Washburn Pty Ltd v Cardaci - [2022] WASCA 43

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   WASHBURN PTY LTD -v- CARDACI [2022] WASCA 43
CORAM:   MITCHELL JA
VAUGHAN JA

HEARD:   23 MARCH 2022
DELIVERED          :   1 APRIL 2022
FILE NO/S:   CACV 7 of 2022
BETWEEN:   WASHBURN PTY LTD
First Appellant
RECTANGULAR PTY LTD
Second Appellant
ONGOLD CORPORATION PTY LTD
Third Appellant
FILIPPO PRIMO CARDACI
Fourth Appellant
ANGELA FRANCESCA CARLA FLORIDO
Fifth Appellant
AND
MAE CARDACI
First Respondent
DUPORTE CORPORATION PTY LTD
Second Respondent
POWERCITY PTY LTD
Third Respondent

ON APPEAL FROM:
Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA
Coram:   LE MIERE J
Citation: CARDACI -v- FILIPPO PRIMO CARDACI as executor of the estate of MARCO ANTONIO CARDACI [No 5] [2021] WASC 331 (S)
File Number            :   CIV 1750 of 2017, CIV 3186 of 2016

Catchwords:

Appeal - Practice and procedure - Application for a stay of enforcement of primary orders pending determination of the appeal - Where appeal said to be rendered nugatory by reason of the prospect of enforcement of monetary orders by an application to wind up the corporate appellants and prospect that money paid may not be recoverable from respondent if appeal succeeds

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 15

Result:

Application dismissed

Category: B

Representation:

Counsel:

First Appellant	:	T M Rogan
Second Appellant	:	T M Rogan
Third Appellant	:	T M Rogan
Fourth Appellant	:	T M Rogan
Fifth Appellant	:	T M Rogan
First Respondent	:	M D Cuerden SC and N L Pham
Second Respondent	:	No appearance
Third Respondent	:	No appearance

Solicitors:

First Appellant	:	Bennett + Co
Second Appellant	:	Bennett + Co
Third Appellant	:	Bennett + Co
Fourth Appellant	:	Bennett + Co
Fifth Appellant	:	Bennett + Co
First Respondent	:	Herbert Smith Freehills
Second Respondent	:	No appearance
Third Respondent	:	No appearance

Case(s) referred to in decision(s):

Cardaci v Cardaci [No 2] [2019] WASC 274
Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSCA 66; (2004) 9 VR 382
Cook's Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd [2008] QCA 322; [2008] 2 Qd R 453
Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Kalifair Pty Ltd v Digi-Tech (Australia) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737
Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd's Rep 509
Ryan v Urban Construct (SA) Pty Ltd [No 2] [2012] SASC 193; (2012) 114 SASR 410
Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168
Washburn Pty Ltd v Cardaci [2022] WASCA 15

JUDGMENT OF THE COURT:

Summary

The relevant background to this application is summarised in our reasons for granting an application for security for costs in related appeals.[1] Terms defined in the Security for Costs Decision are used in their defined sense in these reasons.
[1] Washburn Pty Ltd v Cardaci [2022] WASCA 15 [2] - [16] (Security for Costs Decision).
By an application in an appeal filed on 1 March 2022 (Application), the appellants seek a stay of, or suspension of the enforcement of, certain orders made by the primary judge in the Trust action, which are the subject of this appeal. The orders that the appellants seek to stay require:
1.Washburn, Rectangular and Philip to pay 90% of Mae's costs of the primary proceedings; and
2.Washburn and Rectangular and Ongold to pay to Mae, as trustee of the Washburn Trust or Marc's Testamentary Trust, all money paid from the trust assets to meet those corporations' own costs of the primary proceedings.
For the following reasons, we would dismiss the Application.

