Oakmont Properties Pty Ltd v Duan Lan Zhang
[2019] VSC 568
•16 July 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2019 00794
| OAKMONT PROPERTIES PTY LTD (ACN 106 786 010) | Appellant |
| v | |
| DUAN LAN ZHANG & LING HE | Respondents |
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| JUDICIAL REGISTRAR | Clayton JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 July 2019 |
DATE OF JUDGMENT: | 16 July 2019 |
CASE MAY BE CITED AS: | Oakmont Properties Pty Ltd v Duan Lan Zhang & Anor |
MEDIUM NEUTRAL CITATION: | [2019] VSC 568 |
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PRACTICE AND PROCEDURE – Application for stay of VCAT order – Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 r4.08 – Whether special or exceptional circumstances – Circumstances in which appeal rendered nugatory – Relevance of appellant’s impecuniosity – Relevance of possible insolvency of appellant – Application for security for costs order – Burden of proof – Whether order for security for costs would stultify the litigation – Relevance of financial circumstances of persons standing behind appellant company.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Whitten QC | Thomson Geer Lawyers |
| For the Defendant | Mr J Twigg QC with Mr T Sedal | Luna & Xia Lawyers Pty Ltd |
JUDICIAL REGISTRAR
Introduction
The appellant, Oakmont Properties Pty Ltd (‘Oakmont’) seeks leave to appeal a decision of the Victorian Civil and Administrative Tribunal (‘VCAT’). The VCAT proceeding concerned a domestic building dispute between the builder, Oakmont, and the respondent owners (‘the Zhangs’). Oakmont has sought a stay of the orders of VCAT, which is opposed by the Zhangs, who have brought their own application for security for costs.
Background
On 29 April 2014, the parties entered into contracts for the building of two houses at 7 Page Street, Balwyn North (‘7 Page Street’) and 9 Page Street, Balwyn North (‘9 Page Street’). The terms of each contract were substantially identical (albeit with a small price difference) and the build was expected to take approximately 12 months.
Work commenced on the properties around 11 July 2014 but was not completed within the 12-month time frame. On 11 November 2015, Oakmont met with Alex Zhang, the Zhangs’ son, and the parties agreed to revise the completion dates to 14 December 2015 for 9 Page Street and 15 February 2016 for 7 Page Street. The parties also amended their agreement to include the provision of liquidated damages for delay.
It is common ground that the parties fell into dispute and that, on or around 10 March 2016, Oakmont suspended works. There is substantial disagreement between the parties as to who repudiated the contracts, each party alleging that the other party had repudiated. VCAT ultimately determined that Oakmont had repudiated the contracts. In any event, Oakmont did not complete the construction of either property, although 9 Page Street was substantially finished.
In total, the Zhangs had paid Oakmont an amount in excess of two million dollars. According to the reasons of VCAT dated 28 March 2019, the amount was $2,180,815 which included a sum for overruns, although there is a suggestion by the Zhangs that the plaintiff’s points of claim and profit and loss statements show that the amount paid was in fact $2,246,769.
During the running of the proceeding at VCAT, Oakmont claimed, in the alternative:
(a) $894,256 on a quantum meruit basis;
(b) $573,980 for the cost of works done by Oakmont as assessed by Oakmont’s expert; or
(c) $204,628.05 for work performed and calculated in accordance with the contract but not paid.
By counterclaim the Zhangs sought:
(a) reimbursement of amounts paid for reaching a fixing stage that was not reached on 7 Page Street;
(b) costs incurred for final works on 9 Page Street;
(c) an amount of around $54,000 for rectification of defective work; and
(d) damages for delay; or
(e) interest on loans that were not discharged because of delay; and
(f) liquidated damages pursuant to the amended November 2015 agreement.
On 29 January 2019, after twenty days of hearing, and after considering expert evidence and numerous spreadsheets setting out the various payments made and costs incurred, the VCAT member determined that the Zhangs owed Oakmont an amount for unpaid work, and that Oakmont owed the Zhangs an amount comprising costs incurred to complete the two properties over and above the contract price, delay damages and liquidated damages. The member offset those amounts, with the net result that Oakmont owed the Zhangs $172,177. In subsequent orders made on 28 March 2019 (‘the March orders’), the member determined that the actual amount owed by Oakmont to the Zhangs, taking into account some recalculation and interest, was $270,217.
