Mackay Leagues Club Ltd v Atlantic 3-Financial (Australia) Pty Ltd

[1998] QCA 437

IN THE COURT OF APPEAL	[1998] QCA 437
SUPREME COURT OF QUEENSLAND

Appeal No. 11448 of 1998

Brisbane

Before McMurdo P.
McPherson J.A.
Pincus J.A.

[Mackay Leagues Club Ltd. v. Atlantic 3-Financial (Aust) P/L]

BETWEEN:

MACKAY LEAGUES CLUB LIMITED
ACN 069 648 175

(Defendant) Applicant

AND:

ATLANTIC 3-FINANCIAL (AUSTRALIA) PTY. LTD.
ACN 056 262 723

(Plaintiff) Respondent

Appeal No. 11447 of 1998

[Re Mackay Leagues Club Ltd.]

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of MACKAY LEAGUES

CLUB LIMITED ACN 069 648 175

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 18 December 1998

1. On 7 December 1998 Williams J. delivered written reasons giving summary judgment for the plaintiff as mortgagee in an application for judgment for possession of premises known as the Prince of Wales Hotel owned by the defendant. His Honour also rejected a further application by

   the defendant to set aside a statutory notice of demand for $100,000, which had been issued by

   the plaintiff under the Corporations Law with a view to winding up the defendant corporation, which

   was conducting the hotel that is associated with the Mackay Leagues Club.

2. Not long after judgment delivered on 7 December, the defendant filed a notice of appeal

   to this Court in both matters. The notices of appeal before us are undated, but it may be assumed

   were filed on 10 December, which is the date of the two notices of motion now before this Court.

   One of them seeks a stay of the judgment for possession pending determination of the appeal. The

   other seeks an order restraining the making of an application to wind up “in reliance on failure to

   comply with the statutory demand dated 15 October 1998”. At the hearing before this Court, the

   defendant was, without objection, granted leave to amend the notice of motion to substitute

   “proceeding with” in place of “making” any application to wind up. It should be added that by 10

   December the plaintiff had already gone into possession of the premises pursuant to the judgment.

3. The sole ground of appeal is that at the hearing of the application on 26 November the

   primary judge should not have declined to accept what was said in an affidavit sworn on that day

   by Kevin Andersen, who is or was then one of the directors of the defendant. To explain the

   relevance of the affidavit, it is necessary to refer to an earlier and unsuccessful application for

   judgment by the plaintiff against the defendant, which was heard by Muir J. on 13 October 1998.

   The plaintiff is assignee of a mortgage, which is registered over the hotel land as no. 701244183,

   and which secures repayment by the defendant to the plaintiff of $1.4 million repayable on 27

   March 2001, with interest payable in the meantime. On the earlier application for summary

   judgment, the plaintiff relied on failure by defendant to pay Council rates on the mortgaged property and also on non-payment of a particular instalment of interest said to be due under the mortgage.

   Muir J. refused the application because, as regards the rates, there was evidence of an agreement

   having been made by the defendant with the Mackay City Council, which is the relevant local

   government authority. As to the interest, he held there was evidence that it was not due until

   October 1, 1998, which was after the writ had issued on 11 September 1998.

4. Following that setback, the plaintiff amended the statement of claim specially indorsed on

   writ, and, after serving it on or about 16 October, again applied for summary judgment. This was

   one of the two applications that came before Williams J. on 26 November which is the subject of

   the proceedings now before this Court. On that occasion, the plaintiff relied on the failure of the

   defendant to pay to the plaintiff a further sum of $100,000, which had been lent to the defendant

   pursuant to an agreement made on 1 April 1997. It was agreed by the parties that it should also

   be secured by mortgage no. 701244183. To this extent, there is no dispute. It is accepted that

   the money was the subject of the agreement to lend made on 1 April 1997, and it was in fact lent

   by being paid to the defendant or its solicitors on its behalf. However, when the application came

   to a hearing before his Honour on 26 November 1998, the defendant filed the affidavit by Kevin

   Andersen on behalf of the defendant which had been sworn only on that date. In it he claimed that

   the date for repayment of the loan of $100,000 had been deferred from 1 April 1998, which was

   the repayment date alleged in the amended statement of claim, until 27 March 2001 (which was the

   date for repayment of the principal sum of $1.4 million) by an orally agreed variation of the original

   terms of the loan agreement made on 1 April 1997. It is this sum of $100,000 that is also the

   subject of the statutory notice of demand issued with the object of winding up the defendant

   corporation.

