controlled prior to the sharemarket crash in 1987 as disclosed, in part, at the trial. It is likely that he, and Trusts in which he had a beneficial interest, suffered substantially in the sharemarket crash in 1987, but he has not resorted to detail in the disclosure of his financial position or in the explanation of what has happened since 1987. Nevertheless, he has an arguable case on appeal along with the other Nelson Wheeler defendants and he has indicated that he will cause the two caveats to be withdrawn. I am inclined to grant a stay in his favour upon the condition that the two caveats are withdrawn by 30th June 1998 and upon the making of the order with injunction. That order should be in the following terms:
“That the defendant Munachen be, and is hereby, restrained and an injunction is granted restraining him until further order whether by himself, his servants, his agents or otherwise howsoever from selling, transferring, assigning or otherwise disposing of, mortgaging, pledging, securing or otherwise dealing with in any manner any of his real or personal property of any nature whatsoever and wherever situate whether within or outside the jurisdiction in which he has a legal or beneficial interest save and except that the defendant Munachen may incur reasonable living expenses to a maximum of $1,000 per week including those living expenses of any dependant or spouse, pay and discharge reasonable expenses incurred in the ordinary course of his accountancy practice or any business conducted by him, pay, discharge or service debts and liabilities and pay and discharge reasonable legal expenses incurred in these proceedings including with respect to his appeal.”
......... The personal representatives of the late Stokes have not filed an affidavit setting out the financial position of the estate. The defendant Bryden, one of the fifth defendants, has likewise not filed such an affidavit. He has been overseas. I accept that their failure to do so is an oversight. I allow them until the close of business of the Registry of the Court on 30th June 1998 to do so. The stay with respect to them will continue. Failure to file the affidavit will result in the stay lapsing with respect to the party in default. Upon either affidavit being filed, the plaintiff is at liberty to apply to discharge the stay if there is sufficient cause.
......... All of the other fifth defendants have filed affidavits deposing as to their respective financial resources. If that evidence is accepted, they could not, separately or together, meet the judgment sum from their own resources even if there is indemnity under the insurance policies to the full extent of the cover. Each of those defendants offers an undertaking in the following terms:
“UNDERTAKING
1......... On the basis that the plaintiff agrees that it will not execute its judgment against any of the fifth defendants pending the determination of this matter on appeal the fifth defendants against whom the plaintiff has judgment (the fifth defendants) undertake not to sell, give or otherwise dispose of any asset in which they have a legal, or beneficial interest, except:
1.1..... in the ordinary course of their day to day business; or
1.2in the ordinary course of their day to day living expenses, including those living expenses of their dependants or spouse; or
1.3..... for the purpose of discharging or servicing their debts, liabilities, including liabilities under guarantees, present or contingent; or
1.4for the purpose of any legal expenses:
1.4.1.. incidental to this action; or
1.4.2in relation to an appeal of this action including, but not limited to, any cross appeal or ground of contention.
2......... The fifth defendants agree to abide by this undertaking until the determination of their appeal in this action.
3......... The fifth defendants reserve the right to seek a variation of this undertaking by agreement between the parties, such agreement not to be unreasonably withheld, or failing agreement by application to the court.”
I accept that if there is no stay each of the fifth defendants will very likely be financially ruined. In my view, each of them has an arguable case as to whether there was a national partnership and on the question of damages. A stay should be granted with respect to all of them but it is necessary to say something about the defendant Wenham. He played a prominent role in the national partnership of Nelson Wheeler and was a member of Nelson Wheeler in Sydney. He remains in practice as a chartered accountant in Sydney in the firm BDO Nelson Parkhill. He filed an affidavit and claimed that he had assets to the value of $684,500 and liabilities amounting to $1,065,000 and asserted that he could not pay the judgment amount over and above the insurance cover. Subsequently he filed a further affidavit deposing, inter alia, that these amounts were different at 20th April 1988. The value of the assets was a little higher, but the amount of the liabilities was $1,264,000.