Oakmont applies in this Court for a stay of the March orders. The Zhangs oppose the stay of those orders and apply for security for costs. The applications originally came before me on 12 June 2019 pursuant to a referral order of Justice Ginnane dated 12 June 2019. During that hearing, Oakmont sought an adjournment to put on further material to establish its impecuniosity. I allowed the adjournment and the hearing of the applications resumed on 8 July 2019.
Oakmont’s Case
In support of its application for a stay, Oakmont relies on the following material:
(a) an affidavit of Mr Marchant dated 24 April 2019 (‘the first Marchant affidavit’);
(b) an affidavit of Mr Just, the sole director of Oakmont, dated 24 May 2019 (‘the first Just affidavit’);
(c) an affidavit of Mr Marchant dated 26 June 2019 (‘the second Marchant affidavit’); and
(d) an affidavit of Mr Just dated 27 June 2019 (‘the second Just affidavit’).
In his first affidavit, Mr Just says that he started Oakmont as a business in 2003. When it started, Oakmont would purchase existing properties, demolish them and rebuild new houses on the land which would then be sold. Between 2003 and early 2012, Mr Just estimates that Oakmont had redeveloped “around 5 properties in total”. He had also built new homes for two private clients.
In 2012, Mr Just took a break from Oakmont and worked as a site manager for Lloyd Group. His affidavit does not specify when he returned to Oakmont but says that “to the best of my recollection since 2012 I have completed 6 contract builds under the Oakmont name”. Those six properties include 7 Page Street and 9 Page Street.
It is not clear from Mr Just’s affidavit whether, in addition to contract builds, Oakmont has continued to purchase and redevelop properties.
Mr Just says that prior to falling into dispute with the Zhangs, the “total revenue” for Oakmont for 2015 was $3,157,000 and for 2016 was ‘$3,874,000’. He says that “Oakmont has suffered direct losses in the sum of $894,256 being the cost of work done and material supplied to the Zhangs in respect of the works carried out by Oakmont under the Contracts less the amounts paid by the Zhangs”. He goes on to say that he has incurred substantial legal and expert fees and other losses that “are not as tangible”. His evidence about these less tangible losses is that he has invested an enormous amount of personal time providing instructions to solicitors for the purpose of the dispute which meant he was not able to spend time sourcing new work for Oakmont. He says that “the losses which Oakmont has sustained” made it difficult for Oakmont to financially manage new building projects. He attributes this to the need for builders to have access to substantial cash reserves to commence and manage building projects, which he does not have. He then says, “I attribute the decline in Oakmont’s business to the dispute with the Zhangs for reasons set out above”. He says that the dispute has taken an “enormous personal toll”, that it has caused stress and anxiety for him and his family, and that he has had to lay off staff, move offices, relocate his home from Kew to Mornington which has a cheaper cost of living, his children have had to change schools and his wife has had to return to work. He says that the Zhangs “do not appear to be suffering from any financial hardship as a result of this appeal or the dispute”, and provides some information about another property which he believes is owned by the Zhangs and which has been developed into two “large and quite luxurious homes” which he estimates would be valued at “around $8 million to $9 million” as evidence of this assertion.
In his second affidavit, Mr Just exhibits the tax returns and financials of Oakmont between 2015 and 2017, a profit and loss statement and balance sheet for 2018 and Oakmont’s most recent bank statement. Mr Just says that, save for the project with the Zhangs, Oakmont’s projects have all generated a gross profit typically between 3% and 13%. He has loaned money to Oakmont in the amount of $760,704, of which $350,367 has been loaned since 1 July 2015. He says his “personal resources have been well and truly exhausted”. He says that Oakmont does not actively advertise but relies on word of mouth and reputation as well as his personal efforts to seek out and identify suitable projects. He says that this dispute negatively impacted other projects due to cash flow difficulties and the negative impression created of Oakmont’s ability to work through and resolve disputes with developer clients. He says that the immediate impact on the cash flow caused by the dispute meant that it became difficult for Oakmont to carry out its obligations in other projects it was undertaking. He says that the stress occasioned by, and time spent engaging with solicitors and dealing with the dispute had a negative impact on Oakmont’s performance as he had less time, desire and energy to commit to other projects. Other projects were completed more slowly than they otherwise would have been. Oakmont completed a project for a developer at Boorool Road but was not asked to work on the next project with the same developer. Mr Just attributes this fact to a deterioration in his relationship with that developer because he was in dispute with the Zhangs and did not devote “the same attention and resources to completing that project”. He says he has been unable to operate at “much beyond a subsistence level for the past 18 months duration of the trial and its aftermath”.
