Royal Guardian Management Pty Ltd v Nguyen

[2015] NSWCA 148

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Royal Guardian Management Pty Ltd v Nguyen [2015] NSWCA 148

Hearing dates:

20/05/2015

Date of orders:

20 May 2015

Decision date:

20 May 2015

Before:

Basten JA

Decision:

(1)   Stay the enforcement of the orders made by the trial judge by way of consent orders dated 24 September and 26 September 2014.

 

(2)   Order that the hearing of the appeal be stayed until the appellant provides security in an amount of $100,000 either
(a)   by way of a bank guarantee in favour of the respondent’s solicitors Gilbert + Tobin; or
(b)    by payment into court of that amount.

 

(3)   Order that the respondents pay the appellant’s costs of the motion for the stay.

 (4)   Order that the appellant pay the respondents’ costs of the motion for security for costs.

Catchwords:

PRACTICE AND PROCEDURE – application for stay pending the appeal – stay in relation to primary judgement and costs below – where appellant cannot satisfy the judgement – where refusal of stay necessary to preserve the appeal – whether appeal has reasonable prospects of success – whether appeal grounds hopeless and unarguable – whether stay should be granted – appropriate extent of stay

COSTS – security for costs – application made under Corporations Act (Cth), s 1335 – no requirement of “special circumstances” – appellant proffered guarantee by related entity – limited evidence of guarantor’s financial position provided – whether guarantor provides sufficient security – whether security for costs by payment into court or bank guarantee should be made – amount of security

Legislation Cited:

Corporations Act 2001 (Cth), s 1335
Uniform Civil Procedure Rules 2005 (NSW), r 51.50

Cases Cited:

CUR24 v Director of Public Prosecutions [2012] NSWCA 65; 83 NSWLR 385
Kalifair Pty Limited v Digi-Tech (Australia Limited) [2002] NSWCA 383; 55 NSWLR 737
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231
Pioneer Park Pty Ltd (In Liq) v Australia and New Zealand Banking Group Limited [2007] NSWCA 344; 25 ACLC ¶1707
Tattsbet Ltd v Morrow [2015] FCAFC 62

Category:

Procedural and other rulings

Parties:

Royal Guardian Mortgage Management Pty Limited (Applicant)
Beth Ngoc Nguyen (First Respondent)
Ian Stolyar (Second Respondent)

Representation:

Counsel:
M W Young SC (Applicant)
S Mirzabegian (Respondents)

  Solicitors:
Bransgroves Lawyers (Applicant)
Gilbert + Tobin (Respondents)

File Number(s):

2014/185879

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Common Law

Citation:

[2014] NSWSC 665

Date of Decision:

28 May 2014

Before:

Adams J

File Number(s):

2010/105936

Judgment

1. HIS HONOUR:   On 28 May 2014 Adams J delivered judgment in the trial of this matter. For reasons for which are not entirely clear, consent orders to give effect to that judgment were apparently not signed until 24 September 2014. Judgments were given against the appellant in a total amount of approximately $3 million.

2. On 23 June 2014, some months before orders were entered, the appellant gave notice of intention to appeal. An appeal was lodged on 27 August 2014, again some weeks before orders were made.

3. There are two motions before the Court today. First, the appellant seeks a stay of the judgments against it. Secondly, the respondents seek an order that the appellant provide security for the costs of the appeal.

Stay

4. A stay is commonly sought with respect to payment of a sum of money, on the basis that, if paid, the money will be unrecoverable in the event of a successful appeal. That is not this case. Nor it is a case in which a respondent seeks to have the money paid into court, against the possibility of a default by the appellant in the event that the appeal is lost. Rather, it is a case where the appellant concededly cannot pay the debt, but would lose the ability to prosecute its appeal were enforcement proceedings taken.