He also produced various documents to explain various entities in which he had an interest or with which he was associated. The plaintiff had earlier produced documents which tended to show that Wenham had understated his financial position to a substantial extent and that he had taken steps to alter his financial position since the judgment in these proceedings was entered. This evidence tends to show that a family Trust of Wenham had substantial assets. He is a beneficiary of the Trust and a director of the Trustee. There is an action in the Supreme Court of New South Wales which came to trial in November 1997. A new Trustee was formed and a substantial sum, $500,000, paid in settlement of the claim which was the subject of that action was paid to the initial trustee and the cheque making that payment was endorsed by Wenham in favour of the new Trustee. In the legal proceedings in New South Wales, Wenham told the Court that his net worth was $8m to $10m but later he said that was the net worth of Trusts of which he was a director.
The plaintiff contends that Wenham asserts wealth or impecuniosity when it suits him as the case may be and that his disclosures in the present proceedings lack candour and completeness.
In a further affidavit Wenham sought to explain the apparent deficiencies in his disclosures. According to him, there was change of trustee of two Trusts, the Wenham Family Settlement and the Wenham Family Settlement No 2. He is not a director of the new trustee. However, he plainly has some effective control of the two Trusts as he deposed that, “as a demonstration of goodwill in this matter, I am prepared to reverse the transaction whereby the new trustee was appointed and restore the status quo”. He explained that when he informed the Supreme Court of New South Wales that he had an excess of liabilities over assets of about $8m to $10m, he was referring to an asset of one of the Trusts. He denied that he had ever tried to put assets beyond the “jurisdiction of the court” and he afforded an explanation for the change of trustee. He says the cheque was endorsed in favour of the new trustee because it is the trustee of the relevant trust. In this most recent affidavit, Wenham provides further information about his financial position.
However, all of this evidence, if accepted, establishes that Wenham has insufficient assets to meet the judgment. If it is enforced against him, he would be financially ruined and almost certainly bankrupted which would prejudice his ability to practice as a chartered accountant in his present partnership arrangements. He should have a stay but the plaintiff should have an order with an injunction restraining him from dealing with his assets in the same terms as I propose to make against Munachen. I am not satisfied that Wenham will not attempt to arrange his financial position to his own advantage unless such an injunction is made. Also, a condition of the stay should be that he does reverse the transaction regarding the trustee and that he do so by 30th June 1998. Should he not do so, the stay will lapse. It is an ancillary condition of the proposed stay that Wenham inform the solicitors for the plaintiff when the reversal of that transaction has occurred. Should he not do so by 30th June 1998, the stay so far as he is concerned will lapse.
I now turn to the question of insurance. It is the plaintiff’s contention that it should be a condition of any stay in favour of the Nelson Wheeler defendants that they cause the amount of the insurance cover, $75m, to be paid into Court to abide the decision of the Appeal Court.
The plaintiff submits that all of the $75m should be paid into Court to abide the outcome of these proceedings. In that case, interest would be added to the fund in Court which would be available to meet the judgment debt. If these monies are not paid into Court, the respective insurers will have the benefit of the interest and it will not be available to the plaintiff. Also, it is submitted that if the monies are paid into Court the rights of the various insurers will be protected as they may have repaid to them the amounts to which they are entitled after any issues between them and the insured have been resolved. Also, the requirement of payment into Court will be likely to force the hand of the insurers regarding any issue of indemnity and may not permit them to procrastinate to their own advantage and to the disadvantage of the plaintiff.
The relevant contentions were discussed in Cambridge Credit. The Court considered the relevance of insurance to an application for a stay. In that case, as in the present case, the insurers were not parties to the proceedings and were not before the Court. It is useful to cite part of the judgment in extenso. The Court said, at pp55-56:
“This is a reason why any consideration of the policies here in question must necessarily be undertaken with great caution. The Court has not heard full argument concerning the meaning of the policies. No issue was determined by Rogers J concerning the policies. According to the opponents [the applicants for the stay], the policies are entirely irrelevant to their legal liability and entitlement to a stay. Whilst it is true that the existence of insurance is irrelevant to the liability of the opponents in law, they might not, depending upon their terms, be irrelevant to fixing conditions for the grant of a stay. It is not at all unusual for conditions to be imposed for the payment of part of a verdict pending appeal, in the knowledge that this part will be paid by the insurer of the judgment debtor. However, such orders are not normally made where liability is seriously in dispute as between the parties or where liability to indemnify is disputed by the insurer.