5. His Honour declined to act on the evidence in the affidavit from Mr Andersen on the ground

   that it failed to raise a triable issue. He gave four reasons for doing so. They were: (1) that he

   would have expected the claim to have been raised in an earlier affidavit sworn by Andersen on 8

   October 1997 filed in opposition to the first application for summary judgment; (2) that Andersen

   had previously exhibited a letter dated 28 April 1998, and had done so on the basis that it set out

   the terms of the April 1997 agreement, without mentioning that repayment of the loan had later been

   deferred to March 2001; (3) that the allegation of the agreement to defer repayment was not

   pleaded in the amended defence and counterclaim delivered on 19 October; (4) that the assertion

   that the date for repayment had been deferred was contrary to all the other evidence, including

   contemporaneous documentation, of the agreement for the further loan of $100,000.

6. The defendant’s response is that, on the occasion of the plaintiff’s first summary judgment

   application, the matter of deferring repayment of the $100,000 was not in issue. As regards the

   third of the reasons given by his Honour, the defendant submitted before us that the learned judge

   had been mistaken in thinking that the amended defence and counterclaim was the defendant’s

   response to the plaintiff’s amended statement of claim delivered on 16 October 1998. On the

   contrary, the amended defence was delivered in answer to the plaintiff’s original statement of claim,

   which did not raise or rely on non-payment of the additional loan of $100,000 on 1 April 1998.

   What is perhaps not altogether consistent with this account of the matter is that the affidavit of Mr

   R.J. Clarke sworn on behalf of the defendant on 3 November 1998 in the application (numbered

   Misc. 28/1998; OA no. 4/1998) in the Corporation Law proceedings specifically describes (para.

   5) the sum of $100,000 as having been “included in respect to other proceedings on foot in the

   Supreme Court”, and then goes on to say (para.10) that the plaintiff (sic) “as disclosed by the amended defence ... clearly discloses that there is a bona fide dispute and proper grounds for

   defence”. Perhaps, however, the explanation is that it is the defendant’s contention that the debt

   arising from the additional loan of $100,000 was consolidated with the principal sum secured by

   the mortgage repayable on 27 March 2001. In para.9 of Mr Clarke’s affidavit, it is deposed that

   “the monies the subject of the statutory demand are monies included in the all monies mortgage”,

   and so are “clearly” part of the funds sought to be recovered in the specially indorsed writ which,

   in its amended form, is exhibited to Mr Clarke’s affidavit.

7. On the assumption, which is by no means certain, that the learned primary judge did make

   a mistake about the amended defence delivered on 19 October 1998, it would follow that the

   defendant has not yet delivered a defence to the plaintiff’s amended statement of claim. That itself

   is rather surprising having regard to the issues involved and the time that has elapsed since the

   plaintiff’s amended statement of claim was delivered. Moreover, the error, as it is said to be, does

   not affect the other reasons given by Williams J. for holding that no triable issue by way of defence

   had been shown. For example, the contemporaneous documentation included a document dated

   11 November 1997, executed by the defendant and entitled “Statement of Particulars of Proposed

   Loan”, which incorporated the statement “ ... interest payable in advance from 2 April 1997 for a

   term expiring on 1 April 1998”. At that time and thereafter the parties were acting through the

   medium of their solicitors in arranging that loan and the funds represented by it. What his Honour

   was nevertheless asked to accept is that, despite that document, Mr Andersen on behalf of the

   defendant “in or about March or April 1998” orally agreed with Mr Acker on behalf of the plaintiff

   “on the express basis that [the loan of] $100,000 was repayable when the capital payment under

   the mortgage became repayable (in 2001)”. According to Mr Andersen’s affidavit, a further discussion took place in early June 1998, in the course of which Acker “again reiterated his position

   and understanding in respect to the understanding of the $100,000”.

