Rothmore Farms P/L (in Liq) v Belgravia P/L (No 4)
[2005] SASC 211
•10 June 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ROTHMORE FARMS P/L (IN LIQ) v BELGRAVIA P/L & ORS (No 4)
Judgment of The Honourable Justice Perry
10 June 2005
PROCEDURE
APPLICATION FOR STAY OF EXECUTION OF JUDGMENT
Application for stay of execution of a judgment - consideration of relevant factors - stay granted.
Enforcement of Judgments Act 1991 s 17, referred to.
State Bank of Victoria v Parry (1989) WAR 245; Norris v Hanson (1999) 73 SASR 53; Henderson v Amadio Pty Ltd (1966) 65 FCR 66, considered.
ROTHMORE FARMS P/L (IN LIQ) v BELGRAVIA P/L & ORS (No 4)
[2005] SASC 211Civil
PERRY J On 31 March 2005, judgment (“the damages judgment”) was entered in favour of the plaintiff against the first, fifth and sixth defendants, that is, Belgravia Pty Ltd (“Belgravia”), Noelene Michelle Cooper and Robert John Mills. The judgment was in the sum of $1,575,265.15 inclusive of interest to the date of judgment.[1] I will refer to those defendants hereafter as “the defendants”.
[1] See the reasons for judgment dated 30 March 2005 [2005] SASC 117.
By a notice for specific directions filed on 1 April 2005, the defendants sought, inter alia, the following directions:
1.Pursuant to s 17 of the Enforcement of Judgments Act 1991 (SA) and/or the inherent jurisdiction of this Honourable Court that, until further order, execution of the judgment made by the Honourable Justice Perry on 30 March 2005[2] be stayed; and
2.That, until further order, the plaintiff, whether by its servants agents or howsoever, be restrained from taking any action enforcing the judgment order made by the Honourable Justice Perry on 30 March 2005.
3.….
[2] This wrongly refers to the date of the reasons for judgment, rather than the date upon which it was entered.
That the defendants intended to apply for a stay of execution was made known at the time I delivered the damages judgment. In order to protect the defendants pending the determination of the application for a stay, I ordered that there be an interim stay of execution until further order, on an undertaking given by counsel for the defendants that they would not sell, dispose of or otherwise deal with their assets save for usual living expenses, until further order. The interim stay is still in force.
The proceedings have had a long and complicated history, following their institution in the Federal Court in 1998. I set out that history in the reasons for the damages judgment. These reasons are to be read together with those reasons.
I will not trouble to give any further reference to the facts of the matter, except to the extent necessary to understand these reasons.
In the proceedings, Rothmore Farms Pty Ltd (“Rothmore Farms”) successfully sued all six defendants for damages on the footing that they had been instrumental in wrongfully transferring assets out of the family trust known as the Jill Cooper Family Trust (“the Trust”), of which Rothmore Farms had been trustee.
By a series of transactions, Mr Turner and Agri-Steel Pty Ltd (“Agri Steel”), gained control of the assets of the trust, which they applied in the carrying on of a farming and engineering business.
The trial proceeded in two stages.
In the first stage, while the proceedings were still being conducted in the Federal Court and before the transfer of the proceedings to this Court, following a trial before Mansfield J, he held that Rothmore Farms was entitled to an equitable charge or lien over the assets of the trust which it was entitled to enforce against such of the trust assets as were then held by Mr Turner or Agri-Steel (“the trial judgment”).
After the matter had been transferred to this Court, an inquiry and account by a Master established what assets remained and the profits which had been made by their utilisation by Mr Turner and Agri-Steel.
I then conducted a further trial which led to the damages judgment.
The trial before me (“the damages trial”) proceeded only against the three defendants now in question, the defendants Tennyson Turner and Andrew Cooper having in the meantime been declared bankrupt, and the defendant Agri-Steel de-registered. The amount for which judgment was entered against the defendants following the damages trial was assessed by reference to the profits made by Mr Turner and Agri-Steel in their operation of the businesses, after Rothmore Farms had been displaced as trustee.