The court is not aware of whether the insurer will indemnify the opponents in the event that their appeal fails. However, the claimants have urged that, in determining conditions for a stay, the court should have regard to the terms of the Lloyds policies. Being satisfied that the opponents are entitled to be indemnified, the claimants urge that the court should, as a condition of the stay, require that, in effect, a fund be created by the underwriters so that interest will accrue to the benefit of the claimants and be available to them in the event that they succeed in the appeal. Only in this way, the claimants point out, can they be protected against the loss of the fruits of victory. The maximum indemnity provided to the opponents is $20 million. This sum, if paid into a fund now will accumulate interest at a conservative estimate of $200,000 per month. But if paid at the end of the appeal process it will remain $20 million, no more. The claimants acknowledge the absence of the underwriters and the fact that it would be premature and indeed virtually impossible for the court, on the stay application, finally to determine the underwriters’ liability under the policy. But they invite the court to require the creation of the fund as a term of the opponent’s having a stay. Only in this way, they urge, will the opponents be encouraged to secure prompt indemnity from the underwriters and to provide a fund which will attract interest. Although this interest would be small in relation to the total verdict, it would be, by any account, a significant sum.
A Lloyds policy, which the parties agree is the one issued to the opponents, has been tendered. It provides, relevantly, that the underwriters will indemnify the insured: ‘against all such loss, damage or liability as herein provided, after such loss, damage or liability is proved .....’ The claimants urge that ‘proved’ in the policy means proved by judgment. Accordingly, they assert that upon the entry of the judgment on 3 April 1985, by Foster J the opponents were entitled to indemnity. Thus, the underwriters should be obliged to provide the indemnity. This could be done, in effect, by imposing upon the opponent, as a condition of the stay they seek, an obligation to set up the fund constituted by the payment to which they were entitled from the underwriters, the liability having been ‘proved’. The claimants say that only in this way will an incentive be proved that avoids a leisurely claim for indemnity against the underwriters at the very end of the litigation. Delay in recovery from the underwriters operates exclusively to the disadvantage of the claimants. Because of the terms of the policy, and the commercial reality that the underwriters would not fail to provide the indemnity to the opponents, if it were imposed as a condition of the stay, it was argued that the court should lay down the requirement that the fund should be created which would attract interest. It could be reimbursed to the insurer in the event of the opponents’ success on the appeal. No harm would then be done. But a great injustice would be avoided by protecting the claimants against the effective loss of the benefit of the judgment and of the interest on that part of it which could be recovered from the opponents’ insurer. The claimants urge that this would be particularly appropriate because of the absence of any evidence that the underwriters have declined to indemnify the opponents and indeed because of the existence of some evidence that the underwriters already have an interest in the conduct of the litigation.
Although these arguments are superficially attractive, they cannot succeed. First, the word ‘proved’ in the subject policies would appear to contemplate, in the event of a dispute, ‘proved’ by legal proceedings. Where such proceedings are appealed, the initial ‘proof’ is subject to the contingency that that which has been ‘proved’ to one court will be ‘disproved’ to the other on appeal - or at least found not to have been proved in a way that fixes liability. Cases which were read to the court on the meaning of other expressions in insurance policies (such as ‘legally liable’) (eg Utah Construction & Engineering Pty Ltd v New India Assurance Co Ltd (1969) 90 WN (Pt 1) (NSW) 145) and on proof of liability on the evidence where there is no appeal, (eg West Wake Price & Co v Ching [1957] 1 WLR 45 at 49) fail to address the issue which is raised by the terms of the present policies. Given the language of the policies, its meaning in the context of the commercial object of the policies and the background of litigious processes upon which they were to operate, it seems probable that ‘proved’ means, relevantly, proved according to the judgment of the last appeal court to consider the matter.