Background

On 4 October 2021, the primary judge made orders in the Trust action removing Washburn and Rectangular as trustees of the Washburn Trust and Marc's Testamentary Trust respectively. Mae was appointed as trustee of those trusts and the assets of the trusts were vested in Mae.
On 23 December 2021, the primary judge made orders that Washburn, Rectangular and Ongold were not entitled to be indemnified from trust assets against the costs of the Trust action. An order was made that Philip, Washburn and Rectangular pay 90% of Mae's costs of the Trust action (order 1). Washburn was ordered to pay to Mae, as trustee of the Washburn Trust, all money paid from trust assets for the purposes of meeting Washburn's own costs of the Trust action (order 9). Rectangular and Ongold were ordered to pay to Mae, as trustee of Marc's Testamentary Trust, all money paid from trust assets for the purposes of meeting their own costs of the Trust action (order 10). Provision was made for the taking of an account as to the amounts payable under orders 9 and 10, and the filing of an affidavit by the defendants for that purpose (order 11).

The present appeal

The present appeal is against the orders made in the Trust action on 23 December 2021. The related Trust appeal (CACV 101 of 2021) is against the orders made in the Trust action on 4 October 2021.
In broad terms, the appellants in the present appeal challenge the orders made in the Trust action on 23 December 2021 on the following grounds:
1 & 2.The trial judge erred in making findings in his supplementary reasons[2] to the general effect that Philip caused Washburn, Rectangular and Ongold to resist their removal as trustees so that he could continue to control and administer the trusts without regard to Mae's interests.
3.If one or more of grounds 1 ‑ 8 in the Trust appeal are established, the primary judge erred in finding that Washburn or Rectangular engaged in conduct that could warrant suspension of the general rule that a trustee is entitled to be indemnified out of trust funds for the costs of defending proceedings seeking its removal.
4.If grounds 1, 2 or 3 are upheld, the trial judge erred in finding that Washburn and Ongold/Rectangular were not entitled to be indemnified by trust assets against their own costs and costs ordered against them in the Trust action.
5.The trial judge erred in finding that Washburn and Rectangular acted in breach of trust in using trust funds to pay their own costs of defending the Trust action.
6 & 7.The trial judge erred in finding that Washburn was required to restore funds to the Washburn Trust having regard to certain provisions of the Washburn Trust Deed.
8.The trial judge erred in finding that Ongold and Rectangular acted improperly in defending the Trust action when the basis for the finding that it was expedient to remove them as trustee of Marc's Testamentary Trust was the conduct of Philip as controller of another trust.
9.This ground makes a discrete challenge to certain findings further or alternatively to grounds 1 - 3. The import of this ground is difficult to discern from the appellant's case.
[2] Cardaci v Filippo Cardaci as executor to the estate of Marco Antonio Cardaci [No 5] [2021] WASC 331 (S) [19], [20] and [54] (Supplementary Reasons).

Application for a stay of enforcement of the primary orders

By an application in an appeal filed on 1 March 2022, the appellants seek orders staying orders 1, 9 and 10 of the orders made in the Trust action on 23 December 2021.
The appellants contend that, if a stay is not granted, then the appeal may be rendered nugatory on two bases.
First, the appellants say that neither Washburn nor Rectangular have sufficient assets to repay amounts of legal costs to their respective trusts or to pay Mae's costs of the Trust action, as required by orders 1, 9 and 10.[3] The appellants contend that there is a real prospect that, if they do not pay these amounts, Washburn and Rectangular will be placed into liquidation as a result of the enforcement of the orders and that the appeal will be stayed unless a liquidator chooses to prosecute the current appeal.
[3] The appellants do not appear to contend that any trust assets were applied by Ongold in respect of its legal costs.
Secondly, the appellants contend that amounts paid by them in restoring the trust assets and in discharging their liability to pay Mae's trial costs may not be recoverable in the event that they are successful in the appeal. This is essentially on the basis that Mae's agreement with her litigation funder requires her to pay those amounts to the litigation funder, from whom the funds may not be recoverable if the appeal succeeds.