The thrust of Mr Just’s evidence is that the declining fortunes of Oakmont between 2015 and the present are attributable to the Zhangs, either directly as a result of the lack of cash flow from unpaid work and legal costs, and/or indirectly because Mr Just was unable to devote the level of attention and energy to other projects that would have been required to obtain positive word of mouth referrals or to be re-engaged for further projects with the same developers.
In his second affidavit, Mr Marchant, solicitor for Oakmont, says that Oakmont is indebted to Thomson Geer for legal fees in the amount of $518,135.78 and that Thomson Geer has reached an agreement with Oakmont that Oakmont will cover counsel and filing fees and Thomson Geer will not seek recovery of other legal costs pending the outcome of the litigation. He says that he is “of the firm belief” that if Thomson Geer had not reached this arrangement with Oakmont, Oakmont would not be able to pay the legal costs associated with this appeal and Oakmont’s pursuit of the appeal would be stultified.
Oakmont’s arguments in support of the stay and in opposition to the grant of an order for security for costs overlap. In summary, Oakmont’s position is that it is impecunious and that, if a stay were not granted, it would not be able to meet the judgment debt against it. In the absence of any evidence from the respondent that they do not intend to enforce the judgment, the Court should assume that the judgment would be enforced, which would inevitably result in Oakmont being wound up and placed in the hands of a liquidator. Were that to happen, the question of whether the appeal continues would be a matter for the liquidator. Even if the appeal were to continue, the appeal would be rendered nugatory as success on appeal could not return Oakmont to its former position.
Oakmont submits that it has at least arguable grounds of appeal. Counsel for Oakmont submitted that there are at least two discrete bases upon which Oakmont would be likely to succeed on appeal:
(a) firstly, that the VCAT member committed a legal error by failing to provide any analysis of the purported termination of the contract by the owners on the basis of an invalid notice; and
(b) secondly, that the VCAT member fell into legal error in finding that the builder had repudiated the contract by suspending works upon an assertion of being owed a certain amount of money. The member found that the builder was owed money by the owners, albeit not in the amount asserted by the builder, and it was a clear legal error to find that simply miscalculating the amount owed could amount to repudiatory conduct.
Oakmont says that given that there is a real risk that the appeal would be rendered nugatory if a stay were not granted, and that they have reasonable prospects of success on appeal, the stay is warranted. Further, there is no demonstrable prejudice to the respondents, as interest will continue to accrue on the judgment and there is no evidence that the respondents are under any financial strain.
In relation to the application for security for costs, Oakmont says that the requirement to provide security would result in stultification of the appeal as it is impecunious. Although Mr Just’s affidavits lay the blame for Oakmont’s impecuniosity at the feet of the Zhangs, Counsel did not put this higher than to say that this dispute with the Zhangs is the only one in which Oakmont has been involved and it has drained the financial resources of Oakmont and the personal energy of Mr Just.
Mr Just has personally leant amounts of more than $700,000 to Oakmont, and, on his evidence, he has no further resources with which to assist Oakmont. There is also a loan to Oakmont from another entity, Stonecastle Pty Ltd, though no further information about this loan was before the Court. It is clear that Oakmont has required support. In addressing the requirement that the Court be satisfied as to the circumstances of the persons behind the company who stand to benefit from the litigation as adopted by the Court of Appeal in Livingspring Pty Ltd v Kliger Partners[1], Counsel for Oakmont submitted that Mr Just’s affidavit evidence was the extent of his instructions in that regard. Counsel said that the lack of evidence as to Mr Just’s personal financial position ought not be fatal to Oakmont’s resistance to the application for security, but is a matter to be weighed in the exercise of the Court’s discretion.
[1](2008) 20 VR 377.
