Lesses v Maras (No 2) - [2016] SASC 140

Supreme Court of South Australia
(Civil: Application)
LESSES v MARAS (NO 2)
[2016] SASC 140
Judgment of The Honourable Justice Doyle (ex tempore)
18 August 2016
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA
The respondent successfully sued the appellant in defamation. The appellant commenced an appeal, and the respondent sought and was granted security for costs. The appellant now seeks a stay of execution of the judgment and costs order pending the determination of the appeal.
Held (per Doyle J), granting the application:
1. Proper reason to grant a stay of execution pending appeal exists.
Supreme Court Civil Rules 2006 (SA) r 300; Enforcement of Judgments Act 1991 (SA) s 17; Bankruptcy Act 1966 (Cth) s 120, s 121; Law of Property Act 1986 (SA) s 86, referred to.
Lesses v Maras [2016] SASC 117; Philip Morris (Australia) Ltd v Nixon [1999] FCA 1281; Technilock (Aust) Pty Ltd v Mondami Pty Ltd [1999] SASC 94; Landmark Operations Ltd v J Tiver Nominees Pty Ltd [2009] SASC 14; Ryan v Urban Construct (SA) Pty Ltd (No 2) (2012) 114 SASR 410; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 3) [2014] SASC 148; Wu v Li [2014] FCA 297; Re Geard; Ex Parte Reid (1994) 217 ALR 191; Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264; Burns v AMP Finance Ltd [2004] FCA 1094, considered.

LESSES v MARAS (NO 2)
[2016] SASC 140
Civil
DOYLE J (ex tempore):

The plaintiff (Mr Maras) brought defamation proceedings against the defendant (Mr Lesses). Those proceedings were successful, and on 21 April 2016 the Court entered judgment in favour of the plaintiff in the amount of $75,000. On 15 June 2016, the Court ordered that the defendant pay 90 per cent of the plaintiff’s costs of the action on an indemnity basis.
The defendant has appealed both orders, and on 26 July 2016 I ordered that the defendant provide security for the plaintiff’s costs of that appeal by way of payment of $25,000 into Court.[1] The payment of security has been made. However, the defendant has not paid the plaintiff anything towards the judgment sum or the costs order.
[1] Lesses v Maras [2016] SASC 117.
The defendant now seeks a stay of execution of the judgment and costs order pending the hearing and determination of his appeal. These are my reasons on the stay application.
Principles governing a stay of execution pending appeal
Under r 300 of the Supreme Court Civil Rules 2006 (SA), while an appeal does not operate to stay execution of a judgment pending appeal, the Court may grant a stay “for any proper reason.” An equivalent power exists under s 17 of the Enforcement of Judgments Act 1991 (SA).
The principles governing the grant of a stay of execution pending appeal are well known, and are not in dispute.
In short, the Court has a discretion to grant a stay, and if so, as to the terms of that stay. While it is not necessary to establish special or exceptional circumstances, the party seeking a stay must demonstrate a proper reason, or appropriate case, to warrant the exercise of the discretion to grant a stay in his or her favour. The mere filing of an appeal will not suffice. Rather, the Court generally proceeds from the starting point that the decision below was correct, and hence that the party who has been successful at trial is entitled to the benefit of their judgment. However, from this starting point, the Court exercises a broad discretion which entails consideration of the competing rights of the parties, any prejudice likely to be suffered by either party in the event that a stay is or is not granted, and the overall balance of convenience.[2]
[2] Philip Morris (Australia) Ltd v Nixon [1999] FCA 1281 at [17]; Technilock (Aust) Pty Ltd v Mondami Pty Ltd [1999] SASC 94; Landmark Operations Ltd v J Tiver Nominees Pty Ltd [2009] SASC 14; Ryan v Urban Construct (SA) Pty Ltd (No 2) (2012) 114 SASR 410 at [17]-[18]; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 3) [2014] SASC 148 at [6]-[8].
Merits of the appeal
An applicant for a stay will generally need to establish at least that he or she has an arguable case on appeal, or that it raises serious issues for determination and is not merely an attempt to delay payment of the judgment debt.[3]
[3] Ryan v Urban Construct (SA) Pty Ltd (No 2) (2012) 114 SASR 410 at [18]; Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 3) [2014] SASC 148 at [7]-[8].
