Kairouz v Jasper Nominees Limited

[2024] VSCA 68

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2024 0010

PIERRE KAIROUZ	Applicant
v
JASPER NOMINEES LIMITED (SEYCHELLES COMPANY 224224)	Respondent

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JUDGES:	KENNEDY and WALKER JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	12 April 2024
DATE OF JUDGMENT:	18 April 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 68
JUDGMENT APPEALED FROM:	[2023] VSC 718 (M Osborne J)

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PRACTICE AND PROCEDURE – Stay – Application for stay of orders requiring payment of judgment debt – Whether special or exceptional circumstances exist – Whether risk that appeal could be rendered nugatory if stay not granted – Where respondent has issued bankruptcy notice to applicant – Bankruptcy likely to eventuate if stay not granted – Likelihood of bankruptcy and effect of sequestration order constitute special circumstances – Application for stay granted.

Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Maher v Commonwealth Bank of Australia [2008] VSCA 122; Neate v Thoroughbred International Marketing Pty Ltd [2012] VSCA 65; Quick v Lam-ly Pty Ltd [2019] VSCA 111; Loftus v Australia & New Zealand Banking Group Ltd [2016] VSCA 114; Li v Herald & Weekly Times Pty Ltd [2008] VSCA 201; Seifert v Chaudhary [2012] VSCA 17; Hoser v Pelley [No 4] [2023] VSCA 319, applied. McMahon v National Foods Milk Ltd [2008] VSCA 237; Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 195, discussed.

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Counsel
Applicant:		Mr M Clarke KC with Mr J Levine
Respondent:		Mr S Freire
Solicitors
Applicant:	Frank A Sanna
Respondent:	SBA Legal

KENNEDY JA:

1. I agree with Walker JA.

WALKER JA:

1. The applicant, Mr Kairouz, was a guarantor of two short term loans given by the respondent (‘Jasper Nominees’) to a company with which Mr Kairouz was associated, Global Meats Exports Pty Ltd (‘Global Meats’). Global Meats defaulted on the loans, and Jasper Nominees sought to recover amounts owing under two loan agreements from Mr Kairouz (and a co-guarantor) under the guarantees. Jasper Nominees was successful before the trial judge and obtained judgment in the sum of $141,372,006.80.[1] Mr Kairouz has not paid that amount to Jasper Nominees and the evidence is that he cannot do so. Jasper Nominees has issued a notice of bankruptcy to Mr Kairouz. Mr Kairouz has filed an application in the Federal Circuit and Family Court to set aside or extend the bankruptcy notice.

   [1]Jasper Nominees Limited v Kairouz [2023] VSC 718 (‘Reasons’).

2. Mr Kairouz filed an application for leave to appeal against that judgment. He also filed an application for a stay of execution of the judge’s orders pending the outcome of the appeal.  The grounds of the stay application relevantly included the following:

   (a)there are special circumstances to grant a stay;

   (b)the appeal could be rendered nugatory if a stay was not granted;

   (c)there is no prejudice to Jasper Nominees in granting a stay;

   (d)Mr Kairouz could not be restored to his former position if a stay was not granted and the application for leave to appeal and the appeal was upheld.

3. On 12 April 2024, immediately after the hearing of the application for a stay, the Court granted the application and indicated that reasons would be provided later. These are my reasons for granting the application.

4. In short, I consider that Mr Kairouz has made out special circumstances, by reason of the likelihood of bankruptcy if a stay is not granted and the effect of a sequestration order on him. I also consider that he has arguable grounds of appeal that warrant the grant of a stay (which the respondent conceded for the purposes of this application).

5. Mr Kairouz also issued two subpoenas to third parties seeking documents that he claimed were relevant to the stay application. The respondent objected to inspection of any documents produced pursuant to the subpoenas. The Court heard the objection to inspection together with the application for a stay. At the hearing, the respondent provided some information concerning the matters underlying the issue of the subpoenas, in light of which Mr Kairouz withdrew his reliance on the subpoenas. The Court therefore discharged the subpoenas.

Mr Kairouz’s affidavit in support

1. Mr Kairouz filed an affidavit in support of his application for a stay, in which he relevantly said as follows:

   (a)In October 2023 Jasper Nominees appointed receivers and managers to Global Meats. He was told that Global Meat’s business and assets had been sold, by way of a contract entered into on 30 January 2024 (the ‘January contract’). The judgment debt should be reduced by amounts obtained for the sale of the assets and business.

   (b)He has been a certified practising accountant (‘CPA’) since 1997 and is currently a Fellow of CPA Australia. If he were to become bankrupt, he may no longer be regarded as a fit and proper person by CPA Australia and that body could suspend his membership or expel him. The issue of the bankruptcy notice could also have that effect, but he is ‘confident that [he] would be able to explain the bankruptcy notice and the circumstances pertaining to it’, whereas ‘a sequestration order would almost certainly result in [him] failing the fit and proper requirements test’.