The Zhangs’ Argument
In support of their application for security for costs, and in opposition to the application for a stay, the Zhangs rely on the following:
(a) affidavit of Anna Helen Sango dated 24 April 2019;
(b) affidavit of Domenico Paquale Luna dated 24 April 2019; and
(c) affidavit of Ming Zhi Xian dated 4 July 2019.
The affidavit of Ms Sango, an expert costs consultant, sets out her estimate of the likely legal costs and disbursements to be incurred by the respondent in defending the appeal.
The affidavit of Mr Luna sets out the basis upon which the Zhangs assert that the threshold for obtaining an order for security for costs has been met, as Oakmont has not paid the judgment debt, has not provided security when asked to do so, and owns no real property in Victoria.
The affidavit of Mr Xian says that, on 27 June 2019, he conducted an ASIC search of Stonecastle Pty Ltd, a company identified in the first affidavit of Mr Just as having loaned money to Oakmont. That search showed that Mr Just is the sole director and secretary of Stonecastle Pty Ltd.
Mr Xian also says that, on 27 June 2019, he conducted a search of ownership of Victorian property by Mr Just which showed he owns a property in Lydia Court, Deepdene. A title search of that property conducted on 27 June 2019 shows that Mr Just acquired that property on 4 April 2017. A search conducted on 3 July 2019 on indicated that the purchase price for that property was $3,200,000. Mr Xian exhibits further documents which he says demonstrate that the property is being developed by Oakmont and that it is likely to have a selling price between $8,700,000 and $9,500,000.
Mr Xian says that at the VCAT hearing Mr Just gave evidence that a property in Severn Street, Balwyn, was built by Oakmont in around 2015 for the benefit of Oakmont or its shareholders, and that it had sold at auction in late 2015 for $3,775,000. A title search of that property from 23 August 2018 shows that at the time of sale it was owned by Stephen and Lisa Just.
Mr Xian says that, based on these facts, the Court should be satisfied that Oakmont continues to perform building work to redevelop land owned by Mr Just or Mr Just and his wife.
Counsel for the Zhangs submitted that, in relation to the stay application, the prospect that the appeal may be rendered nugatory must be balanced against the principle that the successful party is entitled to the fruits of the judgment. The circumstances where an appeal may be rendered nugatory are largely confined to cases where there is evidence that the respondent would not be able to repay the judgment sum plus interest. In this case, the Zhangs would be able to repay the judgment sum and there is no evidence to the contrary. There is no evidence that, if the stay were not granted, Oakmont would be wound up, and the Court should resist the invitation to speculate about what may or may not happen in that regard. It is not for the Zhangs to establish that the company would not be wound up, but rather for Oakmont to establish that it would be. There is no evidence before the Court that any person has made any application or statutory demand to wind up Oakmont.
Counsel submitted that Oakmont could not establish that the jurisdiction of this Court was invoked as Oakmont had not demonstrated that there was any question of law to be determined. The conclusion of VCAT regarding repudiation and acceptance of repudiation is a question of fact, and Oakmont will be unable to demonstrate that there was any error of law in arriving at the determination of that question of fact. The merits of the action were wholly within the jurisdiction of VCAT, and Oakmont will be unable to establish that there was an absence of evidence from which VCAT could reach its conclusions. The finding by VCAT that Oakmont’s demand for an amount it was not entitled to was repudiatory conduct demonstrates no error of fact or law.
In relation to the application for security for costs, Counsel submitted that Oakmont has failed to establish that it would be unable to continue its appeal, and that granting the application would result in stultification. If Oakmont wants to rely upon an argument that awarding security would stultify the litigation, it bears the burden of establishing that fact. Similarly, if Oakmont seeks to establish that the Zhangs have caused its impecuniosity, it bears the onus of proving that allegation. It has not discharged its burden in either regard.
Counsel noted that Mr Marchant’s second affidavit showed that Oakmont was continuing to pay its own counsel and filing fees, and on the Zhangs’ assessment counsel fees alone would amount to over $90,000 for the appeal. Oakmont does not dispute the amount of security sought. There has been no explanation of how Oakmont intends to pay for the disbursements it will incur in running this appeal.