Some consideration of the merits of the appeal is thus appropriate. However, given the nature and timing of this application it is neither possible nor appropriate to undertake a detailed assessment of the merits. It is sufficient for present purposes that I adopt the observations I made as to the nature and merits of the appeal in my reasons on the application for security for costs.[4] In short, I concluded that the appeal is not hopeless. It is a bona fide appeal with at least some prospects of success. On the other hand, given the nature of the issues on the appeal, I was not able to say more than that the prospects of success were moderate.
[4] Lesses v Maras [2016] SASC 117 at [4], [13].
In my view, while there is sufficient merit in the appeal to enliven the discretion to order a stay (or at least not weigh against the grant of a stay), the merit of the appeal is a neutral factor in the circumstances of this case.
Defendant’s Financial Position
Turning to the issue of the prejudice the parties might suffer, and the balance of convenience, I made some findings on the security for costs application in relation to the defendant’s financial circumstances. In particular, I found that he was impecunious, with no real estate registered in his name and no wage or salary.
I also mentioned that it was accepted that back in February 2012 the defendant transferred his interest in two pieces of real estate into the names of his wife and sons. The first property was the matrimonial home in which he and his wife continue to live. It was transferred into the name of his wife on 17 February 2012. The second property was the family holiday home. It was transferred into the names of his wife and sons on 13 February 2012.
With a view to having these transactions set aside, the plaintiff has commenced bankruptcy proceedings against the defendant. In particular, a bankruptcy notice was issued in respect of the judgment debt on 23 May 2016. On 9 June 2016 the defendant applied to the Federal Circuit Court of Australia for an order extending the time within which to comply with that bankruptcy notice until seven days after the determination of the defendant’s appeal in these proceedings. This application is listed for hearing tomorrow, 19 August 2016.
Potential prejudice to the defendant
In terms of the prejudice that he might suffer were I to decline to order a stay of execution, the defendant contends that in light of his impecuniosity he will likely suffer a sequestration order, and action or proceedings to set aside the property transfers with a view to realising sums to meet the judgment and costs orders. If those proceedings were to succeed, then there would be irreversible prejudice to the defendant in the sense of the loss of his matrimonial home and residence, and the family holiday home.
Given the likely time involved in progressing the contemplated set aside proceedings, I do not think it is likely that they will progress to the point of any irreversible harm of the type contemplated occurring before finalisation of the appeal in these proceedings. Further, were they to progress more quickly than I anticipate, or the appeal in these proceedings to progress more slowly than anticipated, then this is a matter that could be addressed at the relevant time in the future.
More realistic is the shorter term prejudice likely to be associated with the bankruptcy proceedings and any sequestration order. The defendant says that will occur in three forms. First, the prejudice associated with the very fact of his being declared a bankrupt. Secondly, the fact that he will be subjected to significant stress and costs associated with bankruptcy proceedings and any ensuing bankruptcy, which will prejudice his ability to pursue his appeal. Thirdly, the likely loss of control of the right to prosecute the appeal upon a sequestration order, at least without the approval of the trustee in bankruptcy.
In my view, while not individually of great significance, the combination of these three matters does constitute material prejudice that will be experienced by the defendant if a stay is not granted. I note in this context the decision of the Foster J in Wu v Li[5] granting a stay of execution in circumstances where the prejudice relied upon by the party seeking the appeal was the threat of bankruptcy.
[5] Wu v Li [2014] FCA 297 at [50]-[51]. See also Essential Beauty Franchising (WA) Pty Ltd v Pilton Holdings Pty Ltd (No 3) [2014] SASC 148 at [13]-[14].
Potential prejudice to the plaintiff
It is of course also necessary to take into account any prejudice likely to be suffered by the plaintiff in the event I were to order a stay. The plaintiff points to the delay in his ability to enforce judgment against the defendant, and the potential prejudice to his ability to seek (through a trustee in bankruptcy) to have the 2012 property transfers set aside. He relies upon the latter in distinguishing Wu v Li.
As to the period of delay, this can be addressed to some extent by requiring as a condition of any stay that the defendant undertake to prosecute his appeal with all reasonable expedition. I see no reason why the appeal could not be heard in the October sittings of the Full Court. On this basis, the delay is likely to be measured in months – perhaps up to about six months – rather than any period longer than this. In my view, this delay is not particularly significant in the overall scheme of this litigation.
As to the plaintiff’s contention that the delay has the potential to jeopardise his prospects (through the defendant’s putative trustee in bankruptcy) of having the February 2012 property transfers set aside, on my understanding of the situation, the potential prejudice is somewhat speculative, and would not in any event occur until February 2017.