   (c)He was employed by Global Meats as the finance director/controller, but has not been paid since November 2023. On 31 January 2024 his employment with Global Meats was terminated.

   (d)Now that he is unemployed, and if he is without his membership of the CPA, ‘it will be almost impossible [for him] to find employment’. If he were to go bankrupt, he could not work as an accountant dealing with financial matters.

   (e)If he is declared bankrupt he will be disqualified from being a director of a company. This would preclude him from incorporating a company to conduct an accountancy business. It would also prevent him from remaining as a director of nine companies of which he is currently a director. Two of those companies own properties that are the subject of Jasper Nominees’ security interest and are in the process of being sold by it. As a director of those companies, he has the capacity to protect their interests.

   (f)He also had plans to use one of the companies of which he is a director to export food products to South-East Asia, with a view to creating a new business. This would require him to travel overseas, but he would be unable to do so without permission from his trustee in bankruptcy. By the time that his appeal was heard and determined the opportunity would be lost, because he is ‘getting older’ and ‘would be out of the meat business, in the interim’.

   (g)His health has deteriorated due to the stress of litigation and that would be exacerbated if he were made bankrupt. In support of that proposition he produced a letter from his general practitioner.

   (h)He has had difficulty in raising funds to pay his legal practitioners for the appeal. He ‘cannot expect [his] legal practitioners to accept credit, if there is an extant bankruptcy notice’. He has been able to obtain limited loans to fund his appeal, but he would no longer be able to do so if he was made bankrupt.

2. Jasper Nominees did not file any evidence on the application for a stay. Nor did it undertake not to proceed with a creditor’s petition pending the outcome of the application for leave to appeal and, if leave is granted, the appeal.

General principles

1. The general principles that govern the grant of a stay pending appeal are well settled[2] and were not in dispute. As a starting point, a successful judgment creditor is entitled to the fruits of his or her victory. Accordingly, an applicant for a stay must satisfy the Court that ‘special or exceptional circumstances’ exist before a stay will be granted. Special circumstances may be shown to exist if the appeal will be rendered nugatory if a stay is not granted, or if the applicant will not be able to be restored to their former position if the judgment against them is executed.

   [2]See generally Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653, 657 (Young CJ and Brooking J); Maher v Commonwealth Bank of Australia [2008] VSCA 122, [19]–[27] (Dodds‑Streeton JA, Redlich JA agreeing at [1]) (‘Maher’); Neate v Thoroughbred International Marketing Pty Ltd (2012) 34 VR 318, 320 [5]–[7] (Mandie JA and Cavanough AJA); [2012] VSCA 65; Quick v Lam-ly Pty Ltd [2019] VSCA 111, [27]–[29] (Beach JA).

2. An applicant for a stay should also demonstrate that there is at least an arguable ground of appeal. That is a relatively low bar — ordinarily the court does not have before it sufficient materials to consider, in detail, the merits of the grounds of appeal relied on in the application for leave to appeal,[3] and the Court will generally not engage in speculation as to the ultimate prospects of success.[4]

   [3]Loftus v Australia & New Zealand Banking Group Ltd [2016] VSCA 114, [8] (Whelan and Kaye JJA).

   [4]Maher [2008] VSCA 122, [27] (Dodds-Streeton JA, Redlich JA agreeing at [1]).

The parties’ submissions

1. In the present case, Mr Kairouz submitted that his grounds of appeal were arguable. Jasper Nominees conceded, for the purposes of the stay application only, that none of the grounds are unarguable.

2. In relation to special or exceptional circumstances, Mr Kairouz submitted that he is unaware of the current amount of the judgment debt that is due and owing. That is because Global Meats’ assets and business have been sold and the proceeds of the sale are thus available to reduce the amount owing to Jasper Nominees. But Mr Kairouz is unaware of the amounts received in relation to the sale. That lack of information was remedied at the hearing by the provision of information concerning the total amount payable under the contract of sale and the amounts received to date in relation to the sale of the business.

3. Mr Kairouz relied in particular on the issue of a bankruptcy notice. He pointed out the effect that this would have on his reputation. He submitted that he will suffer severe consequences if a sequestration order is made against him. If that were to occur, he submitted, there is a ‘significant risk’ that he would be unable to prosecute the appeal, because bankruptcy would ‘divert his financial resources … and hinder his ability to pay the costs of prosecuting his appeal’. He also submitted that he would suffer in relation to his ability to obtain employment as an accountant, which would be impeded by the making of a sequestration order.