5. There is a well established line of authority to the effect that a stay may be granted in order to preserve an appeal, which will be rendered nugatory if steps are taken to wind up the company, and such steps are likely. [1] Further, as stated by Gleeson JA in Mushroom Composters:[2]

“A successful party is entitled to be protected, as far as practicable, from the risk that if the appeal fails assets which earlier were available to satisfy the judgment will no longer be available for that purpose. It is for this reason that an appellant may be required to provide appropriate security as the price of a stay which may make the judgment creditor a secured creditor. Nonetheless a requirement of security is only intended to protect the status quo, that is the existing value of the judgment, and not to improve the position of the judgment creditor by increasing that value: Kalifair at [8].”

1. Kalifair Pty Limited v Digi-Tech (Australia Limited) [2002] NSWCA 383; 55 NSWLR 737 at [10]-[17] (Handley, Sheller and Ipp JJA).

2. Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231 at [8].

6. That is so, but the principle may be taken one step further, as it was in Kalifair at [29]:

“Security for these judgments is not needed to protect the judgment creditor from the risk of loss caused by the stay. The judgments are already worthless and the judgment creditor is not entitled to have conditions imposed on the appellants for the purpose of increasing their value. These appellants are therefore entitled to orders staying execution on the judgments without any conditions requiring security.”

7. Nevertheless, it does not follow that a stay will be granted as of right. In such circumstances, the Court must be affirmatively satisfied that the appeal has reasonable prospects of success and that the judgment creditors are not being deprived of whatever prospects they have of recovering at least part of their entitlement without justification, nor being unjustifiably delayed in pursuing the debt.

8. The respondents submitted that the appeal was in all respects “hopeless”. The appeal may ultimately fail, but the conclusion that the grounds are all hopeless cannot be accepted without further consideration.

9. As noted by the appellant, there are three broad elements to the appeal. First, there is a claim of reasonable apprehension of bias on the part of the trial judge. Secondly, there are errors asserted in the construction of the employment contracts between the appellant and the respondents. Thirdly, there are challenges to the fact finding by the trial judge. With respect to the last matter, the appellant accepts that it bears a heavy burden in circumstances where strong credibility findings were made against the appellant’s principal witness. It does not, however, shy away from the proposition that certain findings were, in the jargon associated with this area of the law, “glaringly improbable”.

10. It is convenient to deal with the last matter first, if only because it should not be determinative of the present application. There are two reasons for that approach. First, an assessment of the arguability of such a ground is difficult in the present case. The trial ran for some eight days in May 2013; judgment was not delivered until one year later. It is possible that credibility findings may be affected by such a delay, even if the delay itself is explicable in terms of the nature of the trial and the time available to the trial judge. [3] Secondly, such an assessment would be difficult without careful consideration of the detailed reasons which run to 145 pages and reference to the transcript which is not before the Court. That exercise cannot be undertaken (nor should it be) on this application. Most importantly, however, the credibility findings do not stand by themselves: they are closely related to the complaint of an apprehension of bias, being the first broad ground.

    3. See generally Tattsbet Ltd v Morrow [2015] FCAFC 62 at [2] (Allsop CJ) and [131]-[132] (Jessup J).

11. The second area of challenge, namely the construction of the contractual relationship between the parties was a matter to which counsel for the respondents drew attention in the course of argument. However, it is also a matter which is difficult to assess. On this application, the Court does not have the contractual documentation, but only the parts set out in the judgment. The best that can be said at the present time is that a challenge to the findings with respect to the contractual arrangements is not unarguable, although the trial judge reached a firm conclusion as to the proper outcome.

12. Thirdly and most importantly for present purposes, there is a complaint of a reasonable apprehension of bias on the part of the trial judge. In two respects, that complaint is capable of assessment only by reference to the transcript, which the Court does not have. Thus, ground 1 identifies a number of respects in which the trial judge was said to have interrupted  cross-examination, engaged in the questioning of the principal witness for the appellant and engaged in argumentative behaviour during the course of his cross-examination. Again, without the relevant material, that complaint cannot be dismissed as unarguable, nor can other related complaints with respect to other witnesses.

13. There is, however, a further and troubling ground contained within the allegations of bias. It involves an assertion that the trial judge had announced immediately after delivery of judgment that he intended to engage senior counsel for the respondents to appear for him in a private proceeding. According to ground 4, some matter was raised at morning tea on the first day of the trial. What was said and what happened at various times will no doubt be the subject of some evidence. How this Court will be required to deal with such evidence is itself a troubling issue. [4] There is, apparently, likely to be an allegation that senior counsel for the appellant consented to private contact between the judge and counsel for the respondents. No doubt there will be an issue as to the circumstances in which any such consent was given and, perhaps, the question of instructions.

