In the Matter of Drambo Pty Ltd ACN 010 258 698 Drambo Pty Ltd v Westpac Banking Corporation

[1996] FCA 1047

IN THE FEDERAL COURT OF AUSTRALIA  No QG 3021 of 1996
QUEENSLAND DISTRICT REGISTRY  
GENERAL DIVISION  

IN THE MATTER of DRAMBO PTY LTD
ACN 010 258 698

BETWEEN:DRAMBO PTY LIMITED

Applicant

AND:WESTPAC BANKING CORPORATION

Respondent

MINUTES OF ORDERS

JUDGE MAKING ORDER:  Drummond J
DATE OF ORDER:  26 November 1996
WHERE MADE:  Brisbane

THE COURT ORDERS THAT:

1.  The application is dismissed, with costs.

NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  No QG 3021 of 1996
QUEENSLAND DISTRICT REGISTRY  
GENERAL DIVISION  

IN THE MATTER of DRAMBO PTY LTD
ACN 010 258 698

BETWEEN:DRAMBO PTY LIMITED

Applicant

AND:WESTPAC BANKING CORPORATION

Respondent

CORAM:Drummond J

DATE:26 November 1996

PLACE:Brisbane

REASONS FOR JUDGMENT

This is an application to set aside a statutory demand served on the applicant by the respondent. The application is based on ss 459H and 459J the Corporations Law.  The demand is for payment of about $10 million, which is one component of the total amount of about $37 million for which Sundberg J gave judgment in favour of the respondent against the applicant on 1 August last in an action brought by the applicant against the respondent in which the respondent counter-claimed.

The applicant has appealed that judgment.  The appeal would have been heard at the last Full Court Sittings in Brisbane if the applicant had not sought
and obtained, over the respondent's opposition, an adjournment of the hearing.  The present application is based on the pendency of this appeal which, if successful, will destroy the foundation for the statutory demand.

I will proceed on what I conceive to be the basis most favourable to the applicant, ie, on the basis that the existence of this appeal is capable of enlivening the jurisdiction under both ss 459H and J to set aside the respondent's statutory demand.

Although the applicant once foreshadowed doing so, it has not made application to stay Sundberg J's judgment pending the appeal.  However, in my opinion, it is directly relevant, where a demand based on a judgment after a trial on the merits is attacked because the judgment is under appeal, to consider whether the circumstances are such that, if a stay of execution of a judgment pending an appeal was sought, the stay would be granted.  The orthodox approach under rules similar to O 52 r 17 the Federal Court Rules is that stated by Dawson J in Federal Commissioner of Taxation v The Myer Emporium Limited (No 1) (1986) 160 CLR 220 where, at 222-223, his Honour says:

“Order 70, r 12 was amended on 5 December 1985 and in its new form is the counterpart of similar rules in other jurisdictions.  It is well established by authority that the discretion which it confers to order a stay of proceedings is only to be exercised where special circumstances exist which justify departure from the ordinary rule that a successful litigant is entitled to the fruits of his litigation pending the determination of any appeal ... Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory ... Generally that will occur when, because of the respondent's financial state, there is no reasonable prospect of recovering moneys paid pursuant to the judgment at first instance.  However, special circumstances are not limited to that situation and will, I think, exist
where for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed.”

I was also referred by the respondent's counsel to a recent Full Court decision, Powerflex Services Pty Ltd v Data Access Corporation (1996) 137 ALR 498. This decision suggests that there is a less stringent test to be complied with by an applicant for a stay of execution on a judgment after a trial on the merits pending appeal than indicated in the Myer Emporium case.  But Powerflex still shows that the applicant for a stay must show circumstances that make it appropriate to depart from the prima facie rule that a successful party is entitled to the benefit of his judgment, notwithstanding the pendency of an appeal.

In my opinion, it is very unlikely that the applicant would obtain a stay of execution if applied for.  If the appeal succeeds, the applicant can expect, in view of the character of the respondent as one of the country's major banks, to be restored fully to the position it would have been in if the respondent had not insisted on payment of that part of the judgment debt the subject of the demand, subject to one qualification:  if the demand is not set aside and liquidation of the applicant follows, certain property, which Mr Porter, a principal of the applicant, values at $600,000 or thereabouts and which is a pre-capital gains tax asset of the applicant, might be expected to be realised in the liquidation.  Mr Porter says the applicant wants to hold this property.  It is said that liquidation will deprive the applicant of the tax advantages associated with doing that.

However, the respondent has appointed a receiver of the applicant's assets under securities it holds and the sale of this same property is imminent.  The applicant has not challenged the receiver's sale.  Any prejudice the applicant may suffer from the disposal of the pre-capital gains tax asset in a liquidation that can be expected to follow non-compliance with the statutory demand, if that demand is not set aside, is inevitably going to be suffered by the applicant as a result of this unchallenged receiver's sale.

The lack of any real prospect of obtaining a stay of execution pending appeal is a powerful discretionary consideration, in my view, for refusing to set aside the statutory demand:  the respondent is entitled to insist on payment of the particular amount demanded, notwithstanding the appeal.

Other matters I take into account in refusing the relief sought are, firstly, that on the evidence, refusal of the relief sought and any consequent liquidation is unlikely to stifle the appeal.  The applicant did not suggest otherwise.  Mr Porter has recently given certain evidence in the proceedings in which he indicated that the applicant was only in a position to fund the trial because it received the assistance of third parties and that, in effect, those same persons are prepared to assist with the applicant’s costs of the appeal.  Such interest as the applicant has in the litigation still on foot remains in the applicant’s control, notwithstanding the appointment of the receiver by the respondent.

Secondly, the success of the appeal appears to depend on the applicant
persuading the Full Court to overturn a judgment that is, in large part, based on findings of fact adverse to the applicant which are, themselves, based on the trial judge's assessment of the credibility of the applicant's key witness, Mr Porter.

Finally, the applicant has assets, albeit small in comparison with its liabilities, which include the respondent’s judgment debt: the issue of the statutory demand, which is unlikely to be met and which will very likely lead to the winding up of the applicant, cannot be said to have been done for purposes foreign to those contemplated by ss 459H and 459J.

The applicant placed great emphasis on a decision of the Full Court, Eltran Pty Limited v Westpac Banking Corporation (1991) 32 FCR 195. That authority is, in my opinion, of no assistance to it. That case concerns an application to restrain a mortgagee from enforcing its security when an unlitigated challenge to the mortgagee's entitlement to take such action was on foot. Here, the respondent has established its entitlement to issue the statutory demand because it has obtained a judgment after a trial on the merits. Any relevant status quo can therefore be identified as the position existing after the judgment. I therefore dismiss the application with costs.

I certify that this and the preceding four pages are a true copy of the reasons
for judgment herein of the Honourable Justice Drummond.

Associate:
Date:  26 November 1996