This reason is stated subject to further argument should this prove necessary. It is sufficient to dispose of this part of the application of the claimants. There are, however, other reasons. Special care needs to be taken by the court, venturing upon an issue such as this, where very large sums are involved and where one of the parties principally concerned is not before it. It would not be responsible to impose upon the opponents, conditions with which they are not themselves immediately and directly able to comply. For all the court knows, there may be disputes concerning the applicable policies and the terms and exclusions. In the absence of the underwriters, it would be unreasonable to impose, by the side wind of a condition for a stay, terms which might be insufficiently attentive to the underwriters’ liability, about which the court has heard nothing. It was also urged that difficulties might arise in the recovery by the underwriters of any sums which they paid into a fund created by the terms of a stay. Although doubtless a condition could be designed by which the court kept control of such a fund, the possible uncertainty of the entitlement in law or equity to the recovery of a payment made by the underwriters adds some strength to the conclusion that ‘proved’ in the policy means, where an appeal is lodged, proved at the end of the appellate process: cf The Commonwealth of Australia v McCormack (1984) 55 ALR 185; RP Meagher & Ors, Equity - Doctrines & Remedies, (2nd ed) 263 ff.
The consequence of this reasoning is that the application by the claimants for the creation of a fund out of the maximum insurance obligation of the underwriters to the opponents is refused. It is not considered that that would be an appropriate term for the grant of a stay even if it is available. However, the disadvantage to the claimants of delay is demonstrated by this debate. It affords yet another reason for endeavouring to expedite the appeal process so that the entitlements of the parties are determined as quickly as is possible having regard to the size of the case and the competing claims to the court’s time of other proceedings necessarily displaced by such an appeal.”
Having carefully considered all of the submissions of the parties, I conclude, respectfully, that the approach taken in Cambridge Credit is correct and is appropriate in the present circumstances. It may well be that the second and third layer insurers and FAI General Insurance may consider it to be of advantage to them not to resolve the issue of indemnity promptly but that is not a reason to deny the Nelson Wheeler defendants a stay of execution pending judgment unless their insurers pay such a substantial sum into Court. It was suggested that liberty to the insurers to apply to discharge such a condition of the stay would enable them to demonstrate any good reason why indemnity should not be granted. In that case, almost inevitably, this Court would have to embark upon a trial of the issues relevant to any refusal of indemnity which would not be appropriate for reasons expressed in Cambridge Credit. Furthermore, as has been mentioned, the appeals are likely to be heard relatively soon, and it is quite likely that issues about insurance cover would remain unresolved by that time.
I reject the submission that a stay in favour of the Nelson Wheeler defendants should be conditional upon the insurance monies being paid into Court.
I now turn to the director defendants. They all seek a stay of the execution by the plaintiff of the judgment against them and of the judgment in the third party proceedings by the Nelson Wheeler defendants. The appeal by Harold Abbott is of a limited nature. He does not contest the finding against him of liability but he challenges the finding of fraud against him and the assessment of damages. He contends that damages should be limited to about $2.8m. For present purposes it is unnecessary to examine the basis of that contention. I have expressed my views about the correct approach to the assessment of damages but, of course, they are the subject of the appeal. Whilst I do not acknowledge that there is any substance in the contentions of Harold Abbott, I understand the basis of the contention and, if it is accepted on appeal, the award of damages against him will be drastically reduced.
It will be seen from the reasons for judgment on liability and damages that Harold Abbott, through the medium of associated companies and trusts, profited substantially from the takeover of Western United by Kia Ora. The extent of the personal benefit to him and his wife was not revealed by the evidence and he took no part in the trial. He had associations with International & Irish Securities Limited and Rahn & Bodmer, which is a Swiss Bank, both of which played a part in crucial transactions referred to in the reasons for judgment.
Harold Abbott filed an affidavit in support of his application for a stay in which he deposes as to his involvement with International & Irish Securities Limited and Rahn & Bodmer, but he does not reveal the precise role which they played in the transaction or the benefit which he received upon the takeover. These matters may not be, strictly speaking, relevant to the issues to be resolved upon his application for a stay but they do reveal, in my view, that Harold Abbott is not willing to reveal what he did receive.