The basis upon which Rothmore Farms recovered against the defendants is that the defendants were guilty of a breach of fiduciary duty in various actions taken by them which facilitated the transfer of the trust assets to Mr Turner and Agri-Steel.
The effect of the transactions was to leave Rothmore Farms with a substantial debt owing to Commonwealth Bank of Australia and the Commonwealth Development Bank of Australia (together referred to as “the Banks”) with respect to advances made to Rothmore Farms, being advances utilised by it when, in its capacity as trustee of the trust, it was conducting the farming operation.
Rothmore Farms’ right of action against the defendants arose by reason of its right of indemnity against the trust assets. Those assets having been dissipated by the fraudulent transactions to which the defendants were party, the defendants were liable in damages.
In the view which I took in the damages judgment, the damages equated with the profits derived by the wrongful utilisation of the trust assets in carrying on the farming and engineering business, less expenses incurred and any recoveries made.
It was common ground that the entitlement of Rothmore Farms could not exceed the amount which it owed to the Banks. Before entering judgment, I satisfied myself that the amount owed to the Banks exceeded the amount for which judgment was entered. An affidavit sworn by Mr Ian Lock, an accountant in the employ of Mr John Sheahan, liquidator of Rothmore Farms, satisfied me that the then current indebtedness due to the Banks was properly calculated as follows:
$ Amount owed by the plaintiff to the Banks at the date of appointment of a provisional liquidator
2,154,143.44
Post-liquidation interest at the statutory rate of 8% pa
680,059.52
Less: Receipts in respect of security
778,038.73
Less: Distributions from liquidation of the plaintiff
397,538.47
Less: Repayment by Rothmore Farms of indemnity funding provided by the Banks to related administrations
77,487.77
Current level of indebtedness
1,581,137.99
The indebtedness due to the Banks arose after allowing for certain recoveries made following the sale of various parcels of land and items of plant over which the Banks held securities.
The sales were effected by Mr Sheahan in his capacity as trustee of the bankrupt estates of various members of the Cooper family, and as liquidator of Rothmore Pty Ltd (“Rothmore”), which held an interest in certain of the parcels of land the subject of the sales.
The defendants claim that Mr Sheahan was negligent and otherwise in breach of duties owed to the defendants with respect to the sale of the land and plant, with the result that the net proceeds of sale were much lower than would have been the case if they had been sold at prices equalling their proper value.
In the result, the defendants contend that the indebtedness to the Banks would have been extinguished were it not for his negligence and other breaches of duty.
On 1 October 2004, the defendants instituted proceedings (“the new proceedings”) against Mr Sheahan in this Court claiming damages, or alternatively, contribution with respect to the amount which they have been found liable to pay to Rothmore Farms in the present proceedings.
The application for a stay which is now before me, is advanced on the basis that the defendants should be given an opportunity to pursue the new proceedings, on the footing that should they be successful, any damages recovered will be applied towards the indebtedness of the Banks, which, if it is so applied, would preclude the issue of execution against them on the trial judgment in the present proceedings.
The arguments on the stay application
It was common ground that the grant of a stay pursuant to s 17 of the Enforcement of Judgments Act 1991 is a matter which lies entirely in the discretion of the court.
In some jurisdictions, the grant of a stay depends upon proof of “special circumstances”.[3] However, s 17, which I have quoted above, empowers the court to grant a stay if it is “satisfied that there is a proper reason for granting the stay”.
[3] See State Bank of Victoria v Parry (1989) WAR 245.
In Norris v Hanson,[4] Nyland J said, with reference to s 17:
… what is a proper reason will vary from case to case and each should be looked at on its own merits.[5]
[4] (1999) 73 SASR 53.
[5] Ibid at 56 [12].
