Sevenhill Holdings Pty Ltd v Musovic

[1992] FCA 372

Re: SEVENHILL HOLDINGS PTY LTD; MICHAEL SHANE BLADES and LESLEY GAIL BLADES
And: DANICA MUSOVIC; MICK MUSOVIC; LOGIE BRAE PTY LTD and RAMON ENGLISH
No. WAG 102 of 1990
FED No. 372
Pactice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - appeal - stay of execution of judgment - relevant principles - special circumstances - appeal nugatory if stay not ordered - irreparable prejudice to applicants if judgment proceeds not paid - balancing exercise - stay ordered on condition of part payment and provision of security back by applicants.

The Commissioner of Taxation of the Commonwealth of Australia v. The Myer Emporium Ltd (1986) 160 CLR 220

HEARING

PERTH

#DATE 4:6:1992

Counsel for the Applicant: Mr P. Donovan

Solicitors for the Applicant: Mazza McCallum and Robinson

Counsel for the Third and Fourth Respondents: Mr R. E. Birmingham

Solicitors for the Third and Fourth Respondents: Marks Healy Sands

ORDER

THE COURT ORDERS THAT:

1. Execution of the judgment in favour of the applicants against the third and fourth respondents be stayed on condition that the third respondent do on or before 5pm on 8 June 1992 pay the following sum in partial satisfaction of the judgment:

(i) to the second and third applicants jointly the sum of $11,503;

(ii) to the second applicant the sum of $6,818;

(iii) to the third applicant the sum of $6,654;

(iv) to the first applicant the sum of $20,000.

2. The second and third applicants are, as soon as practicable or by such time as may be ordered by the Court, to provide the third respondent with a charge over their house property at 11 Mounsey Street, Kardinya in terms acceptable to both parties or as ordered by the Court if terms cannot be agreed, to secure the repayment of the moneys paid pursuant to the preceding order in the event that the third and fourth respondents' appeal is successful in whole or in part.

3. There be liberty to each party to apply to vary the terms of the order or to discharge the stay.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 24 May 1992 I gave judgment in these proceedings against the respondent in the following terms:

"1. There be judgment against all respondents:

(a) In favour of the first applicant in the sum of $158,896.

(b) In favour of the second and third applicants jointly in the sum of $11,503.

(c) In favour of the second applicant in the sum of $6,818.

(d) In favour of the third applicant in the sum of $6,654.

2. There be liberty to all parties to apply within seven (7) days by written submission to correct any error of calculation in the damages awarded.

3. The first and second respondents' cross-claim against the first applicant is dismissed.

4. The respondents have liberty to apply for any order as to contribution under their respective cross-claims by way of written submission to be lodged within fourteen

(14) days.

5. The respondents are to pay the applicants' costs of the application.

6. The respondents otherwise have liberty to apply on the question of costs on their cross-claims, such application to be by way of written submission within fourteen

(14) days."

By a supplementary judgment given today the first and second respondents' cross-claim against the third and fourth respondents was dismissed. Pursuant to a cross-claim brought by the third and fourth respondents, the first and second respondents were ordered to indemnify them in respect of their liability for the judgment sums and the costs of the application. I also ordered the first and second respondents to pay the third and fourth respondents' costs of the cross-claims.

1. On 7 April 1992 the third and fourth respondents filed a motion for a stay of execution under O.37 r.10. On 14 April 1992 they filed a notice of appeal against the judgment. The motion for a stay was made returnable to 23 April, but was adjourned to 11 May and then further adjourned to 29 May when argument was heard. Judgment on the motion was reserved until today. The fourth respondent, as it emerged, became a bankrupt in July 1991 although this was not brought to the attention of the Court, nor, it seems, to the attention of his Counsel until after judgment had been delivered. The motion is supported by three affidavits sworn by Bronwyn David, a solicitor employed by the firm of solicitors acting for the third and fourth respondents. The applicants filed two affidavits sworn by the second applicant, Mr Blades, and one sworn by Jeffrey Hann, an accountant with R.J. Parry and Associates who is familiar with the financial affairs of the applicants and had given evidence at their trial.

2. There are a number of factual matters underlying the motion which are not in dispute. There is only one piece of land which is registered in the name of any of the applicants. That is Mr and Mrs Blades' house at 11 Mounsey Street, Kardinya. It is subject to two registered mortgages, the first to Citibank Savings Ltd secures a loan to Mr and Mrs Blades of $124,000, the second to United Credit Union Ltd secures a loan to the Blades and Sevenhill Holdings of $59,375. As at 30 April the amounts owed on the two mortgages were $138,879.50 and $38,154.52 respectively. Neither the Blades nor Sevenhills has the ability to meet payments due under the mortgages and have not made the monthly repayments required since September 1991. From conversations between Mr Hann and officers of United Credit, it appears that United Credit had indicated that it would not enforce its remedies under the second mortgage pending the outcome of the trial of the action. If the proceeds of judgment are not able to be obtained and the Blades and Sevenhills are unable to meet the mortgage payments due to United Credit, then enforcement proceedings will be taken under the second mortgage. In the meantime, Citibank Savings Ltd has issued proceedings out of the Supreme Court of Western Australia seeking an order for possession of the house. An application for summary judgment is pending in the Supreme Court. The house has been valued at $160,000.