Harold Abbott has disclosed what he asserts to be his current financial position. I mention some matters. He says that his wife is now the sole shareholder of the trustee of the Western United Trust which is a discretionary trust and he is a nominated beneficiary under the Deed governing the Trust. As at 30th June 1997, the total funds of the Trust amount to $3,140,142, and since that date any subsequent variation would be minor. Some of these funds are loans which may not be recoverable. During the 1994 financial year, the Trust transferred real property to Mrs Abbott as a distribution in specie pursuant to the Deed. These properties now have a value of about $2.8m. He is also a nominated beneficiary of the Cooparoo Trust. His wife is said to be the sole director of the Trust and he and his wife are the sole shareholders. Total funds are said to amount to $11,935. Harold Abbott and his wife are the shareholders of Wyrill Nominees Pty Ltd and she is said to be the sole director of the company. The net assets of the company are said to be $194,367. The major asset of the company is real property with a present value of $3.5m. The incorporation of that value into the balance sheet in lieu of the value presently shown would, it seems, increase the value of net assets substantially.
The beneficial owner of Ashenden Securities Limited is Harold Abbott through another company. It appears that a major asset of this company is a loan of $600,000 to Harjenbom Pty Limited. Harold Abbott and his wife are the sole shareholders of that company. This company has substantial assets and liabilities and conducts the business of Australian Wax Farms. He asserts that the net deficiency of shareholders funds in the company at 30th June 1997 is nearly $700,000. However, a major asset is land which he says has a value of $3m before approval for subdivision. Harold Abbott also has an entitlement of $1.25m in the Harjenbom Pty Limited Superannuation Fund. He has not provided any information as to whether that amount, or any part of it, is presently accessible.
In support of his application for a stay, Harold Abbott has offered to the plaintiff and the Nelson Wheeler defendants an undertaking in the following terms:
“Harold Abbott undertakes that he will not dispose of any of his assets except in the ordinary course of business or for the purpose of raising money to be used for normal living expenses not exceeding $1,000 per week on average and to pay legal expenses.”
It will be seen that this undertaking is limited to his own assets.
So far as Harold Abbott is concerned, there is a clear case that the granting of a stay should be conditional upon his paying an appropriate sum of money into Court. Even if his appeal is successful, he will still have to pay damages in the order of $2m to $3m to the plaintiff and some amount for costs. I am satisfied that Harold Abbott has placed a good deal of his fortune in the entities which are effectively controlled by him even though he is not a director of various companies. He explained that he relinquished those positions following his conviction of crime in 1996. He is able to pay, or cause to be paid, a substantial sum into Court and there is no suggestion that he would be in breach of any legal or equitable obligations if he did so.
I grant the stays as sought by Harold Abbott upon the condition that he pay, or cause to be paid, the sum of $3m into Court on or before the 30th June 1998. Should he fail to do so, the stay so far as he is concerned will lapse. I make an order with an injunction against Harold Abbott in the following terms:
“That the defendant Harold Abbott be, and is hereby, restrained and an injunction is granted restraining him until further order whether by himself, his servants, his agents or otherwise howsoever from selling, transferring, assigning or otherwise disposing of, mortgaging, pledging, securing or otherwise dealing with in any manner any of his real or personal property of any nature whatsoever and wherever situate whether within or outside the jurisdiction in which he has a legal or beneficial interest save and except that the defendant Harold Abbott may incur reasonable living expenses to a maximum of $1,000 per week including those living expenses of any dependant or spouse, pay and discharge reasonable expenses incurred in the ordinary course of any business conducted by him, pay, discharge or service debts and liabilities and pay and discharge reasonable legal expenses incurred in these proceedings including with respect to his appeal.”
The defendant Lee-Steere has filed an affidavit in which he deposes as to his financial position and that of various entities with which he is associated. Whilst there is some dispute about the extent of his wealth, I accept that should the judgment be enforced against him, he would be financially ruined. As with all of the director defendants, there is no insurance cover with respect to the judgment against them in these proceedings. Lee-Steere offers an undertaking as follows:
“....... undertakes not to dispose of any of his assets except for the purpose of raising funds to be used for his living expenses not exceeding $1,500 per week on average, legal expenses in relation to the appeal, his share of the accruing losses of the Limestone Park Stud partnership and repayment of money owed by him to any bank or financial institution. On completion of the Limestone Park dispersal sale, he will provide details of his share of the net proceeds of sale and will not use any such proceeds except for the purposes set out earlier in this undertaking.”
