Lawrence & Hanson Group Pty Ltd v Young
[2016] VSCA 69
•12 April 2016
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0059
| LAWRENCE & HANSON GROUP PTY LTD (ACN 080 350 812) | Appellant |
| v | |
| JOHN STANLEY YOUNG and MARY ANNE YOUNG | Respondents |
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| JUDGES: | TATE and BEACH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 12 April 2016 |
| DATE OF JUDGMENT: | 12 April 2016 |
| MEDIUM NEUTRAL CITATION: | [2016] VSCA 69 |
| JUDGMENT APPEALED FROM: | Young v Lawrence & Hanson Group Pty Ltd (Unreported, Supreme Court of Victoria, Rush J, 9 June 2015) |
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PRACTICE AND PROCEDURE – Application for a stay of appeal – First respondent declared bankrupt – Pending applications for leave under s 58(3) of the Bankruptcy Act 1966 (Cth) – Effect of proposed appeal against decision of the Magistrates’ Court dismissing the claim for monies alleged to be owed by the first respondent – Application for stay granted.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr D G Robertson QC with Mr M T Lapirow | Davies Moloney |
| For the First Respondent | No appearance | |
| For the Second Respondent | Mr A Herskope | Kalus Kenny Intelex |
THE COURT (EX TEMP):
Application for a temporary stay of proceedings
The appellant, Lawrence & Hanson Group Pty Ltd, has brought an appeal against a ruling of Rush J made on 9 June 2015 ordering the removal of a caveat from land that was co-owned by John and Mary Young, the first and second respondents to the appeal, respectively. The caveat had been lodged by the appellant, Lawrence & Hanson Group Pty Ltd. Its interest as a caveator was based upon a charge that was created over all of John Young’s real and personal property arising from a guarantee and indemnity that John Young had given when he entered into a credit application agreement for the supply of electrical trade goods to a company, Railway Works Products & Services Pty Ltd (‘Railway Works’), of which John Young was a director.
The appeal is brought pursuant to leave granted by Kyrou JA and Ginnane AJA on 21 October 2015.[1]
[1]Lawrence & Hanson Group Pty Ltd v John Stanley Young and Mary Anne Young [2015] VSCA 284.
On 20 November 2015 Magistrate Smith in the Magistrates’ Court of Victoria at Melbourne heard proceeding No F10081791 which L & H Group had issued for the recovery of a debt of $70,276.70 which it claims it is owed by John Young. The debt allegedly arises from the same guarantee and indemnity given by John Young as a director of Railway Works to which we have referred.
On 2 February 2016 a sequestration order was made against the estate of John Young by the Federal Circuit Court[2] and Clyde Peter White and David Charles Quin were appointed trustees of the bankrupt estate of John Young.
[2]Proceeding No MLG 2525/2015.
On 26 February 2016 Magistrate Smith handed down his decision and dismissed the claim against John Young on the basis that L & H Group had no standing to sue.
The appellant now seeks a stay of the appeal until:
(i)the determination of the application to the Federal Circuit Court in proceeding No MLG629/2016:
(a) that the applicant have leave to the extent necessary pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth) to commence a proceeding, namely an appeal against the decision of the Magistrates’ Court of Victoria made on 26 February 2016 in proceeding No F10081791;
(b) that Lawrence & Hanson Group Pty Ltd have leave to the extent necessary pursuant to s 58(3)(b) of the Bankruptcy Act 1966 to continue its appeal against the order of the Supreme Court of Victoria made by the Honourable Justice Rush on 9 June 2015 in proceeding No SCI 2015 02465 in accordance with the leave granted by the Court of Appeal on 21 October 2015 in proceeding No S APCI 2015 0059; and
(ii) the determination of the appeal against the decision of the Magistrates’ Court of Victoria made on 26 February 2016 in proceeding No F10081791.
The application in the Federal Circuit Court has been listed for hearing on 19 April 2016.
Removal of a caveat and enforcement of a guarantee
When John Young made his application for credit, on the credit application form the seller was referred to as ‘L & H Group, a limited partnership carried on by Lawrence & Hanson Group Pty Ltd and Carlo SAS, a limited liability company incorporated in France’. The identity of the ‘seller’ was a matter of some significance in the Magistrates’ Court proceedings.
As mentioned, a caveat was lodged by Lawrence & Hanson Group Pty Ltd over land co-owned by John and Mary Young. This was on 14 October 2014. The land is described in Volume 8190 Folio 033, being 12 Baxter Street, Eltham (‘the Eltham property’). The ‘grounds of the claim’ in the caveat was specified as:
Charge contained in an agreement with the following parties and date.
Parties
John Stanley Young
08/04/2014
Estate or Interest Claimed:
Interest as Chargee
Prohibition:
Absolutely
The Eltham property was subject to two mortgages in favour of Morlend Finance Corporation (Vic) Pty Ltd (‘Morlend’) and other caveats.
Railway Works was wound up on 11 December 2014 by a resolution of its creditors.