8. His Honour was entitled to be sceptical about evidence presented in terms as imprecise as

   these, particularly when the subject of the alleged agreement was or involved the variation of a

   registered security interest over land that had not previously been mentioned in any correspondence,

   affidavit, or pleading until it emerged in Mr Andersen’s affidavit sworn on the day of the hearing on

   26 November 1997. On the other hand, it would have been preferable if, on the hearing of the

   applications before this Court, Mr Acker’s version of those conversations had been placed before

   us. Although perhaps not material to the appeal itself, it would have been of some relevance to the

   exercise of the discretion whether or not a stay should be granted. We were informed from the Bar

   table by counsel for the plaintiff that Mr Acker was presently in New York, but that an affidavit

   from him could and would be filed in these proceedings. The question before us is not whether, on

   the appeal, the defendant would succeed in upsetting the decision refusing leave to defend the

   action; but whether it is appropriate to exercise the discretion to stay the proceedings consequent

   on the decision or decisions appealed against. As regards the proceedings under the Corporations

   Law, what the defendant now seeks from this Court is, in substance, not an application for a stay

   of execution, but an injunction to restrain the plaintiff from proceeding with an application for

   winding up.

9. As regards that application, the first problem confronting the defendant is that winding up

   proceedings have already been instituted. So far as those proceedings are concerned, it was

   candidly acknowledged by Mr Dutney Q.C. for the defendant that, on the hearing of the application

   to wind up, it would be open to the plaintiff to rely on evidence of the defendant’s insolvency apart from its alleged non-compliance with the statutory demand based on the alleged debt of $100,000.

   As to that, the evidence, which consists of the defendant’s financial statements for the year ended

   30 June 1998 makes the likely present position of the defendant very clear. At that date, it had

   current liabilities of $231,176.88 and current assets of $22,459.26. Over the preceding year, it had

   sustained a trading loss of $63,295.49. On June 30th, its non-current liabilities of $1,851,075.07

   exceeded non-current assets of $1,833,464.56. On that footing it was indisputably commercially

   insolvent on 30 June 1998, with little or no prospect of using its non-current assets as a source of

   security to obtain further funds on loan. Doing so would, in any event, only serve to increase the

   defendant’s liabilities without, so far as one can see, materially improving its ability to pay its debts

   as they fall due from its own money or readily realisable assets. Whether or not the defendant is

   proved to be insolvent is a question to be determined when the application to wind up comes to a

   hearing, which is expected to be on a date late in January 1999. On the material now before this

   Court its current financial position does not justify an order restraining the plaintiff from proceeding

   with the application to wind up that has already been instituted by the plaintiff. So far as creditors

   are concerned, the defendant has little or no goodwill or trading reputation meriting protection.

10. As regards the judgment against it for possession, the defendant’s position may be stronger.

    However, the question for this Court is not simply whether the defendant may, or even will,

    succeed in its appeal against that judgment. If it is in fact wound up before then, it will be a question

    for the liquidator to decide whether or not to proceed with the appeal. In Federal Commissioner

    of Taxation v. Myer Emporium Ltd. (No. 1) (1986) 160 C.L.R. 220, 222, Dawson J. said that

    the discretion to stay proceedings on a judgment:

    “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 an appeal ... Special circumstances justifying a stay will exist where it is necessary to prevent the appeal, if successful, from being nugatory”.

11. Originally, what was put forward by the defendant as justifying such a conclusion in the

    present case was that the staff employed by the business were “nervous, unsure and already looking

    for” other employment; that creditors and suppliers were unwilling to continue supporting the

    business; that members were “very unsure and insecure” about the future of the Club; that the

    current operator had no local knowledge of or understanding of the clientele of the Club; that people

    would have no confidence in a company being run by a mortgagee in possession; and that there

    were or would be difficulties in maintaining the gaming and liquor licences in respect of the

    mortgaged premises.