4. In relation to the relevance of the prospect of bankruptcy to his stay application, Mr Kairouz relied upon the decision of this Court in Narain v Euroasia (Pacific) Pty Ltd. In that case Ashley JA, with whom Maxwell P agreed, said that ‘the foreshadowed making of a bankruptcy order, by its effect upon the ability of an appellant to prosecute an appeal, and by its reputational impact, may have the effect of rendering the appeal nugatory and so constitute special circumstances justifying a stayon execution’.[5]

   [5]Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 195, [21] (‘Narain’). Ashley JA referred to Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSCA 320.

5. In response, Jasper Nominees submitted that no special or exceptional circumstances exist to warrant the grant of a stay.

6. In relation to the sale of Global Meats’ assets and business, Jasper Nominees submitted that this did not reveal any special or exceptional circumstances. It submitted that the effect of the terms of the two loan agreements was that Mr Kairouz was required to pay the secured sum on demand. It accepted that any recoveries made by it from the realisation of securities would diminish Mr Kairouz’s liability; but said that in such circumstances, Mr Kairouz would be entitled to a refund. It submitted that it was not required to realise securities before calling on Mr Kairouz’s guarantee. It provided some information to the Court from the Bar table concerning the amounts that had been recovered to date and which, at their highest, could extinguish only around $38 million of the judgment debt (which is approximately $141 million).

7. In so far as Mr Kairouz relied upon the prospect of bankruptcy to constitute special circumstances, Jasper Nominees submitted that the effect of bankruptcy on Mr Kairouz’s employment prospects was overstated. It noted, amongst other things, that Mr Kairouz had not practised as an accountant for 40 years, save for a ‘one‑year stint’ in the 1990s. In relation to Mr Kairouz’s directorship of other companies, it submitted there was no evidence as to whether those companies had other directors, or whether they were trading. Furthermore, although bankruptcy would preclude Mr Kairouz from managing those companies, he could seek permission to continue in a management role from ASIC or from a court. In addition, new directors could be appointed to protect the interests of the companies in question.

8. In relation to Mr Kairouz’s ability to fund the appeal if he is made bankrupt, Jasper Nominees submitted as follows:

   [Mr] Kairouz's evidence is that he has been able to obtain limited loans to fund his appeal but he would no longer be able to do so if he were made bankrupt. This is an insufficient evidentiary foundation on which it might be concluded that, in the absence of a stay, and if [Mr] Kairouz were made bankrupt, the prosecution of his appeal would be imperilled. [Mr] Kairouz does not say whether his lawyers have already been placed in funds for the appeal or whether they would be prepared to continue to act without further funding.

   Further, s 60(2) of the Bankruptcy Act provides that an action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. If [Mr] Kairouz were made bankrupt, prosecution or non-prosecution of the appeal would lie with the trustee in bankruptcy, not with [Mr] Kairouz.

9. Finally, Jasper Nominees submitted that any lack of prejudice to it does not, of itself, constitute special or exceptional circumstances. In any event, it submitted that it has an interest in ensuring that the relation‑back periods under the Bankruptcy Act 1966 (Cth) commence as soon as possible.

Consideration

1. As noted above, the general principles concerning the grant of a stay by this Court are not in dispute. However, it is necessary to say more about Mr Kairouz’s reliance on the prospect of bankruptcy as demonstrating exceptional circumstances.

2. As set out above, Mr Kairouz relied upon Ashley JA’s remarks in Narain in support of his submission that the foreshadowed making of a sequestration order against him constituted special circumstances. Those remarks have since been followed or approved in various cases.[6] In McMahon v National Foods Milk Ltd this Court said as follows:

   On several occasions recently, the Court has accepted that the prospect of an individual appellant being bankrupted by the judgment creditor if a stay is not granted may constitute special circumstances for this purpose. Ordinarily, of course, the party which succeeds at trial is entitled to enjoy the fruits of its judgment. Different considerations come into play, however, where the appellant/judgment debtor is insolvent. In those circumstances, to allow the process of execution to proceed — in the case of an individual appellant, to bankruptcy or, in the case of a corporate appellant, to winding up — has obvious and significant implications for the capacity of the appellant to prosecute the appeal. In the case of an individual, the making of a sequestration order has significant long-term implications, in reputational and other respects, which may well mean that, in the event of the appeal succeeding, the individual could not be restored ‘substantially to his or her former position’.[7]

   [6]See, eg, Saville v Hallmarc Construction Pty Ltd [2015] VSCA 144, [21]–[23] (Tate and McLeish JJA); Li v Herald & Weekly Times Pty Ltd [2008] VSCA 201, [11]–[14] (Maxwell P and Ashley JA); Cross Country Realty Victoria Pty Ltd v Ubertas 350 William Street Pty Ltd [2015] VSCA 347, [83] (Kyrou and McLeish JJA); Boensch v Pascoe [No 2] [2017] FCA 146, [117] (Gleeson J).

   [7]McMahon v National Foods Milk Ltd [2008] VSCA 237, [3] (Maxwell P for the Court) (citations omitted) (‘McMahon’).