On 6 May 2015 Morlend served notices on the Youngs requiring repayment of the amounts secured over the Eltham property by the Morlend mortgages. On 7 May 2015 the ANZ Bank offered Advanced Infrastructure Services Pty Ltd (‘AIS’) a business mortgage loan of $975,000 (‘the ANZ facility’). Mary Young is the sole director and shareholder of AIS. The ANZ facility was conditional upon the removal of all the caveats and Mary Young granted a first registered mortgage over the Eltham property as security. The ANZ facility was to be disbursed in repayment of the Morlend mortgages, payment to certain caveators but not including Lawrence & Hanson Group Pty Ltd, and for the purchase of a further truck to be used to produce business income.
On 25 May 2015 John and Mary Young filed an originating motion seeking the removal of the caveat based upon the charge arising from the credit application agreement pursuant to s 90(3) of the Transfer of Land Act 1958. They claimed that the caveat was too wide in that by describing the prohibition on dealing with the Eltham property as ‘absolute’ it interfered with the right of Mrs Young to deal with the property in circumstances in which she had not given her consent to the continuation of the caveat. It was also alleged that John Young had entered into the guarantee and indemnity agreement by mistake in that he had not understood what a charge meant and would not have signed it if he had understood its effect.
Rush J agreed that the scope of the caveat was too wide and wrongly interfered with Mary Young’s right to deal with her interest in the Eltham property. His Honour said that although it was unnecessary for him to go on to consider the balance of convenience he did so and determined that the balance of convenience favoured the removal of the Lawrence & Hanson Group Pty Ltd caveat because obtaining the ANZ facility was critical to the Youngs remaining in business, paying their debts and retaining the family home. He did not deal with the question of whether John Young had given the charge by mistake because this was a matter he was told was to be decided in the Magistrates’ Court proceedings.
The proceedings in the Magistrates’ Court had been commenced on 8 January 2015. L & H Group obtained judgment by default. The default judgment was set aside. More relevantly, the Magistrates Court has now heard and determined the proceeding. In the event, the defence of mistake was not pursued. There was no defence challenging the validity or enforceability of the guarantee and no defence was maintained with respect to the quantum of the claim. The only ground on which the debt was resisted was that the named plaintiff, L & H Group, did not have standing to sue.
Magistrate Smith accepted that the named plaintiff, L & H Group, did not have standing to sue. John Young successfully relied on two certificates which evidenced that as at 12 March 2013 a limited partnership was registered on 30 August 2000 named L & H Group between Lawrence & Hanson Group Pty Ltd as general partner and Sonepar Asia Pacific Limited as limited partner. By comparison, as mentioned, the ‘seller’ named on the credit application form, signed by John Young, was L & H Group, a limited partnership carried on by Lawrence & Hanson Group Pty Ltd and Carlo SAS. The magistrate observed that a limited partnership only acquires a legal personality in accordance with s 52 of the Partnership Act1958 which provides:
A limited partnership is formed on the registration of the partnership under this Part as a limited partnership.
John Young submitted before the magistrate that there was no evidence that the seller as described in the credit application form was in fact a properly registered limited partnership and, even if it was, was not and could not be the same entity as described in the certificates of 12 March 2013. The magistrate accepted that over time there can be a change in the identity of partners but held that here there was no evidence that Sonepar Asia Pacific Limited assigned its partnership rights and obligations to Carlo SAS. Mr Robertson, who appeared on behalf of the appellant this morning, has confirmed that there is no allegation of assignment. The magistrate held that there was no evidence that there was any change of partners after 12 March 2013 and that, in the absence of proof, the plaintiff ‘as currently styled’ had not established that it has standing to maintain the action and therefore the complaint must be dismissed.
L & H Group has foreshadowed an appeal to the Supreme Court against the decision of the magistrate on several grounds, including the proposed ground that the magistrate failed to provide an opportunity to it to join appropriate parties.
The grounds of appeal relied on with respect to the appeal against the ruling of Rush J include the grounds that the judge ought to have found that the caveat claimed only an interest under a charge created by John Young and forbade only the registration of any instrument affecting Lawrence & Hanson Group Pty Ltd’s interest under the charge created by John Young, and that the balance of convenience favoured the retention of the caveat. In essence, the appellant argues that although the prohibition in the caveat was expressed in thoroughgoing terms, it only restrained John Young’s interest alone although it did that ‘absolutely’.
Principles governing a temporary stay of proceedings
It is recognised under s 30 of the Supreme Court Act 1986 that the Supreme Court has power to grant a stay of proceedings, both permanent and temporary.
Here only a temporary stay is sought.
It has been acknowledged in the authorities, most especially in the judgment of Lockhart J in Sterling Pharmaceuticals Pty Ltd v The Boots Company (Australia) Pty Ltd,[3] that there is a substantial difference between an application for a permanent stay and one for a temporary stay. Lockhart J said that in the case of an application for a temporary stay of proceedings the court’s general power to control its own proceedings enabled it to order a temporary stay ‘where proceedings are pending in another court and it is desirable that those proceedings should proceed to their conclusion first’.[4] He pointed to a range of relevant factors to be taken into account including:
[3](1992) 34 FCR 287, 290.
[4]Ibid 290.