General principles

In Tradesman Technologies Pty Ltd v Ameduri,[4] Pullin JA summarised the general principles governing the grant of a stay or the grant of a suspension order under s 15 of the Civil Judgments Enforcement Act 2004 (WA):
(a)The successful litigant is ordinarily entitled to enforce a judgment pending the determination of any appeal.
(b)It is for the applicant for a stay to move the court to a favourable exercise of its discretion. Under s 15(3) this court may only make a suspension order if there are 'special circumstances' that justify doing so and in an application for a stay under the rules this is also a usual requirement.
(c)The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation or whether a refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal. This may shortly be described as requiring the court to consider whether the right of appeal will be rendered nugatory if a stay is not granted.
(d)If it can be demonstrated that the right of appeal will be rendered nugatory if a stay is not granted, the stay will generally still be refused unless it can be established that the appeal has ultimately reasonable prospects of success.
(e)Finally, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted.
[4] Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168 [22], adopting Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9].
Pullin JA identified three common ways in which an appeal might be rendered nugatory if a stay or suspension order is not granted:[5]
1.Where it can be demonstrated that there is a real prospect that, if the judgment sum is paid and yet the appeal succeeds, the respondent will not have the capacity to comply, or for some other reason might not comply, with an order requiring repayment of the judgment sum paid by the appellant.
2.Where the respondent threatens enforcement of the judgment by sale of property owned by the appellant. If a sale occurs before the appeal is heard and the appeal succeeds, then it would be impossible for any order to be made restoring the property if it had already passed into the hands of a third party.
3.Where the appellant does not have the ability to pay the judgment sum and may be rendered bankrupt or a company may be wound up before the appeal is heard.
In the present case, the appellants seek to place themselves in the first and third of these categories.
[5] Tradesman Technologies [24] - [26].
In relation to the third category, Pullin JA noted that the mere threat of service of a bankruptcy notice is not always, per se, sufficient to demonstrate special circumstances or that the appeal will be rendered nugatory. In Tradesman Technologies, the service of a bankruptcy notice on an individual respondent was not found to render an appeal nugatory where there was a real prospect that the appeal might be heard before a sequestration order was made. Further, where a corporate respondent's costs had not been taxed, there was no present liability for the company to pay any specified sum of money. His Honour held that there was not at that point any circumstance which might render the company's appeal nugatory.[6]
[6] Tradesman Technologies [27] - [29].
The appellants refer to the decision of the New South Wales Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd.[7] In that case multi-million dollar judgments had been awarded against corporate appellants, none of which had the capacity to pay. Only one of the corporate appellants had any significant assets. In a context where it was not necessary for the appellants to demonstrate special circumstances, the court granted a stay subject to a Mareva[8] undertaking by the company with assets not to dispose of them. The court observed:[9]
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.
The directors would thus suffer delay and difficulty and incur additional expense in securing a decision from the liquidator to proceed with the appeals. …
The judgment creditor and its solicitors evidently believe that the winding-up of the three appellants would be to their advantage. The Court should therefore infer that there is a real risk that the making of winding-up orders would prevent the prosecution of these appeals.
Where the appellants have no assets the judgment creditor, as it has conceded, will not suffer any relevant prejudice if a stay is granted. The loss of its right to proceed to winding-up to prevent the appeals being heard on their merits does not constitute relevant prejudice for present purposes. The appellants may be required to give security for the judgment creditor's costs of these appeals, but the judgment creditor will not otherwise be financially prejudiced if the appeals proceed and fail on their merits.
On the other hand the appellants would suffer irremediable prejudice if they were unable to prosecute appeals which might have succeeded.
[7] Kalifair Pty Ltd v Digi-Tech (Australia) Ltd [2002] NSWCA 383; (2002) 55 NSWLR 737.
[8] From Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd's Rep 509.
[9] Kalifair [21] - [22], [24] - [26].
However, the decision in Kalifair has been treated with caution by courts in other States, both in relation to the statement of what appears to be an absolute rule and the equating of the position of directors with the position of their company.[10]
[10] See Challenge Charter Pty Ltd v Curtain Bros (Qld) Pty Ltd [2004] VSCA 66; (2004) 9 VR 382 [16] - [17].
In Challenger Charter, monetary judgements had been awarded against two corporate appellants, Timor Star and Challenger Charter. The latter had no capacity to pay the judgment debt. In refusing the stay in favour of Challenge Charter, Callaway JA (Chernov JA agreeing) observed:[11]
In my opinion, the relevance of a threat of liquidation and the weight to be given to it vary from case to case. Sometimes it is significant that a winding-up order will bring a company's business to an end or diminish the value of its assets or both or that the company, regarded as a legal person, will cease to exist when the winding up is completed. Whatever may be said of Timor Star, none of those considerations has much weight in relation to Challenge Charter. It has no significant business or assets other than [a vessel subject to sale] and the shares in Timor Star. It has only one director and is the wholly-owned subsidiary of another proprietary company. In such a case it is not irrelevant that the liquidator may still pursue the appeal if he or she considers that to be worthwhile. The liquidator would take into account the director's views and the director would be well placed to assist the liquidator if the appeal proceeded. It is quite wrong to regard it as the director's appeal. It is the company's appeal. [Counsel for the appellants] submitted that it was unfair to the director to displace him, but that is not the test. I am not persuaded that it would be unfair to Challenge Charter for a liquidator to evaluate the prospects of its appeal. An unpaid creditor is prima facie entitled to use the processes of company law to recover a debt owing to it and there is a public interest in insolvent companies being wound up. (In some cases it may be relevant to the grant or refusal of a stay that a pending appeal may be taken into account on an application for winding up). (some footnotes omitted)
[11] Challenge Charter [17]. This passage was adopted by the Queensland Court of Appeal in refusing a stay in Cook's Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd [2008] QCA 322; [2008] 2 Qd R 453 [16] and the Supreme Court of South Australia in Ryan v Urban Construct (SA) Pty Ltd [No 2] [2012] SASC 193; (2012) 114 SASR 410 [40] - [42].
There is a further reason for treating the decision in Kalifair with caution. In Kalifair the court proceeded on the basis that, if a liquidator were appointed, the appeal in that case would be 'stayed automatically and the stays would continue unless and until the liquidator elected to prosecute the appeals'. That is the position which prevails under s 60(2) of the Bankruptcy Act 1966 (Cth) when an individual becomes bankrupt. However, we are not aware of any provisions in the Corporations Act 2001 (Cth) which would automatically stay proceedings brought by (as opposed to against) a corporation subject to a winding up order. Certainly, the continued prosecution of an appeal may depend on convincing a liquidator that the appeal has sufficient merit to prosecute and that there is adequate funding for the prosecution of an appeal. However, that is a different proposition to saying that the appeal would be automatically stayed if a winding up order were made against a corporate appellant.