3. It has also been said that ‘the desire to avoid bankruptcy is not, of itself, sufficient to warrant the grant of a stay’.[8] The latter proposition is not contrary to what was said in Narain and McMahon. In Narain, Ashley JA referred not simply to the risk of bankruptcy, but to its effect upon the ability of an appellant to prosecute an appeal, and also to its reputational impact. Such impacts, his Honour said, ‘may have the effect of rendering the appeal nugatory and so constitute special circumstances justifying a stayon execution’.[9]

   [8]Seifert v Chaudhary [2012] VSCA 17, [14] (Weinberg JA, Kyrou JA agreeing at [35]). See also Hoser v Pelley [No 4] [2023] VSCA 319, [35]–[36] (McLeish and Walker JJA and Elliot AJA)

   [9]Narain [2008] VSCA 195, [21] (emphasis added).

4. Thus, an applicant relying on the risk of bankruptcy as a basis for a stay must do more than point to that risk (which might often be present when a judgment debt is entered against a person). Rather, the applicant must point to the likelihood of bankruptcy occurring and to the particular consequences of bankruptcy in the instant case. That is consistent with the approach this Court has taken to the relevance of liquidation of a company, namely that ‘the relevance of a threat of liquidation and the weight to be given to it vary from case to case’.[10]

   [10]Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd (2004) 9 VR 382, 387 [17] (Callaway JA, Chernov JA agreeing at 387–8 [20]); [2004] VSCA 66.

5. It is also of assistance to refer to the following remarks of Maxwell P and Ashley JA in Liv Herald & Weekly TimesPty Ltd. In that case, like the present, the respondents had served a bankruptcy notice on the applicant.

   When asked why it was necessary for the respondents to take this step at this time, counsel for the respondents said that their concern was to establish an act of bankruptcy by Ms Li (which would be constituted by her non-compliance with the bankruptcy notice) at the earliest opportunity, for the purposes of the ‘relation back’ provisions of the Bankruptcy Act. In the course of the hearing, Ashley JA enquired whether the respondents would be prepared to give an undertaking that, once an act of bankruptcy was committed, they would not proceed with a creditor’s petition until the appeal had been heard and determined. On instructions, counsel indicated that such an undertaking would be given but on the condition that Ms Li abandoned her attempts to extend the time for compliance with the bankruptcy notice. The court indicated that a conditional undertaking of that kind was not acceptable.

   That remains our view. Consistently with the approach of this Court in recent times, we would regard the prospect of a sequestration order against Ms Li as constituting special circumstances which would justify a stay of execution. We would refrain from granting a stay only if the respondents were prepared to undertake that, once an act of bankruptcy had been committed, they would not proceed with a creditor’s petition pending the hearing and determination of Ms Li’s appeal.[11]

   [11]Li v Herald & Weekly Times Pty Ltd [2008] VSCA 201, [13]–[14].

6. In the present case, I accept that, unless the Federal Circuit Court sets aside the bankruptcy notice, it is very likely that Mr Kairouz will be made bankrupt. That is, there is not merely an assertion of a risk of bankruptcy — given the issue of the bankruptcy notice, and Mr Kairouz’s financial position, it is likely that bankruptcy will eventuate if a stay is not issued. I also accept that Mr Kairouz’s ability to prosecute his application for leave to appeal would be impeded if he is rendered bankrupt. That is principally a consequence of the fact that upon his bankruptcy, his application for leave to appeal will be automatically stayed until the trustee in bankruptcy makes an election to proceed with or discontinue the proceeding. That is, conduct of the application for leave to appeal will lie with his trustee in bankruptcy.

1. Jasper Nominees quite properly accepted that Mr Kairouz’s reputation will be affected by being rendered bankrupt. I consider that the impact on his reputation will be significant and is likely to affect his ability to obtain employment, whether as a CPA or otherwise.

2. Furthermore, as noted above, Jasper Nominees declined to give an undertaking that, if no stay is ordered, it will not proceed with a creditor’s petition until the application for leave to appeal, and any appeal, had been heard and determined. That was so even though an act of bankruptcy had already been committed, by Mr Kairouz failing to comply with the bankruptcy notice within the relevant period. Jasper Nominees accepted that this protected its position to some extent, but noted that it is possible for the Federal Circuit Cout to extend time nunc pro tunc. 

3. Ultimately, I consider that Mr Kairouz has demonstrated that, if the judgment against him is executed, but his appeal is later successful, it is likely that he will not be restored ‘substantially to his or her former position’. That is, I consider that he has demonstrated special circumstances sufficient to warrant the grant of a stay.

4. As noted above, Jasper Nominees conceded that Mr Kairouz has sufficiently arguable grounds of appeal for the purposes of that application. That concession was, in my view, correctly made.

5. For the foregoing reasons, the Court granted the application for a stay.

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