By way of explanation, the plaintiff envisages reliance upon s 120 of the Bankruptcy Act 1966 (Cth). While that section operates to render a transfer at an undervalue void as against the transferor’s trustee in bankruptcy, it is subject to certain temporal constraints. Relevantly for the purposes of this case, if the defendant’s wife and sons could establish that the defendant was solvent at the time of the transfers, then the section only operates in respect of transfers in the period four years prior to the commencement of the bankruptcy. Otherwise, the section would operate in respect of transfers in the period five years prior to the commencement of the bankruptcy.
As the impugned transfers in this case occurred on 13 and 17 February 2012, a period of four years has already passed, and the period of five years will end in February next year. As the plaintiff accepts, it follows from this that his prejudice is contingent upon two matters. First, the defendant’s wife and sons being unable to establish his solvency in February 2012. Secondly, the appeal not being determined prior to 5 February 2017.[6]
[6] This is the relevant date because the extension of time sought in the bankruptcy proceedings is until seven days following the hearing and determination of the appeal. Implicit in this is an acknowledgment that any subsequent bankruptcy will be taken to have commenced upon the date of the earliest act of bankruptcy committed by the defendant – which it is contemplated will be non-compliance with the bankruptcy notice within the (extended) time for compliance with that notice.
As to the first of these matters, I am not in a position to make any finding as to whether or not the defendant was solvent as at February 2012. While the plaintiff has foreshadowed an argument to the effect that any consideration of the defendant’s solvency should take into account his prospective liability for defamation, it is not clear to me that the authorities relied upon would go as far as is suggested. Putting the debt arising from these proceedings to one side, while acknowledging that there is a possibility the defendant was not solvent back in February 2012, there is nothing to indicate to me that this is more than a possibility.
As to the second of these matters, I accept that the Full Court hearing the appeal cannot be held to a deadline of 5 February 2017. However, there will likely be an opportunity to address this concern if necessary. In particular, if judgment on the appeal has not been delivered by late January 2017, then it will be possible for the plaintiff to seek to have the matter called on in order to revisit the position.
There is a third consideration. Even if the plaintiff’s rights under s 120 of the Bankruptcy Act are somehow compromised through the effluxion of time while a stay is in force, there may be other avenues open to the plaintiff (through the trustee in bankruptcy). There is the possibility of proceedings under s 121 of the Bankruptcy Act, or under s 86 of the Law of Property Act 1986 (SA). While such proceedings would require proof that the transactions were designed to defeat creditors, they are an option that the plaintiff may wish to pursue, and which would not be constrained by the temporal limitations applicable under s 120 of the Bankruptcy Act.
In my view, the net effect of the considerations mentioned above is that the prejudice asserted on behalf of the plaintiff is relatively speculative in nature.
Further, and in any event, to the extent that the potential for the contemplated prejudice does exist, it will in my view be largely addressed by the undertakings that counsel for the defendant has indicated he is instructed to give (on behalf of his client, and his client’s wife and sons) in the event that I am prepared to order a stay, namely:
(i)that the defendant’s wife will forthwith execute and register in the Lands Title Office a memorandum of transfer effecting a transfer in favour of the defendant of a one half interest in the matrimonial property, with that property to then be held as tenants in common as to a 50 per cent interest each;
(ii)that the defendant will not (and will give an undertaking to the Federal Circuit Court that he will not) transfer, mortgage, charge or otherwise deal with his interest in the matrimonial property until further order of the Court; and
(iii)that the defendant’s wife and sons will not transfer, mortgage, charge or otherwise deal with their interests in the family holiday property until further order of the Court.
Noting that the plaintiff already has security for the costs of the appeal in the amount of $25,000, the defendant contends that the effect of these undertakings is to provide adequate security for the plaintiff’s judgment and costs of trial. In this respect, the defendant relies upon the Valuer General’s assessment of the value of the matrimonial property in the amount of $730,000. The defendant contends that the 50 per cent interest that he will have in this property as a result of the first undertaking will be sufficient to meet any sum ultimately owing by him, and hence to address any prejudice on the part of the plaintiff.
The plaintiff, on the other hand, suggests that 50 per cent of $730,000 (i.e. $365,000) is likely to be inadequate. Bearing in mind that the trial was a relatively long one (approximately two weeks), and that the plaintiff was awarded 90 per cent of his costs on an indemnity basis, the plaintiff has formulated a claim for costs in the amount of slightly in excess of $365,000. The plaintiff contends that once allowance is made for the judgment sum, as well as the possible need to engage in sale and partition proceedings involving the defendant’s wife in order to realise the value of the matrimonial property, the sum proffered by way of security for his judgment and trial costs is unlikely to be sufficient. The plaintiff contends that the defendant should be required, as a condition of any stay, to also arrange a transfer back to him of his interest in the family holiday property, noting that the only reason given by the defendant for not doing so was the existence of “stamp duty implications”, and adding that the plaintiff would be prepared to pay the stamp duty payable on the transfer back to the defendant of his interest.