3. It was in part the desire to save their home that brought Mr and Mrs Blades to Court and for that reason they sought an expedited trial. Mr Blades is at present unemployed. His wife works two days per week and receives a weekly wage of $100 net. He and his wife have no substantial assets other than their house and are not able to borrow money from friends or relatives. Execution of the judgment has commenced against Mr and Mrs Musovic but the possibility of any significant recovery from them appears doubtful.

4. The applicants received assistance from the Law Society's Litigation Assistance Fund in conducting the proceedings. It was said to be a condition of that assistance that in the event of a successful outcome, they should pay the Fund 15% of the judgment sum and that that amount should be a first charge on the proceeds of the judgment. The attitude of the Fund Trustees to the enforcement of that condition pending the hearing and determination of the appeal is not known.

5. The position is apparently becoming critical for the Blades. On 27 May the solicitors for Citibank wrote saying that they would agree to their client's current claim in the Supreme Court being discontinued with no order as to costs if their clients were to receive, no later than close of business on 5 June 1992:
   

1. A bank cheque in the sum of $17,252.49 being arrears of payments due under the mortgage together with billed legal costs and enforcement expenses.

2. A bank cheque for $300 on account of the unbilled legal costs and expenses to date.

3. A bank cheque in the sum of $19,975.92 representing 12 of the monthly payments to be made by the Blades to be held by Citibank in an interest bearing account in the name of the Blades and applied to the payment of monthly instalments for the 12 month period commencing 29 May 1992.

1. According to Mr Blades' evidence, Sevenhills has no assets other than the judgment given in this case and net liabilities of $200,849.00 set out in a statement of assets and liabilities verified by him. The liabilities include debts due to Mr and Mrs Blades which total $149,326 and the debt of $38,154 owing to United Credit. Mr and Mrs Blades' own statement of assets and liabilities indicate net assets of $183,147 when account is taken of amounts due from Sevenhills and on the assumption that the house is worth $160,000.

2. In support of the motion for a stay of execution, the third and fourth respondents accept that the discretion to order a stay should only be exercised where special circumstances exist that justify a departure from the ordinary rule that a successful litigant is entitled to the fruits of his litigation. Special circumstances, it is said, exist where a stay is necessary to prevent an appeal, if successful, from being nugatory. An appeal will be nugatory where, because of the financial state of the respondent, there is no reasonable prospect of recovering money paid pursuant to the judgment sum. The applicants' financial state, it is said, is such that the third respondent which in practical terms carries the burden of the judgment against the third and fourth respondents, would have no reasonable prospect of recovering money paid under it in the event that the appeal were successful.

3. The general principles set out in the submissions were stated by Dawson J. in The Commissioner of Taxation of the Commonwealth of Australia v. The Myer Emporium Ltd (1986) 160 CLR 220 at 222-223 where his Honour discussed the operation of O.70 r.12 of the High Court Rules as it then stood (now see O.70 r.8). The present application was brought under O. 37 r.10 of the Federal Court Rules which confers a general power to stay execution of a judgment. The position where an appeal is pending however, is governed by O.52 r.17 which provides:
   

"17(1) An appeal to the Court shall not -

(a) operate as a stay of execution or of proceedings under the judgment appealed from; or

(b) invalid any intermediate act or proceeding except so far as the Court or a judge or the Court below may direct."

I accept that the principles enunciated by Dawson J. and advanced on behalf of the third and fourth respondents in this case are applicable with one qualification. The risk that an appeal may be nugatory must be balanced against the risk of prejudice to the party who succeeded at first instance if execution of the judgment is stayed. Subsidiary to that consideration it is relevant to take into account the circumstance, where it exists, that on the findings made in the judgment and the evidence put before the Court on the stay application the financial fragility of the successful party is attributable in part or in whole to the conduct of the respondent. That circumstance exists in this case. In so saying, I accept that the very findings which underpin it are under challenge in an appeal which is not frivolous, that is to say, an appeal which has an arguable prospect of success.

1. The discretion which I am asked to exercise in this case requires a balancing of considerations which recognises the legitimate interests of both parties with a view to mitigating so far as practicable any irreparable prejudice which may arise at either extreme of the possible range of orders that are open to the Court.

2. In my opinion, the most appropriate course is to order a stay of execution conditional upon a part payment of the judgment sum which is likely to be sufficient to meet the immediate difficulties faced by Mr and Mrs Blades with Citibank. In so doing, I will also make an allowance for a sum that may permit a part payment to United Credit Union with a view to negotiating a temporary deferral of action on the second mortgage. The claim of the Litigation Assistance Fund can, I think, be expected to be the subject of negotiation and I do not propose to make any allowance for that 15% entitlement at the present time. It will also be ordered that Mr and Mrs Blades provide the third respondent, at its expense, with a charge over their house to secure the payments made under the order, the charge to be in a form acceptable to both parties. There will be liberty to apply in the event of any dispute as to that or any change of circumstances requiring a variation of the orders. It is not intended that the provision of the charge should be contemporaneous with the payment required by these orders.