    4. See CUR24 v Director of Public Prosecutions [2012] NSWCA 65; 83 NSWLR 385.

14. It is neither necessary nor appropriate to comment further on this ground, except to say that it, too, cannot be dismissed as unarguable and that there is a public interest in not permitting a proceeding in which such a ground is raised to be rendered nugatory by disabling the appellant from proceeding, through steps to enforce the terms of the impugned judgment.

15. There is an additional factor relied upon by counsel for the respondents: that concerns the costs order which was made against the appellant by the trial judge. If the costs order is to be stayed, it was submitted, the respondents will be unable to rely upon not merely their rights against the appellant but also their rights, pursuant to a guarantee given by a third party Royal Guardian Mortgage Corporation Pty Ltd, known as RGMC. The respondents submitted that RGMC should pay into court an amount equivalent to the costs to be paid under the order made by the trial judge. The costs have not yet been assessed.

16. The argument is not for payment to the respondents but for payment into Court by RGMC, the third party guarantor. However, a step in that process presumably involves first claiming an amount from the appellant which will not be paid. That in turn raised a question as to the financial viability of the third party guarantor to which reference will be made shortly. At the moment it does not appear to be necessary, or practical, to limit a stay so that it does not operate with respect to the costs order, without destroying the purpose for the stay.

17. In these circumstances, the appellant’s application for a stay should be granted.

Security for costs

18. The application for security for costs is made pursuant to s 1335 of the Corporations Act 2001 (Cth). It is common ground that this provision operates to the exclusion of the requirement of “special circumstances” in the UCPR 2005 (NSW), r 51.50.

19. It is also common ground that the appellant would be unable to pay the respondents’ costs in the event that it is unsuccessful on the appeal. Subject to a question of stultification in the event that security is ordered, such an order would ordinarily be made, in accordance with the principles discussed in Pioneer Park Pty Ltd (In Liq) v Australia and New Zealand Banking Group Limited. [5]

    5. [2007] NSWCA 344; 25 ACLC ¶1707 at [47]-[58].

20. The appellant relies upon an offer made by the related entity, RGMC, to give a guarantee in relation to an adverse costs order against the appellant. It appears that a similar guarantee was provided with respect to at least some part of the costs of the trial.

21. Although the precise relationship of the proposed guarantor and the appellant is not known, the guarantor has provided some evidence as to its financial position. So far as parties standing behind a corporate appellant should come forward and provide guarantees with respect to an adverse costs order, it does not appear that RGMC stands in that position with respect to the appellant. It is not apparently a shareholder, although there may be a common directorship.

22. There are two issues to be determined in this regard. The first is whether the proffered guarantor provides sufficient security. The second is the amount in which security should be ordered. As the latter question may affect the answer to the former, it is convenient to deal with the latter first.

23. The respondents seek security in an amount of $200,000, supported by an affidavit from their solicitor explaining the basis of calculation. The appellant relied upon its solicitor’s affidavit in reply, expressing an opinion that, based on the detailed explanation, the true figure would be of the order of $68,000 with an amount of some $48,000 to be recoverable if assessed on the ordinary basis.

24. Unfortunate as it may seem, and admittedly based on limited experience, the amount proposed by the appellant’s solicitor appears to be unreasonably low. There are two reasons for thinking that the costs of this appeal will be at the higher end of a range of what might be thought reasonable costs of an appeal in this Court. First, it is accepted by both parties that each will be required to brief counsel other than counsel who appeared at the trial for the purposes of the appeal. Secondly, there is likely to be further evidence (albeit within a limited scope) and, in addition, the factual challenges are likely to require consideration afresh by counsel of a significant part of the evidence at trial.

25. An order for security is not intended to be a full indemnity for costs recoverable from the unsuccessful party. Given that the real costs cannot be known in advance, the Court should adopt a realistic but conservative approach to the assessment of the evidence before it. Further, security is not intended to cover costs already incurred.