Further, there is no authority for the proposition that the Court ought to have regard to the costs of running litigation instigated by Oakmont as a factor in causing or contributing to Oakmont’s impecuniosity.
On the basis of the material provided by Oakmont, which only goes back to 2015, Oakmont made a net profit of $9,217 in that year but carried forward losses of around $530,000. It is therefore clear that at some time prior to 2015 it had traded into loss.
In the years after 2015, Oakmont ran at a loss and was supported by loans from Mr Just and Stonecastle. The company’s ability to trade has always, on the basis of the records, been in the hands of Mr Just. Although in 2018 there was around $400,000 owing in ‘Accounts Payable’, there is no evidence as to who any of those creditors are, or whether any of those creditors have taken any action against the company.
There is no evidence after 2018 as to the financial position of Oakmont. The picture provided by Mr Just in relation to Oakmont is simply not complete. It is clear that Oakmont continues to trade.
Counsel submitted that, if Oakmont seeks to establish that the appeal would be stultified if security were granted, it is critical that Mr Just provide personal financial statements. He has chosen not to do so and is instead relying on an assertion that his resources are ‘well and truly exhausted’. He failed to disclose that he owns a property purchased in April 2017 for a sum in excess of $3,000,000. There is insufficient evidence before the Court to conclude that Oakmont would be unable to pursue its appeal if security were granted.
In relation to the allegation that the Zhangs caused Oakmont’s impecuniosity, Counsel said there is simply insufficient evidence for the Court to reach such a conclusion. The profit and loss statements and Plaintiff’s Points of Claim demonstrate that Oakmont’s earnings on the two Page Street properties was around $2,200,000 and its expenses were just under $2,000,000, resulting in a net profit of around 10%.
Counsel further submitted that there is no evidence to support Oakmont’s claim that it has suffered a direct loss of around $900,000. In fact, the evidence demonstrates that there was no loss at all.
Oakmont traded at a loss prior to and after 2015 and there is nothing to indicate that the Zhangs were responsible or contributed to any of those losses, other than the assertions of Mr Just.
There is no authority for the proposition that the Court should have regard to the personal toll that litigation has had on Mr Just. Both parties have participated in the dispute which was initiated by Oakmont. The end result was that Oakmont was substantially unable to prove its case and the Zhangs were able to prove that in fact they had incurred losses.
Counsel submitted that, even if the Court were satisfied that the appeal would be stultified if the security were granted, the Court nevertheless should grant security in the interests of justice as there is overwhelming evidence that Oakmont will not be able to pay costs if the Zhangs are successful.
Analysis
Application for the Stay
The principles governing the grant of a stay are well settled. See generally, Scarborough v Lew’s Junction Stores Pty Ltd;[2] Cellante v G Kallis Industries Pty Ltd (‘Cellante’);[3] Maher v Commonwealth Bank of Australia (‘Maher’);[4] Loftus v Australia and New Zealand Banking Group Limited (‘Loftus’);[5] He v Huang (‘He’);[6] Uren v Uren (‘Uren’).[7]
[2][1963] VicRp 20; [1963] VR 129.
[3][1991] VicRp 99; [1991] 2 VR 653.
[4][2008] VSCA 122.
[5][2016] VSCA 114.
[6][2017] VSCA 102.
[7][2017] VSCA 300.
Rule 4.04 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 provides:
Except as otherwise provided by any Act or Rule—
…
(c) the appeal or the application for leave to appeal shall not operate as a stay of proceedings unless the Court otherwise orders.
Rule 4.08 (1) provides that:
The Court may, in a proper case, grant a stay of proceedings under the order of the tribunal.
In deciding whether to order a stay, the Court is required to take into account all the circumstances of the case in exercising its discretion: Maher v Commonwealth Bank of Australia.[8] The party applying for the stay bears the onus of demonstrating that the stay is justified.[9] Ordinarily a successful party is entitled to the fruits of the judgment.[10]Generally the power to grant a stay will not be exercised unless the party seeking the stay can demonstrate special or exceptional circumstances.[11]
[8][2008] VSCA 122, [23].
[9]Maher [2008] VSCA 122 [20]; Loftus [2016] VSCA 114, [7].
[10]Maher [2008] VSCA 122, [20].