While there may be a shortfall in the event that the appeal is unsuccessful and the plaintiff proceeds to execute his judgment and costs orders against the matrimonial home, I would not be inclined to make it a condition of any stay that there be a transfer of the defendant’s original interest in the family holiday property back into his name. In my view, the relatively speculative nature of the prejudice relied upon, together with the significant level of protection that will be afforded by the three undertakings referred to above, make this unnecessary.
Other matters relevant to the overall balance of convenience
There are two other matters that I should mention.
The first is the plaintiff’s contention that the defendant’s delay in bringing this application for a stay, and the fact that it is brought for the purpose of assisting in obtaining an extension of the time for compliance with the bankruptcy notice, should militate against a stay being ordered. I do not agree. While the application could have been brought more promptly, relative to both the commencement of the appeal and the commencement of the bankruptcy proceedings, I do not regard the time that has passed as suggesting any significant level of culpable delay on the part of the defendant. Further, I do not regard it as relevant that the purpose of the application for a stay was to assist in obtaining an extension of time for compliance with the bankruptcy notice. The intended and legitimate purpose of a stay of execution is to prevent steps being taken by a judgment creditor to enforce their rights in a manner that might be prejudicial to the judgment debtor’s interests. Seeking a stay for the purpose of assisting in obtaining an extension of time for compliance with a bankruptcy notice falls within these intended and legitimate purposes for seeking a stay. Indeed, as some of the authorities considering applications for extensions of time for compliance with a bankruptcy notice have suggested, it is desirable and expected that there will be an application for a stay of execution to the relevant appeal court when the existence or pendency of the appeal is to be relied upon in support of an application for an extension of time.[7]
[7] Re Geard; Ex Parte Reid (1994) 217 ALR 191, as applied in Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 at 269-270 and in subsequent decisions, including Burns v AMP Finance Ltd [2004] FCA 1094 at [17]-[19].
Finally, the plaintiff also contends that the bankruptcy court is the better forum for determination of the competing interests of the parties. In some circumstances this submission will carry some force. For example, in circumstances where the judgment debtor seeking a stay has numerous competing creditors, or their financial position is complicated or involved, it may be appropriate to have the position of the judgment creditor addressed by the bankruptcy court in the broader context of those considerations rather than on an application for a stay of execution. However, in this case there is no suggestion in the evidence of any other significant creditors, or any complications with the defendant’s financial position beyond the 2012 transfers of the two properties that I have mentioned. In my view, it is appropriate, if not preferable, that the balancing of the relatively narrow considerations relevant in this case be addressed by the Court in which the judgment is being appealed. That is particularly so in circumstances where this Court has already had to give some consideration to the merits of the appeal and the financial position of the defendant in the context of the earlier application for security for costs.

Further, this submission overlooks the statements in the authorities from the bankruptcy courts (mentioned above) indicating an expectation that a stay of execution will be sought in the court hearing the appeal prior to any application to extend time for compliance with a bankruptcy notice based upon the judgment under appeal, and that the failure to do so may weigh against the grant of an extension of time.
Conclusion
For the reasons set out, I am prepared to order a stay of execution of the judgment and costs order in these proceedings pending hearing and determination of the appeal, on condition that the defendant (and his wife and sons as relevant) provide undertakings to the following effect are proffered to the Court, namely:
(i)that the defendant will prosecute his appeal with all reasonable diligence;
(ii)that the defendant’s wife will forthwith execute and register in the Lands Title Office a memorandum of transfer effecting a transfer in favour of the defendant of a one half interest in the matrimonial property, with that property to then be held as tenants in common as to a 50 per cent interest each;
(iii)that the defendant will not (and will give an undertaking to the Federal Circuit Court that he will not) transfer, mortgage, charge or otherwise deal with his interest in the matrimonial property until further order of the Court; and
(iv)that the defendant’s wife and sons will not transfer, mortgage, charge or otherwise deal with their interests in the family holiday property until further order of the Court.
I do not make it a condition of the stay that the defendant give any further undertaking in respect of the family holiday property.
I will hear the parties as to the precise form of the undertakings and orders, and the issue of costs.