It appears that Lee-Steere intends to sell his interest in the business conducted at the property known as Limestone Park in Western Australia. It may be that the real property may also be sold. He specified the sum of $1,500 because of what he described as abnormal expenses incurred with respect to real estate owned by him and medical and special running expenses of his wife who is elderly and in ill health.
Should Lee-Steere sell real or personal property, he should inform the plaintiff’s solicitors accordingly so that consideration may be given to securing the proceeds of the sale to abide the outcome of the appeal.
There is a further matter to be considered. Ernest Lee-Steere Pty Ltd was incorporated in 1961. It is a family company of Lee-Steere and, according to him, had been established by his father. The directors and shareholders are members of the family. At all times relevant to issues in these proceedings, Lee-Steere was neither a director nor a shareholder and he claimed to have no beneficial interest in the company. However, the evidence at the trial established that Lee-Steere played an active part in the affairs of the company and he caused the company to own shares in Western United with the consequence that it benefited substantially upon the takeover. On 12th February 1998, soon after judgment in these proceedings was entered, a caveat was lodged by Ernest Lee-Steere Pty Ltd and registered on the certificates of title of five properties. The company claimed an interest in each of those properties in the nature of a charge pursuant to an equitable lien as an unpaid vendor. An accompanying statutory declaration of Robert Renny John Lee-Steere, a son of Lee-Steere and a director of the company, asserts that three of the properties were transferred to Lee-Steere on 25th August 1989 in consideration of a total sum of $761,000 which sum was payable on demand and has not been paid. A demand for payment was made on 12th February 1998 and the company claims the equitable lien.
It may be seen that the alleged debt is said to have existed without demand for payment for nearly nine years and shortly after judgment was entered, action was taken by the company. The plaintiff contends that company has taken this action so that it may be preferred to the plaintiff in any bankruptcy of Lee-Steere. This lien was disclosed by Lee-Steere in his statement and his financial position. No doubt the plaintiff wants to test whether any such debt exists and to ascertain whether the lodging of the caveat was merely a device to try and protect assets of Lee-Steere from action by the plaintiff.
Whatever is the position, it may safely be inferred that the company has moved in this way to protect itself should Lee-Steere be declared bankrupt. However, this conduct by the company is no reason to deny a stay to Lee-Steere. Whilst it is likely that the caveat was lodged with his knowledge, and possibly with his agreement, if the debt exists and was in fact secured by a lien as alleged, the law will take its course. The lodging of a caveat will not alter the position or, in itself, create any disadvantage for the plaintiff.
Lee-Steere should have a stay. However, the plaintiff should have an injunction because in the circumstances I do not think the undertaking proffered by him is adequate. The order with injunction should be in the following terms:
“1....... That the defendant Lee-Steere be, and is hereby, restrained and an injunction is granted restraining him until further order whether by himself, his servants, his agents or otherwise howsoever from selling, transferring, assigning or otherwise disposing of, mortgaging, pledging, securing or otherwise dealing with in any manner any of his real or personal property of any nature whatsoever and wherever situate whether within or outside the jurisdiction in which he has a legal or beneficial interest save and except that the defendant Lee-Steere may incur reasonable living expenses to a maximum of $1,500 per week including those living expenses of any dependant or spouse, pay and discharge reasonable expenses incurred in the ordinary course of any business conducted by him, pay, discharge or service debts and liabilities and pay and discharge reasonable legal expenses incurred in these proceedings including with respect to his appeal.
2......... That upon the sale of any of his real or personal property, he inform the plaintiff’s solicitors in writing thereof and that he retain the net proceeds of such sale in a separate bank account in his name until the expiration of a period of 14 days from having given notice of such sale or otherwise as the Court may direct.