Disposition

Nugatory appeal - prospect of winding up

We are not satisfied that the current prospect of the corporate trustees being wound up before an appeal is heard is such as to justify the grant of a stay to avoid the appeal being rendered nugatory.
Crystallisation of amounts owing by the appellants into a judgment debt for an ascertained sum will occur only once the accounts provided for in orders 9 - 12 of the orders made on 23 December 2021 are taken or Mae's costs of the Trust action are assessed. It is not clear whether either process will be completed prior to the hearing of the appeal.[12]
[12] See appeal ts 6, 10.
Affidavits sworn by Philip for the purposes of the accounts indicate that Washburn paid $1,728,861.56 from the assets of the Washburn Trust, and Rectangular paid $2,199,095.93 from the assets of Marc's Testamentary Trust, in respect of the costs of defending the primary proceedings. However, an account will still need to be taken before a statutory demand for a judgment debt of a specific sum could be served.
As to costs, once Mae's costs of the Trust action are assessed or agreed, Philip, Washburn and Rectangular will be jointly and severally liable for their payment. For reasons explained in the Security for Costs Decision,[13] there is no reason to apprehend that Philip will not discharge his personal liability to pay Mae's costs of the primary proceedings.
[13] Security for Costs Decision [26].
In this context, the appellants have given the court very limited information as to the financial position of Washburn and Rectangular. The affidavit in support of the application simply asserts that the deposing solicitor has been informed by Philip and verily believes that Washburn and Rectangular do not have sufficient assets to pay the money required to pay the amounts owing under orders 1, 9 and 10.[14] No accounts for the corporations in their own right have been tendered. There is no evidence as to the capacity that those corporations have to be placed in funds by other Cardaci entities sufficient to discharge their obligations under the primary orders prior to the determination of the appeal.
[14] Affidavit of Shemali Samaraweera sworn 1 March 2022, pars 36, 40.