[11]Cellante [1991] VicRp 99; [1991] 2 VR 653, 656; Cellante [2017] VSCA 102, [49]–[51].
Beach J summarised the authorities’ approach to special circumstances in the matter of Quick v Lam-Ly Pty Ltd[12] (without citations):
Special circumstances may be found to exist where the applicant is able to demonstrate that there is a real risk that it will not be possible to restore the applicant substantially to his or her former position if the judgment against the applicant is executed before the conclusion of the appeal. However, the prospect that the appeal may be rendered nugatory must be balanced against a principal that the successful party is entitled to the fruits of its judgment.
In order to justify the grant of a stay, an applicant should also demonstrate that there is at least an arguable ground of appeal. That said, ordinarily, the court does not have before it sufficient materials to consider, in detail, the merits of the grounds of appeal relied upon in the application for leave to appeal. In such a case, unless there is no arguable ground of appeal, or the appeal is not bona fide, the court ordinarily will focus on matters relevant to the enforcement of the judgment, rather than matters that are relevant to its validity or correctness.
[12][2019] VSCA 111, [29].
Whilst the inability of a respondent to a stay application to repay the judgment sum if so ordered on appeal is one example of a circumstance that may render an appeal nugatory, I do not accept that the authorities envisage that this is the only circumstance to which a Court should have regard in determining an application for a stay. The prospect that an appellant company could be wound up if the judgment were enforced may result in an appeal being rendered nugatory, as the company could not be put back into the position it was in in the event of a successful appeal.
Therefore, the question is whether Oakmont has discharged its burden to establish that those special or exceptional circumstances exist.
Oakmont has provided documents titled ‘Tax Return & Financials’ for the financial years 2015, 2016 and 2017 which include profit and loss statements and account balances. For 2018, Oakmont has provided a Profit and Loss statement and Balance Sheet. The profit and loss statements for all years are partially redacted as to the addresses of certain properties. No explanation was provided for the redactions.
In addition to the above documents, Oakmont exhibited a Westpac Business One bank account statement which shows debits and credits to the account between 31 May 2019 and 20 June 2019. The closing balance in that account is $4,460.91. The account shows two deposits in the amount of $30,000 on 5 June 2019 and 13 June 2019 identified as transfers from Westpac Choice Claim 2 Deepdene, and a deposit from Pinnacle Roofing on 6 June 2019 in the amount of $11,000. Otherwise there are various withdrawals and, whilst it is not clear to what each withdrawal relates, many of the transactions appear to be consistent with a company operating a building business; for example, payments are identified for marble and ceramic, insulation and concrete. These transactions are consistent with the Zhangs’ claim that Oakmont is developing a property at Deepdene and Oakmont’s submission that it continues to operate.
There is no tax return for the 2018 financial year. The profit and loss statement and balance sheet for 2018 shows that the company made a loss of $179,005 with income of $492,459, total expenses of $426,296, operating expenses of $245,168 of which the single biggest component is $162,036 in legal expenses, work in progress of $177,000 and had total liabilities of $1,1482,247.
There is a lack of clarity in the material filed. There is no information about what, if any, work Oakmont currently has or expects to have in the future. There is no explanation as to how it accumulated losses of around $530,000 prior to 2015 if, as Mr Just says, it generally achieved a 3% to 13% profit on its projects. In each of the years 2015 to 2018, Mr Just was required to, and presumably did, sign the Director’s Declaration exhibited to his Affidavit which states that “In the Director’s opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable”. Given that Oakmont continues to trade, presumably Mr Just is still of the opinion that Oakmont is able to pay its debts as and when they become payable. There is no information about when those debts will become payable or what prospects there are that any creditor of Oakmont will seek to wind up Oakmont in the event that the debt cannot be paid. Setting aside the debts to Mr Just and Stonecastle Pty Ltd, Oakmont would appear to have current and non-current liabilities of $568,470. This amount does not include the sum of $518,135.78 which, according to the second Marchant affidavit, is owed by Oakmont to Thomson Geer.
There is a lack of information about why, given the significant liabilities incurred by Oakmont over the last 4 years, the requirement to pay the judgment sum will be the ‘tipping point’ which will inevitably result in the company being wound up.