In the course of argument, Mr Tilmouth QC of counsel for the defendants referred to the dictum of Heerey J in Henderson v Amadio Pty Ltd:[6]
The difference [from a requirement of showing special circumstances] may be more apparent than real since on any approach the party seeking a stay needs to show some reason the stay should be granted. I do not think, however, the circumstances need to be “special” or “exceptional” in the sense of being unusual or rare.
[6] (1966) 65 FCR 66 at 69
The new proceedings have proceeded to the stage of the filing of a statement of claim. No defence has yet been filed by Mr Sheahan.
It was suggested by counsel that this might make it difficult for me to perceive what the issues will be in the new proceedings. I do not think so. It is clear that Mr Sheahan denies any impropriety in the circumstances of the sale of the various parcels of land and plant, and denies that he sold them at an undervalue. Detailed affidavits filed on both sides with respect to the present application adequately illuminate the circumstances in which the various sales were effected.
It is unnecessary for me to go into the detail of those circumstances. That will be a matter for the trial judge when the new proceedings come on for hearing.
It is sufficient for me to say that while the defendants will face some difficult arguments in persuading the court that Mr Sheahan owed a duty of care to them in effecting the sales, the claims are neither frivolous nor lacking in substance. In my view, they are genuine claims which are, at the very least, arguable.
Of course, Mr Sheahan is not personally a party to the present proceedings. He is, however, liquidator of Rothmore Farms.
But the claims in the new proceedings do not proceed against him in his capacity as liquidator of Rothmore Farms.
In those circumstances, the question arises whether it would be proper to grant a stay of execution of a judgment in favour of judgment debtors, on the footing that they claim to have an arguable cause of action against a third party, being a stranger to the proceedings in which judgment was entered, based on transactions other than those the subject of those proceedings.
I accept that if a judgment debtor simply asserted the existence of a good claim against a third party and no more, ordinarily this would not be a proper reason for the grant of a stay of execution.
Here, however, the defendants contend that there is a close connection between the relevant transactions the subject of the present proceedings on the one hand, and the new proceedings on the other hand.
I agree that the circumstances giving rise to each action are intertwined.
If it had been proved in the damages trial that Mr Sheahan sold the land and plant at undervalue, and that a sale at a proper value would have extinguished the debt due to the banks, this would have had a significant impact on the ability of Rothmore Farms to recover in those proceedings.
For Rothmore Farms, Mr Whitington QC conceded that the disposal of the application is a matter for my discretion. He contended that the following matters should be considered in the exercise of the discretion and should lead to the rejection of the application.
They may be summarised as follows:
·The parties in the two actions are quite different and the subject of the two actions is disparate.
·There has been a very substantial delay by the defendants in propounding their claim in the new proceedings.
·In the intervening period there has been what Mr Whitington QC described as “some massive movements” of assets involving Mr Mills and entities associated with him.
·What Mr Whitington QC described as the “novelty” and potential weakness of the claim in the new proceedings.
·If the defendants pursue the new proceedings to a successful conclusion, there is no reason to suppose that they would not be able to recover on any judgment which they might obtain.
·Rothmore Farms will be prejudiced if an order is made in the terms sought, and if it has to wait until the conclusion of the new proceedings, which could be a relatively lengthy period, before being able to recover on its judgment.
I have carefully considered all of those matters. At the end of the day, they do not deflect me from the view that it is a proper case in which to grant a stay, subject to certain conditions.
In reaching that view, it is sufficient to observe that although the parties in the two actions are different and the subject matter of each action differs, the two actions are closely intertwined, for the reasons which I have explained.
Given the need for the defendants to put considerable resources and time into the defence of the proceedings in the Federal Court and their continuation in this Court, I do not think that the delay in prosecuting the claim which now finds expression in the new proceedings, is so substantial as to amount to a significant reason to refuse the present application.
In reaching that view, I accept that there was some expression of concern by the defendants at the time of the sales as to the amounts recovered.