There is also no evidence as to whether Washburn or Rectangular have creditors other than Mae (either in her personal capacity or as trustee of the Washburn trust and Marc's Testamentary Trust) who may be willing to fund the prosecution of the appeal by a liquidator of the companies. Philip or the entities that he controls would also seem to have the capacity to fund the prosecution of the appeal, and he may well regard it to be in his interests or in the interests of the entities he controls to provide that funding if a stay is not granted. The current state of the evidence does not enable any conclusion to be reached as to the prospects of a liquidator deciding to prosecute the appeal.
Further, it appears to be common ground between the parties that neither Washburn nor Rectangular have any substantial assets. As such, their prosecution of this and related appeals must currently depend on financial support being provided by Philip or other companies in the Cardaci Group. Counsel for the appellant accepted that the court could draw this inference.[15] There is nothing before this court to show any reason why those currently providing financial support to enable Washburn and Rectangular to prosecute these appeals would not continue to do so if those companies are placed into liquidation.
[15] Appeal ts 13.
There are two further considerations in evaluating the contention that, by reason of the prospect of winding up, a refusal of a stay could create practical difficulties threatening the integrity of the appeal:
1.First, it will be open to Washburn and Rectangular to seek an adjournment of any winding up application pending the determination of the appeal. The judicial officer considering such an application will be in a better position than this court in important respects. It should be known when the appeal will be heard. Further, the court may have more evidence as to the appellant companies' financial position and what, if any, actions are proposed to preserve the respondents' and other creditors' interests in the face of any apparent insolvency.
2.Second, even if Washburn and Rectangular are wound up - and a liquidator then refuses to cause the appellant companies to continue to conduct the appeals - it will be open to a person with sufficient interest to apply for an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) to seek review of that decision.
In summary, before the appeal could be rendered nugatory in the absence of a stay of the primary orders, in the circumstances of the present case, the following events would need to occur:
1.The costs would need to be assessed and/or the accounts of amounts owing under orders 9 and 10 of the primary orders would need to be taken before the determination of the appeal.
2.Philip, Washburn or Rectangular (in the case of costs), and Washburn and Rectangular (in the case of amounts payable under orders 9 and 10) would need to fail to pay the relevant amounts. This would involve the financial support required for Washburn and Rectangular to pay the amounts not being forthcoming from Philip or another company in the Cardaci Group.
3.Statutory demands would need to be issued and not complied with.
4.An application to wind up Washburn and Rectangular would need to be made.
5.A court would need to decide to deal with the winding up application and order the winding up of the companies in advance of the determination of this appeal.
6.A liquidator would need to be appointed to Washburn and Rectangular and would need to decide not to prosecute the appeal, either because:
(a)the liquidator assesses the appeal to have insufficient prospects of succeeding; or
(b)the financial support currently provided by Philip or other Cardaci Group companies to enable Washburn and Rectangular to prosecute the appeals has been withdrawn and an alternative source of financial support is not available.
We are not satisfied that the evidence presently before the court establishes that this combination of events is sufficiently likely to occur so as to make a stay necessary to preserve the subject matter of the appeal or avoid practical difficulties in the relief which could be granted in the appeal.

