NB2 Pty Ltd v P. T. Ltd

[2017] NSWCA 257

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	NB2 Pty Ltd v P. T. Ltd [2017] NSWCA 257
Hearing dates:	9 October 2017
Date of orders:	13 October 2017
Decision date:	13 October 2017
Before:	Macfarlan JA
Decision:	(1)   Order that enforcement against NB2 and Mr Basile of the orders made by McDougall J on 5 May 2017 be stayed until the determination of their appeal to this Court.  (2)   Order that the costs of the motion for a stay be costs in the appeal.
Catchwords:	APPEAL – application for stay of enforcement of orders pending appeal – appeal likely to be rendered nugatory if stay not granted – stay granted
Legislation Cited:	Conveyancing Act 1919 (NSW) Uniform Civil Procedure Rules 2005 (NSW), r 51.44
Cases Cited:	Alexander v Cambridge Credit Corporation Ltd [1985] 2 NSWLR 685 Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383
Category:	Procedural and other rulings
Parties:	NB2 Pty Ltd (First Applicant) Nicholas Basile (Second Applicant) P. T. Ltd (Respondent)
Representation:	Counsel: P W Gray SC / A M Hochroth (Applicants) A Fernon (Respondent)   Solicitors: THOSH Legal (Applicants) Holding Redlich (Respondent)
File Number(s):	CA 2017/134046
Decision under appeal	Court or tribunal: Supreme Court Jurisdiction: Equity Citation: [2017] NSWSC 484 Date of Decision: 7 April 2017 Before: McDougall J File Number(s): SC 2014/249580

Judgment

1. HIS HONOUR: This is an application by NB2 Pty Ltd (“NB2”) and Mr Nicholas Basile for a stay of enforcement of orders that McDougall J made on 7 April 2017 in PT Limited v NB2 Pty Limited ([2017] NSWSC 484, to give effect to his Honour’s judgment of 31 March 2017 in the same matter ([2017] NSWSC 309).

2. The orders were made in proceedings brought by P. T. Ltd and two other companies (“PT”), the owners of the Westfield Shopping Centre at Miranda, for rent owing by NB2 under a lease of Shop 2082 in the Centre. Mr Basile and Mr Michael Panetta were also sued under their guarantees of performance by NB2 of its obligations under the lease. In response, NB2 and the guarantors contended that NB2 was induced to enter into the lease by PT’s misleading or deceptive, or unconscionable, conduct.

3. NB2 sold fresh fruit and vegetables by retail from the premises. It alleged in the proceedings before McDougall J that, in the course of negotiations for its lease, PT in effect represented that NB2 would be the only retailer of fresh fruit and vegetable produce in the Centre, apart from Woolworths (which was located at the other end of the Centre). The primary judge rejected this case, primarily upon the basis that any relevant representation did not extend beyond one that NB2 would be the only independent fresh food and vegetable retailer. As a result, his Honour held that the entry of Franklins supermarket, located close to NB2’s shop, into fresh food and vegetable retailing did not entitle NB2 to any relief. Similarly, his Honour rejected NB2’s alternative case that PT engaged in unconscionable conduct because during the lease negotiations with NB2, PT was allegedly aware that Franklins intended to retail fresh fruit and vegetables and did not disclose that to NB2.

4. In light of the nature of this application, it has not been possible for me to form any firm views about the appeal’s prospects of success. All that can be said, on the basis of my limited knowledge of the issues to be agitated on appeal, is that whilst the appeal does not appear to be hopeless, it nevertheless does not appear to be strong.

5. The primary judge directed entry of judgment against NB2 and the guarantors in the sum of $3,968,848.13. Subsequent to entry of judgment, bankruptcy notices were issued to Mr Basile and Mr Panetta, and a statutory demand was served on NB2. On 23 June 2017 the primary judge, by consent, granted a stay of enforcement of his orders pending determination by this Court of an application to it for a further stay.

6. The appeal in the matter is listed for hearing on 28 November 2017.

7. A pending appeal does not automatically operate as a stay of enforcement of the orders made in the court below. However the Court has power under r 51.44 of the Uniform Civil Procedure Rules 2005 (NSW) to grant a stay.