Nevertheless, despite my misgivings about the completeness of the information provided to the Court, and a lack of candour by Oakmont about its position, I accept that, on the basis of the documents before the Court, it would not have the capacity to pay the judgment debt if the stay were not granted. I note that impecuniosity of an appellant, or the desire to avoid insolvency does not, on its own, necessarily constitute special circumstances.[13] Something more is required for the appeal to be rendered nugatory.
[13]Seifert v Chaudhary [2012] VSCA 17, [14] (Weinberg JA).
Whilst, for whatever reason, the debts incurred by Oakmont to date have not resulted in it being wound up, I accept that there is a real risk that the requirement to pay the judgment debt would have that result. Should Oakmont be wound up I accept that, even if it were successful on appeal, it would not be able to be returned to its former position. I accept therefore that there is a real risk, if a stay is not ordered, that the appeal would be rendered nugatory.
The applicant is required to establish that there is at least an arguable ground of appeal. Unless the appeal is not bona fide or there is no arguable ground of appeal, this is not a consideration that needs to be dealt with at length. I am satisfied on the basis of the Notice of Appeal and the submissions made by counsel for Oakmont that there is at least an arguable ground of appeal.
Accordingly, the stay should be granted.
Application for Security for Costs
I now turn to consider the application for security for costs. Pursuant to Order 62.02 (1)(b) of the Supreme Court (General Civil Procedure) Rules 2015, security for costs may be ordered where:
the plaintiff is a corporation…and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so.
Oakmont owns no property in Victoria and, according to the Affidavit material filed by Mr Just and Mr Marchant, is impecunious. There is no dispute between the parties that the Court’s jurisdiction is enlivened as, on the basis of the affidavit material filed, there are credible grounds to believe that Oakmont will be unable to pay the costs of the Zhangs if ordered to do so.
Did the Zhangs cause Oakmont’s impecuniosity?
Mr Just asserted in his affidavits that Oakmont’s impecuniosity was caused by the Zhangs. That assertion was not elaborated upon in submissions. In response to that, the Zhangs submit that the evidence before the Court demonstrates that the work Oakmont undertook on the two Page Street properties was in fact profitable for Oakmont. Any argument that the legal proceedings themselves have caused Oakmont’s impecuniosity is unsupported by the evidence and unsupported by any authority that the Court should consider this as a factor in exercising its discretion.
I find that there is no evidence at all before the Court to support a finding that the Zhangs caused or contributed to Oakmont’s impecuniosity.
Therefore, the principles relevant to consideration of the application are as set out in Derham AsJ’s decision of US Realty Investments LLC LLC #1 & Ors v Need.[14]
[14][2013] VSC 590, [21]-[31].
Whilst the burden rests on the defendant to persuade the Court that an order for security should be made, where a plaintiff claims that an order would impose such a financial obstacle to the plaintiff that it would stultify the litigation, the plaintiff bears the burden of establishing the facts to make good that assertion.[15]
[15]Livingspring Pty Ltd v Kliger Partners(2008) 20 VR 377, 383 [21]-[22].
The prospect that an arguable case would be stultified by an order for security has been considered at length in the authorities.[16] The Court would be reluctant to make an order that would confer a ‘victory’ on defendants without any contest.[17]
[16]See for example MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97; Drumdurno Pty Ltd v Braham (1982) 42 ALR 563; Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507; Excelsior Run Pty Ltd (in liq) v Nelius Pty Ltd [2001] VSC 161; Fiduciary Ltd v Morningstar Research Pty Ltd(2004) 208 ALR 564, 581-582 [72].
[17]Spiel v Commodity Brokers Australia Pty Ltd (in liq)(1983) 35 SASR 294, 301-2 (Bollen J); Fiduciary Ltd v Morningstar Research Pty Ltd(2004) 208 ALR 564, 581-582 [72].
Whilst stultification of a proceeding “usually operates as a powerful factor in favour of exercising the court’s discretion in the plaintiff’s favour”,[18] the authorities require that a company asserting that an order for security will frustrate the litigation also establish that “those who stand behind it and who will benefit from the litigation if it is successful … are also without means”.[19]
[18]Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542, 545 (Clarke J); See also Idoport Pty Ltd v National Australia Bank; [2001] NSWSC 744, [50] (Einstein J).