Nugatory appeal - whether payments recoverable if appeal succeeds

We are also not persuaded that the prospect of amounts paid not being recoverable if the appeal succeeds is such as to render the appeal nugatory if a stay is not granted.
Payments reimbursing the Washburn Trust and Marc's Testamentary Trust under orders 9 and 10 will be made to Mae as the current trustee of those trusts, and, when made, will form part of the trust assets of the respective trusts.
We do not accept the appellants' submissions that Mae's current litigation funding agreement will require those amounts to be paid to the litigation funder in respect of the primary proceedings, LCM Operations Pty Ltd (LCMO). The operation of that agreement was described by the primary judge in the following terms (which do not appear to be controversial):[16]
The litigation funding agreement is made between LCMO and Mae. The agreement provides in effect that, in consideration of LCMO paying the costs of this action, Mae will pay to LCMO from any amounts received by her or to which she is or becomes entitled related to or arising out of these proceedings, including any capital sum or income, the costs incurred by LCMO in funding the proceedings and a premium equivalent to three times those costs.
Any capital or income which Mae will receive as a result of these proceedings will be as a result of distributions to her from Marc's Testamentary Trust and/or the Washburn Trust. In essence, Mae will be obliged to pay to LCMO four times its cost of funding these proceedings.
As at July 2020, LCMO had incurred costs of $1,904,418 and anticipated expending costs of $2,458,500 to the conclusion of the trial. Consequently, the defendants submit that if Mae receives any capital or income from Marc's Testamentary Trust and/or the Washburn Trust, she will be under an obligation to pay at least $9,834,000 to LCMO.
[16] Primary decision [572] - [574].
Mae entered into the funding agreement with LCMO in her personal capacity and not as trustee for either the Washburn Trust or Marc's Testamentary Trust. Further, as the primary judge also noted,[17] cl 10.11 of the litigation funding agreement provides that nothing in cl 10 (being the clause that provides for payment by Mae to LCMO) shall be construed as requiring Mae to breach or otherwise fail to comply with any duty as trustee of any trust the subject of these proceedings.[18]
[17] Primary decision [580].
[18] Affidavit of Shemali Samaraweera sworn 1 March 2022, attachment SMS-10.
In these circumstances, the litigation funding agreement does not require the payment to LCMO of trust assets restored to the trust funds, prior to those funds being the subject of a distribution to Mae pursuant to the terms of the trusts.
Even if amounts restored by Washburn and Rectangular to the trusts were to be expended in a way that prevented the recovery of the funds, it does not follow that the trust assets would be insufficient to enable repayment in the event that the appeal was successful. Washburn and Rectangular have produced the financial statements which they prepared for the Washburn Trust and Marc's Testamentary Trust for the financial year ended 30 June 2020.[19] According to those accounts:
1.The Washburn Trust then had net assets of $16,227,077 (principally comprising investments, including shares in Leone valued at $17,363,251); and
2.Marc's Testamentary Trust then had net assets of $7,637,705 (principally comprising loans). Leaving out of account the disputed loans to Marc's estate of $1,485,714 and to Mae of $1,970,867 still leaves net assets of $4,181,124.
[19] Affidavit of Shemali Samaraweera sworn 1 March 2022, attachments SMS-17 and SMS-20.
In these circumstances, the evidence does not satisfy us that amounts paid to restore the assets of the Washburn Trust and Marc's Testamentary Trust will be irrecoverable if the appeal succeeds.
The position is somewhat different with regard to the costs of the primary proceedings, which will be payable to Mae in her personal capacity under order 1 and must be paid to LCMO under the terms of the litigation funding agreement. However, LCMO has offered an undertaking by way of deed poll that, in the event it receives money paid in satisfaction of costs orders which Mae becomes liable to repay, LCMO will pay that amount to or as directed by the appellants and indemnify Mae in respect of that liability. The circumstances of LCMO, and the cross-guarantee by its parent, Litigation Capital Management Ltd (LCM), which supports its undertakings, were described by the primary judge in Cardaci v Cardaci [No 2],[20] dealing with the form of security for costs that Mae was required to provide in the primary proceedings.
[20] Cardaci v Cardaci [No 2] [2019] WASC 274 [48] - [62].
The appellants take issue with the form of the undertaking offered. They contend that the undertaking is only enforceable by motion for contempt of court in the event there is a failure to comply with it. They say that the undertaking is given by LCMO (for which there is no evidence as to its capacity to pay) and not LCM (which clearly has that capacity). The appellants further contend that the undertaking does not create a debt to which the deed of cross-guarantee applies, and the deed of cross-guarantee is revocable in any event.
The appellants' concerns in relation to the form of the undertaking appear to us to be more theoretical than real. LCMO is part of a group of companies including a well-resourced publicly listed parent operating a significant litigation funding business. The deed of cross-guarantee indicates that the parent stands behind its subsidiary's financial obligations. It seems unlikely that LCM would risk reputational damage to its business by leaving LCMO unable to fulfill the undertaking, even assuming that the deed of cross-guarantee could be revoked or did not secure the obligation created by LCMO's undertaking. We do not regard the undertaking as valueless. The proffering of the undertaking counts against a conclusion that the appeal would be rendered nugatory on the basis that the appellants may not be able to recover payments to discharge their costs liability in the event that the appeal succeeds.
We also note that, even if the appeals are successful, Mae will remain a beneficiary of the Washburn Trust and Marc's Testamentary Trust. It may be expected that the trustees of those trusts will have regard to Mae's financial liabilities, and her capacity to satisfy them, in considering whether to make distributions to her in the future. Even if the appeals succeed, Mae may be placed in a position by the trustees where she is able to reimburse payments made by the appellants to discharge the costs liability created by order 1 of the primary orders made on 23 December 2021.
Having regard to the above matters, we are not satisfied that the appeal will be rendered nugatory by reason of the prospect that the appellants may not be able to recover amounts paid to Mae under order 1 of the primary orders if a stay is not granted and the appeal succeeds.