......... I now turn to the application of the defendant Somes. He claims to have no assets at all except his interest in the accountancy practice of Somes and Cooke which he says is in deficit. Somes and his associates directly and indirectly receive a substantial benefit from the takeover of Western United. They received about $550,000 in cash. Upon the present application, Somes provided no information as to what happened to that money. When his counsel, Mr Hoile, was pressed about various relevant matters, he merely pointed to the various trusts which were established over the years and asserted that Somes had no beneficial interest in them. I do not think Somes has tried to help the Court at all.
......... He continues to practice as an accountant. Like the Nelson Wheeler defendants, he claims that if a stay is not granted and he becomes bankrupt, he will not be able to practice as an accountant. I am not satisfied that such is the case, although I do accept that he could not practice as a member of the Institute of Chartered Accountants and that bankruptcy may prevent him from undertaking some of his professional work. Having considered the considerable amount of material placed before the Court in relation to Somes, I think it is likely that he has conducted his financial affairs over many years by the use of trusts and corporate trustees and members of his family for reasons which probably include to isolate himself from personal liabilities. These arrangements appear to have been in place well before the commencement of these proceedings. In that respect his position is similar to that of Wenham. However, unlike Wenham, he has provided very little information about the assets of the trusts, their true value and their liquidity. It is very likely that he controls these trusts in a practical way and has access to their funds.
......... Given the longstanding history of these arrangements, their existence should not be an obstacle to a stay. There is no suggestion that they come into existence to disadvantage the plaintiff although there may be an attempt to use them for that purpose.
......... Somes has also offered an undertaking not to dispose of his assets, however, given his lack of disclosure as indicated, I think the plaintiff should have the benefit of an injunction in the following terms:
That order should be in the following terms:
“That the defendant Somes be, and is hereby, restrained and an injunction is granted restraining him until further order whether by himself, his servants, his agents or otherwise howsoever from selling, transferring, assigning or otherwise disposing of, mortgaging, pledging, securing or otherwise dealing with in any manner any of his real or personal property of any nature whatsoever and wherever situate whether within or outside the jurisdiction in which he has a legal or beneficial interest save and except that the defendant Munachen may incur reasonable living expenses to a maximum of $1,000 per week including those living expenses of any dependant or spouse, pay and discharge reasonable expenses incurred in the ordinary course of any business conducted by him, pay, discharge or service debts and liabilities and pay and discharge reasonable legal expenses incurred in these proceedings including with respect to his appeal.”
In ordering a stay with respect to the director defendants, I have not overlooked the argument of the plaintiff that a stay should be refused unless each of them pays into Court the monies received upon the takeover of Western United which amounts to many millions of dollars. The argument is that they have been found to be in breach of fiduciary and statutory duties which, in the circumstances, may be categorised as fraudulent conduct and they should not have the benefit of their fraud. Of course that argument overlooks that the findings against them are subject of the appeal, so far as Lee-Steere and Somes are concerned, and in one respect so far as Harold Abbott is concerned. If their appeals are successful, they will not be obliged to pay anything to the plaintiff. I do not regard such a condition as appropriate.
The orders which I make are as follows:
Execution of the judgment herein against each of the Nelson Wheeler defendants and the director defendants, ie Harold Abbott, Lee-Steere and Somes, is stayed until completion of the hearing of the appeals before the Full Court of this Court, in the case of Harold Abbott on the condition that he pay, or cause to be paid, the sum of $3m into Court on or before the close of business of the Registry on 30th June 1998, in the case of the defendant Munachen on the condition that the two caveats lodged on the Mount Lawley property be withdrawn on or before 30th June 1998 and in the case of the defendant Wenham upon the condition that he reverse transaction regarding the trustee previously referred to and that he do so on or before 30th June 1998 and inform the solicitors for the plaintiff accordingly.
Should the conditions not be fulfilled by the defendants Munachen and Wenham respectively, the stay in favour of him or them as the case may be shall lapse on 30th June 1998.
There be an order with injunction against each of the defendants Munachen, Wenham, Harold Abbott, Lee-Steere and Somes in the terms previously indicated.
The parties be at liberty to apply on 48 hours’ notice.
The question of costs is reserved.
Liberty to speak to the minutes.
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