[19]Bell Wholesale Co Pty Ltd v Gates Expert Corp No 2(1984) 2 FCR 1, 4; adopted by the Victorian Court of Appeal in Livingspring Pty Ltd v Kliger Partners(2008) 20 VR 377.
As set out in my reasoning for granting the stay, I am satisfied that Oakmont is impecunious and is unlikely to be able to meet an order for security. The question I must then consider is whether that impecuniosity would stultify the litigation.
Financial circumstances of persons standing behind Oakmont
In the present case, Mr Just is the sole director of Oakmont and its single largest creditor. Prior to 3 April 2019, Mr Just and his wife, Lisa Just, were the sole shareholders in Oakmont.[20] After that time, the shares in Oakmont were transferred to Cassiobury Park Pty Ltd. Mr Just is the sole director, secretary and shareholder of Cassiobury Park Pty Ltd. The paid-up share capital of Oakmont is $50,200.[21]
[20]Affidavit of Domenico Paquale Luna dated 24 April 2019, [15].
[21]Ibid, [17].
Stonecastle Pty Ltd is also a creditor of Oakmont. Mr Just is the sole director and secretary of Stonecastle Pty Ltd.[22]
[22]Affidavit of Ming Zhi Xian dated 4 July 2019, [3].
A property search shows that Mr Just owns property in Deepdene which was purchased in 2017.[23] There is evidence from a real estate website that the purchase price of this property was in excess of $3,000,000.
[23]Ibid, [5].
Mr Just and his wife also owned a property in Balwyn which was sold for an amount of $3,775,000 in late 2015.[24]
[24]Ibid, [9]-[10].
Mr Just is clearly a person who stands behind Oakmont and who would benefit from success in the appeal.
Other than his assertions that “my personal resources have been well and truly exhausted”,[25] and that he has had to relocate his family from Kew to Mornington, that his wife has had to return to work and that his children have had to change schools, there is no information at all from Oakmont as to Mr Just’s financial circumstances. The only information about Mr Just’s financial circumstances has come from the Zhangs. That evidence does not support a finding that Mr Just is impecunious.
[25]Affidavit of Mr Stephen Andrew Just dated 27 June 2019 (‘the second Just affidavit’), [10].
Oakmont is required to not only raise the issue of Mr Just’s own impecuniosity, but to establish the necessary facts. I do not accept that Mr Just’s assertions in his affidavits amount to evidence sufficient to establish the necessary facts. I cannot be satisfied that Mr Just, a person who stands to benefit from the litigation, does not have the means to provide security for Oakmont. I am therefore not satisfied that Oakmont has established that granting security would stultify the litigation.
As this was the sole basis upon which an order for security was opposed, I grant the application for security.
Amount of Security to be Ordered
The Zhangs provided to the Court a report of Helen Sango, costs consultant, setting out her estimate of the likely costs to be incurred in the hearing of the appeal.
The principles applicable to the amount of security and the approach to be taken by the Court are well established.[26]
[26]Oswal v Australia and New Zealand Banking Group Limited (Security for costs – Stage 2) [2016] VSC 119, [7]-[13].
They can be summarised as follows:
(a) the amount of security is within the Court’s discretion;[27]
[27]Procon (Great Britain) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368.
(b) the amount is that which the Court thinks just, having regard to all of the circumstances;[28]
(c) in ordering security, the Court does not set out to give the defendant a complete and certain indemnity for costs; [29] and
(d) the Court’s task is not akin to a taxation of the defendant’s probable costs.[30]
[28]Allstate Life Insurance Co v ANZ Banking Group Ltd (No 19) (1995) 134 ALR 187, 197.
[29]Premier Building and Consulting Pty Ltd v Spotless Group Ltd (No 7) [2005] VSC 275.
[30]Ibid.
Whilst the costs sought are at the higher end, having regard to all of the circumstances of this case, the lengthy hearing before VCAT and the likely work that will be required on appeal, the amount sought is not unreasonable. I note that it is not the role of the Court in awarding security to undertake a de facto taxation of probable costs. Oakmont submitted that, were security to be granted, it did not oppose the amount sought. I therefore award security in the amount sought.
I will hear the parties on the appropriate orders and on the question of the costs of these applications.
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