Reasonable prospects of success

Senior counsel for Mae did not ultimately contend that this court should conclude, on the stay application, that the appeal had no reasonable prospects of success. We are satisfied that the proposed grounds of appeal are reasonably arguable in the relevant sense. The strength of the appeal seems to us at this stage to be an essentially neutral factor in the exercise of our discretion. Counsel for both parties accepted this to be the case at the hearing of the Application.[21]

Balance of convenience

[21] Appeal ts 4 - 5, 27.

Even if we had been satisfied that the appeals may be rendered nugatory if a stay is not granted, the balance of convenience, although finely balanced, is against the grant of a stay.
The evidence does not demonstrate the existence of any particular prejudice to either Washburn or Rectangular if they were to be wound up. There is no evidence that they have any ongoing business or any significant assets. The purpose of the companies' existence appears to be to act as trustees of trusts of which they are not beneficiaries. They have no particular interest in continuing to act in that role.
It may be that Philip regards himself as having an interest in retaining control of the relevant trust assets through Washburn and Rectangular. However, there is no evidence that Philip lacks the capacity to cause Washburn and Rectangular, which he still controls, to receive and pay funds to discharge their liabilities pending the determination of the appeal. If Philip has that capacity but chooses not to exercise it, he can hardly complain if the failure by Washburn and Rectangular to meet their obligations then prevents the appeal from being prosecuted by those corporations.
On the other hand, Mae has deposed that she lacks the capacity to defend the appeals without some trust distributions or further litigation funding from LCMO. The terms on which litigation funding is being offered on appeal reflects those offered for trial - namely a premium of three times the outgoings charged by LCMO. No undertaking or security for an undertaking is offered by the appellants for the loss that Mae can anticipate suffering as a consequence of the grant of a stay.
A stay of the orders for the restitution of trust funds does have the potential to cause loss to Mae or reduce her capacity to administer and pursue claims on behalf of the trusts of which she is a trustee and beneficiary.
Senior counsel for Mae accepted that any payments under order 1, or distributions of amounts paid under orders 9 and 10 to Mae as a beneficiary of the relevant trusts, would need to be paid to LCMO under the terms of the existing litigation funding agreement.[22] Mae's intention to cause trust funds to be expended in the defence of this appeal, in her capacity as trustee, depends on the outcome of a pending application for directions under s 92 of the Trustees Act 1962 (WA) in relation to that matter. However, if directions are given, then, to the extent that there would otherwise have been restoration of the trust funds, a stay will have the effect of reducing the liquid assets available to Mae, as trustee, to fund the defence of the appeals, and may increase the requirement for litigation funding to be used.
[22] Appeal ts 29.
There is also some prospect that the grant of a stay, and a consequent delay in making a winding up application, could operate to the prejudice of the trusts, as creditors of Washburn and Rectangular, if the appeal is dismissed. For the purpose of the voidable transaction provisions, assuming a winding up in insolvency by order of the court, the relation-back day will usually be the day on which the winding up application was filed. Accordingly, any stay would tend to restrict the purview of the transactions which may be challenged in a winding up by deferring the relation-back day to a later date.

Orders

Having regard to the above matters, we are not satisfied that this is an appropriate case to order a stay of the primary orders or suspend their enforcement pending determination of the appeal. We would therefore dismiss the Application.
We hear from the parties as to the costs of the Application.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EM
Associate to the Honourable Justice Mitchell
1 APRIL 2022