26. I do not accept the estimates put forward by the solicitor for the respondents as in all respects realistic. With respect to reviewing the appellant’s chronology and preparing a supplementary chronology, reviewing the amended notice of appeal and submissions filed on behalf of the appellant and taking instructions from the respondents, an amount of almost $50,000 was proposed. Further, costs of the stay application were also included in an amount in excess of $30,000. Similarly, such an amount was included for the costs of the security application itself.

27. With respect to the anticipated costs of preparation for the hearing hereafter, including briefing new counsel, an amount of $136,000 was arrived at, of which $35,000 was preparation by counsel. I do not accept that a figure of anything like $100,000 should properly be allowed for solicitors’ fees during that stage.

28. With respect to the hearing, three full days were allowed. It is unlikely that the Court would set aside any more than two days for this appeal. On the other hand, the costs of the hearing allowed only $35,600 for counsel. The respondents’ affidavit assessed, in total, an anticipated cost of $300,000 and assumed that the respondents would be able to recover 70% of that figure.

29. Allowing for the matters referred to above and some reduction in hours to reflect would be reasonably necessary, rather than that which solicitors consider they can charge, I would allow security in an amount of $100,000. There remains a question as to the form of that security.

30. The appellant urged that a company guarantee from RGMC is sufficient. It further submitted that the financial accounts of the company indicate that it is well able to meet that amount. The respondents submit that a bank guarantee or payment into court should be provided. It notes that the accounts have not been audited and the director’s declaration not signed. That issue was raised in the written submissions. The accounts remain in the same state they were in when they were originally annexed to the affidavit of Ms Cooper, sworn 1 May 2015. The accounts relate to a period ending 30 June 2014. They do indicate that there is a substantial amount of cash in the company’s bank account. It is also true that there is an affidavit of Mr Stariha saying that the company’s circumstances had not changed by the end of 2014. However, its present circumstances have not been revealed.

31. Counsel for the respondents also pointed out that no allowance is made in the accounts for any contingent liability for the respondents’ costs of the trial which were guaranteed by RGMC. On this basis the respondents seek the bank guarantee or a payment in.

32. If, as appears likely, the basis upon which RGMC asserts that it has sufficient financial viability to support its own guarantee, is that a significant proportion of its assets are cash in the bank, it should be able to obtain something by way of a bank guarantee or be able to make a payment into court, either of which would provide greater security in the event that enforcement is necessary.

33. There is also the possibility that there may be available real estate which could support the obtaining of a bank guarantee, which in some cases is more acceptable and perhaps cheaper for the party providing the guarantee than the payment of cash into court. In the present circumstances there is no undertaking by the company that it will provide a payment into court or a bank guarantee nor, in the event that one or other was ordered, is there any indication as to which form would be preferred.

34. I therefore intend to adopt the course proposed by the appellant in its notice of motion and accepted by counsel in circumstances where RGMC, for whom he does not act, and will make an order for security which allows for the security to be provided in one or other of the ways proposed.

Costs

35. The obvious course to have taken in these circumstances would have been to make no order as to the costs of the motions on the basis that each party was partly successful and in the light of the fact that there had been offers, not ultimately in the terms of the orders made but going somewhere along that course. Neither party has sought orders in those terms. Therefore I will make orders in accordance with the outcome of the respective motions. Those costs will not be recoverable forthwith. The fact is that there was a considerable overlap in respect of the evidence and the issues on both motions.

Orders

36. The Court makes the following orders:

1. stay the enforcement of the orders made by the trial judge by way of consent orders dated 24 September and 26 September 2014;

2. order that the hearing of the appeal be stayed until the appellant provides security in an amount of $100,000 either -

1. by way of a bank guarantee in favour of the respondents’ solicitors Gilbert + Tobin; or

2. by payment into court of that amount.

3. order that the respondents pay the appellant’s costs of the motion for the stay; and

4. order that the appellant pay the respondents’ costs of the motion for security for costs.

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Endnotes

Decision last updated: 29 May 2015