· Which proceeding was commenced first;
· Whether the termination of one proceeding is likely to have a material effect on the other;
· The public interest;
· The undesirability of two courts competing to see which of them determines common facts first;
· How far advanced the proceedings are in each court;
· A recognition that the law should strive against permitting multiplicity of proceedings in relation to similar issues;
· Generally balancing the advantages and disadvantages to each party.[5]
[5]Ibid 291.
These factors were applied by Finkelstein J in Bella Products Pty Ltd v Creative Designs International Ltd[6] where his Honour remarked that ‘for obvious reasons, it is undesirable that two courts should determine the same dispute’[7] and that ‘practical considerations based on common sense and fairness should dictate which action should proceed first’.[8]
[6](2009) 258 ALR 538, 543 [22].
[7]Ibid 543 [23].
[8]Ibid.
Common sense and fairness
The Magistrates Court proceeding was commenced first in time (8 January 2015) to the proceedings brought for the removal of the caveat (25 May 2015). Most significantly the Magistrates’ Court proceeding deals with the question as to the existence of a debt allegedly owed by John Young and the identity of the entity to whom that debt is owed.
If the proposed appeal against the decision of the magistrate is unsuccessful, there will be no utility in the appeal in this Court proceeding. This is because there would be no debt for the appellant ultimately to recover in the enforcement of the charge which supports the caveatable interest.
On the other hand, if the appeal against the magistrate is successful, the issues with respect to the width of the caveat, and other matters, will remain alive in the appeal in this Court.
It is clear that the issues in the Magistrates’ Court proceeding and the appeal in this Court are intertwined. Further, it is at least arguable that the appellant, Lawrence & Hanson Group Pty Ltd, being a general partner in the registered partnership of L & H Group, itself had the legal capacity to lodge the caveat.
In our view, the termination of the Magistrates’ Court proceeding would have a direct impact on the termination of the proceeding in this Court, that is, this appeal.
Furthermore, perhaps the most significant consideration applicable here is that, since the ruling made by Rush J, John Young has been declared a bankrupt. While the sequestration order was made on 2 February 2016, the date of the act of bankruptcy was 2 November 2015. By reason of s 58(3) of the Bankruptcy Act, after a debtor has become a bankrupt, it is not competent for a creditor, relevantly, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding except with the leave of the Court and on such terms as the Court thinks fit.
The appellant has, quite properly, sought leave from the Federal Circuit Court to commence an appeal against the decision of the magistrate and to continue its proceeding in this Court. Mr Robertson accepted that it was arguable, and perhaps only arguable, that leave to proceed was necessary for the appellant to proceed in this Court on the appeal. In any event, given the relationship between the issues to be determined in the Magistrates Court and in the appeal in this Court, in the absence of leave to commence an appeal against the magistrate, the appellant would not seek to continue with this appeal as there would be little or no utility in its doing so. The practical effect of the restriction under s 58(3) of the Bankruptcy Act is that, unless a temporary stay of proceedings is granted, the appeal before this Court will be at an end.[9] This means that Mary Young, by resisting the stay, if successful, would in effect force the appellant to abandon its appeal. In our view, it cannot be said that the appeal is without merit. Given that observation, the coerced abandonment of the appeal would create a very serious disadvantage to the appellant.
[9]See Commonwealth Bank of Australia v Shannon [2016] NSWSC 53, [8] (Hall J).
On the other hand, as the caveat has been removed and the ANZ facility has been provided, any delay in the hearing of the appeal is not of obvious disadvantage to Mary Young.
Conclusion
In all the circumstances, we consider that it is desirable that the leave to proceed application in the Federal Circuit Court, and the appeal from the Magistrates’ Court, should proceed to their conclusion first before the hearing of the appeal in this Court.
We note that the trustees in bankruptcy have indicated that they neither consent to, nor oppose, leave being granted to proceed by the Federal Circuit Court. They have not communicated their position with respect to the stay.
In the circumstances, we would grant the stay that is sought.
The Orders of the Court are:
(1) There be a stay of the appeal until:
(i) the determination of the application to the Federal Circuit Court in proceeding No MLG629/2016:
(a) that the applicant have leave to the extent necessary pursuant to s 58(3)(b) of the Bankruptcy Act 1966 to commence a proceeding, namely an appeal against the decision of the Magistrates’ Court of Victoria made on 26 February 2016 in proceeding No F10081791;
(b) that Lawrence & Hanson Group Pty Ltd have leave to the extent necessary pursuant to s 58(3)(b) of the Bankruptcy Act 1966 to continue its appeal against the order of the Supreme Court of Victoria made by the Honourable Justice Rush on 9 June 2015 in proceeding S CI 2015 02465 in accordance with the leave granted by the Court of Appeal on 21 October 2015 in proceeding S APCI 2015 0059; and
(ii) the determination of the appeal against the decision of the Magistrates’ Court of Victoria made on 26 February 2016 in proceeding No F10081791,
or until further order.
(2) The appellant inform the Registry of the Court of Appeal by no later than 10 December 2016 of the status of the appeal against the decision of the Magistrates’ Court of Victoria made on 26 February 2016 in proceeding No F10081791.
(3) The costs of the application for the stay heard today be costs in the appeal.
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