With respect to the suggestion that there has been something sinister in terms of movement of assets by the defendants before making the present application, I have, as suggested by Mr Whitington QC, considered the affidavit of Mr Lock, sworn on 14 April 2005,[7] more particularly paragraphs 34, 35 and 36 of that affidavit.
[7] Court file document No 182.
The affidavit details what Mr Lock deposes to as the “current financial position” of the defendants. He refers to various certificates of title and shares in a company, Oberharz Pty Ltd.
About the only significant feature of those details is that a number of caveats have been lodged by Camatta Lempens, solicitors, no doubt to protect their entitlement to costs, against several of the titles.
As I put to Mr Whitington QC in argument, there is generally no restraint upon defendants dealing with assets before a judgment is entered against them, unless the circumstances warrant the making of a Mareva injunction. No such injunction has been sought in these proceedings.
I see nothing in the statement of the defendants’ financial position that adds any weight to Rothmore Farms’ opposition to the application. Any order for a stay will be made subject to undertakings to prevent disposal of assets following the making of the order, and pending judgment in the new proceedings.
While it is true that the new proceedings in some respects involve a somewhat novel claim, novelty is no indication that the proceedings may not raise an arguable claim. In my view, the proceedings are certainly not frivolous or vexatious. Mr Whitington QC conceded during the course of argument “we accept that our learned friends may have pleaded a tenable case of a duty of care in a new area …”.
The suggestion that the defendants may ultimately effect a recovery in the new proceedings, even if execution in the present proceedings is not stayed, ignores the practical reality of the fact that if the application is not granted, the defendants Cooper and Mills are likely to be made bankrupt and the defendant Belgravia put into liquidation.
In those circumstances, whether or not a liquidator or trustee in bankruptcy would see fit to proceed with the new proceedings, is speculative.
On the question of prejudice to Rothmore Farms, the transactions which eventually resulted in the removal of the trust assets out of the hands of Rothmore Farms date back to as long ago as 1993 and continued up to 1998. The trial judgment was pronounced by Mansfield J in the Federal Court on 4 June 1999, and the damages judgment in this Court on 31 March 2005.
While I would not level blame for such an attenuated span of time over which the proceedings have extended at the doorstep of any of the parties in particular, given the long history of the matter, I do not think that to hold Rothmore Farms out of the ability to recover on the damages judgment until the new proceedings have been determined, could be said to cause undue prejudice to Rothmore Farms. Any order for a stay will be on condition that the new proceedings are proceeded with promptly.
I should say that I have not seen fit to deal in detail with the substantial body of affidavit material which has been filed on both sides with respect to the application. Most of it deals with the convoluted history of the matter, and with the circumstances of the various sales effected by Mr Sheahan. Once an understanding is reached as to the essential features of the case, which I have endeavoured to summarise in these reasons, very little of relevance to the exercise of the discretion is to be found in the laborious detail contained in the affidavits.
For the reasons which I have given, on balance, after considering what I understand to be all of the relevant factors, it seems to me that this is a proper case in which the application should be granted, subject to appropriate conditions.
Subject to any submissions as to precise terms of the order, I would order that execution of the judgment pronounced on 31 March 2005 be stayed until further order, on condition that:
(1)During the currency of the stay the defendants Belgravia Pty Ltd, Noelene Michelle Cooper and Robert John Mills do not sell, dispose of, transfer, assign, mortgage, encumber or deal with in any way whatsoever any of their assets, save in order to meet their usual living expenses.
(2)Belgravia Pty Ltd, Noelene Michelle Cooper and Robert John Mills, prosecute the proceedings in this Court, being action number 1273 of 2004, in which John Sheahan is defendant, diligently and without undue delay.
(3)A copy of this order is to be filed in those proceedings.
(4)Should the said plaintiffs be successful in obtaining a judgment for damages in the said proceedings in this Court, any damages recovered will be paid into court to abide the order of the court.
I will hear the parties as to the terms of the order and as to costs.
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