8. To obtain a stay it is not necessary for an applicant to establish that special or exceptional circumstances exist. Nevertheless, an applicant bears the onus of demonstrating that there is a proper basis for a stay (Alexander v Cambridge Credit Corporation Ltd [1985] 2 NSWLR 685 at 694). Further guidance for the exercise of the Court’s discretion to grant a stay was provided in Cambridge Credit as follows:

1. “Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay” (at 694).

2. “Where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay” (at 695).

9. In making their application for a stay, NB2 and Mr Basile relied upon the following statement made by this Court in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [21]:

“In the present cases if stays are refused the judgment creditor would be free to serve statutory demands and proceed to winding-up. The prosecution of the appeals would then be stayed automatically and the stays would continue unless and until the liquidator elected to prosecute the appeals. The directors would lose control of the litigation and the creditors, including the judgment creditor, would have a say in any decision to proceed.”

10. NB2 and Mr Basile contend that, in this fashion, their appeals will be rendered nugatory if a stay is not granted. In this respect, they rely on evidence that NB2 has liabilities that exceed its assets by more than $11 million, and that Mr Basile has no significant assets. Thus they contend that if PT is permitted to enforce its judgment, it is likely that Mr Basile will be made bankrupt and that an order for the winding up of NB2 will be made. They contend that they would therefore lose control of the appeal, effectively rendering it nugatory.

11. PT’s response to these contentions is to point to significant asset dispositions made by Mr Basile after the entry of judgment at first instance and shortly before he provided information to this Court about his financial position. Mr Basile’s initial statements of his financial position did not disclose these transactions. It was only after they were identified by PT that Mr Basile filed affidavits referring to them.

12. The first two transactions comprised the sale of Mr Basile’s approximate half share interests in two properties at Putney. Both interests were transferred to Mr Basile’s wife in consideration of Mrs Basile assuming certain identified liabilities of Mr Basile. The Real Property Act transfer documents recorded the value of the consideration given by Mrs Basile in respect of the two interests to be $1,737,500 and $990,000 respectively.

13. The third and fourth transactions involved the sale of two food retailing businesses by a company in which Mr Basile indirectly held a substantial interest to companies owned and controlled by his daughter, Christina. A valuation utilised for the purpose of the transfers asserts that the businesses did not have any value as going concerns. Under the transactions, the purchasers were to assume certain obligations concerning stock and debts of the businesses, but were not to pay any cash consideration.

14. PT vehemently criticises these transactions and their non-disclosure. It contends that it has a strong case for the transactions to be set aside under s 37A of the Conveyancing Act 1919 (NSW) on the basis that they were made with intent to defraud creditors, particularly PT.

15. In response, NB2 and Mr Basile point to the liabilities referable to the assets which were the subject of these transactions. First, there is a total of $3,882,079 in bank facilities secured on the two properties, as compared to the valuations totalling $5,475,000 obtained in relation to the two properties for the purposes of the transactions. On this basis, the net equity of Mr and Mrs Basile in the two properties was $1,592,921, of which Mr Basile was entitled to half (approximately $796,000). As to the food retailing businesses, PT disputes the reliability of the valuation referred to in [13] above, but there is no alternative evidence available from which the Court could infer that the businesses had any positive value.

16. The result is that, even if the transactions criticised by PT were to be reversed, Mr Basile and NB2 would be nowhere near able to satisfy the judgment of nearly $4 million in favour of PT. That would remain the position even if Mrs Basile’s half shares in the two properties were treated as available to pay PT.

17. It may be that PT has been prejudiced by the transactions, but it seems to me undeniable that it is not the transactions which have rendered NB2 and Mr Basile unable to satisfy the judgment. They were in that position before the transactions occurred.

18. In these circumstances, I do not consider that it is necessary, or indeed desirable, that I express any view as to the proprietary of the transactions or their non-disclosure. Their occurrence is a matter to be weighed in the exercise of my discretion as to the grant of a stay, but I do not regard them as tipping the balance in PT’s favour. Rather, I consider that the likelihood that the appeal will be rendered abortive if the judgment below is able to be enforced is decisive. As a result, I consider it appropriate to grant a stay.

19. I make the following orders:

1. Order that enforcement against NB2 and Mr Basile of the orders made by McDougall J on 5 May 2017 be stayed until the determination of their appeal to this Court.

2. Order that the costs of the motion for a stay be costs in the appeal.

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Decision last updated: 13 October 2017