12. Affidavits read by the plaintiff on appeal suggest quite strongly that none of these problems

    have in fact developed since the defendant went into possession. A Mr Ian Dawson, who has

    considerable experience in the hotel trade, has been appointed supervising manager for the

    respondent, which took possession on 8 December 1988. Ms. Melanie Collins, who was

    previously the defendant’s manager and nominee, has continued to work there and is said to be

    “comfortable” working with Mr Dawson. All other members of staff have remained, apart from one

    who has accepted employment previously offered to her by someone else. Inquiries to the licensing

    and gaming control authorities have elicited a response suggesting that there will be no problems

    with the relevant licences or their transfer. There is a procedure by which interim authority can be

    obtained to operate a liquor licence, and the gaming licence is said in practice to be associated with

    it. A major supplier of liquor, which had previously refused credit to the defendant and insisted on

    payment in cash, has advised Mr Dawson that it will establish a credit account for supplying the hotel. Another supplier has said that his firm is also willing to supply liquor on credit now that the

    plaintiff is in control. Suppliers of other commodities are also said to be co-operating with the new

    management.

13. Mr Dawson is not aware of any appreciable down-turn in trade. One Club member

    advised him that he would not continue to drink in the Club, but he nevertheless returned and was

    seen to be drinking there on the following day. At a meeting with former directors of the defendant,

    which Mr Dawson was invited to attend, he was told that the staff were satisfied with the way the

    Club was being managed, and Mr Dawson was thanked for respecting the staff. One of those

    directors was said to have been Mr Kevin Andersen.

14. On the evidence there is no reason to suppose that, even if the defendant were to succeed

    in its appeal against the judgment given on 7 December 1998, the premises or the goodwill attaching

    to the hotel or its trade will have suffered during the interim. Indeed, on the material now before the

    Court, it may even have undergone some improvement. On any view of the matter, there is no basis

    for supposing that, if a stay is not granted and the appeal succeeds, it will prove nugatory.

15. The applications by the defendant to this Court should be dismissed with costs.

    IN THE COURT OF APPEAL

    SUPREME COURT OF QUEENSLAND

    Appeal No. 11448 of 1998

    Brisbane

    [Mackay Leagues Club Ltd. v. Atlantic 3-Financial (Aust) P/L]

    BETWEEN:

    MACKAY LEAGUES CLUB LIMITED
    ACN 069 648 175

(Defendant) Applicant

AND:

ATLANTIC 3-FINANCIAL (AUSTRALIA) PTY. LTD.
ACN 056 262 723

(Plaintiff) Respondent

Appeal No. 11447 of 1998

[Re Mackay Leagues Club Ltd.]

IN THE MATTER of the Corporations Law

- and -

IN THE MATTER of MACKAY LEAGUES

CLUB LIMITED ACN 069 648 175

McMurdo P.
McPherson J.A.

Pincus J.A.

Judgment delivered 18 December 1998

Judgment of the Court

APPLICATIONS DISMISSED WITH COSTS.

CATCHWORDS:	MORTGAGES - Recovery of possession - Primary judge granted respondent mortgagee summary judgment for possession of applicant’s premises and rejected applicant’s application to set aside statutory demand - Applicant sought stay of judgment for possession and order restraining the proceeding with of an application to wind up - Whether judge should have relied on affidavit - Whether triable issue.
Federal Commissioner of Taxation v. Myer Emporium Ltd. (No. 1) (1986) 160 C.L.R. 220.
Counsel:	Mr P. Dutney Q.C. for the applicant Mr H. Fraser Q.C., with him Mr D.D. Bates, for the respondent
Solicitors:	Stubbs Barbeler Grant for the applicant C.B. Darvall & Darvall for the respondent
Hearing Date:	14 December 1998