FEDERAL COURT OF AUSTRALIA Seafolly Pty Ltd v Madden (No 3) [2013] FCA 316 Citation: Seafolly Pty Ltd v Madden (No 3) [2013] FCA 316 Parties: SEAFOLLY PTY LTD (ACN 001 537 748) v LEAH MADDEN File number: VID 764 of 2010 Judge: TRACEY J Date of judgment: 9 April 2013 Catchwords: COSTS – Application for lump sum costs order – application for stay pending hearing and determination of appeal – whether proper foundation for acceding to application for stay – unnecessary to resolve application for fixing of lump sum Legislation: Bankruptcy Act 1966 (Cth) Federal Court Rules 2011 (Cth) Cases cited: ACCC v BMW (Aust) Limited (No 2) [2003] FCA 864 – referred to Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685 - applied Momentum Productions Pty Ltd v Lewarne [2007] FCA 1988 – referred to Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 – referred to Premier Pet Pty Ltd v Brown [2013] FCA 17 – referred to Seafolly Pty Ltd v Madden (No 2) [2013] FCA 46 – referred to Seafolly Pty Ltd v Madden [2012] FCA 1346 – referred to Date of hearing: 9 April 2013 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 32 Counsel for the Applicant: Mr E J C Heerey Solicitor for the Applicant: K & L Gates Counsel for the Respondent: Mr G S Clarke SC and Mr I P Horak Solicitor for the Respondent: Phillips Ormonde Fitzpatrick Lawyers IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 764 of 2010 BETWEEN: SEAFOLLY PTY LTD (ACN 001 537 748) Applicant AND: LEAH MADDEN Respondent JUDGE: TRACEY J DATE OF ORDER: 9 APRIL 2013 WHERE MADE: MELBOURNE UPON THE RESPONDENT UNDERTAKING TO THE COURT THAT: She will not until the hearing and determination of appeal (VID 1108 of 2012) or further order, without providing 21 days prior notice to the solicitors for the Applicant, do or attempt to do any of the following: (a) sell or transfer any of her interest in her property at 7 La Spezia Court, Isle of Capri, Queensland being the land more particularly described in certificate of title reference 14235170 being part of Exhibit LSM-2 to the affidavit of the Respondent sworn on 13 march 2013 ("the La Spezia Property"); and (b) encumber any of her interest in the La Spezia Property to an extent greater than $400,000. THE COURT ORDERS THAT: 1. The enforcement of the costs order made against the Respondent on 29 November 2012 be stayed until the hearing and determination of the appeal (VID 1108 of 2012) without prejudice to the Applicant's rights to apply for taxation of those costs pursuant to Division 40.2 of the Federal Court Rules 2011 (Cth). 2. The parties' costs of the Respondent's interlocutory application filed on 26 February 2013 be reserved. 3. The Applicant's interlocutory application filed 22 February 2013 be adjourned to a date to be fixed. 4. The parties' costs of the Applicant's interlocutory application filed 22 February 2013 be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 764 of 2010 BETWEEN: SEAFOLLY PTY LTD (ACN 001 537 748) Applicant AND: LEAH MADDEN Respondent JUDGE: TRACEY J DATE: 9 April 2013 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 Seafolly Pty Ltd ("Seafolly") and Ms Leah Madden are competitors in the women's swimwear market. Ms Madden made certain public statements which suggested that Seafolly had copied and marketed some of her designs. Seafolly responded by commencing the present proceeding. It pleaded causes of action for misleading and deceptive conduct, injurious falsehood and for copyright infringement. 2 Ms Madden cross-claimed against Seafolly. Her claims were for defamation and for misleading and deceptive conduct. Both her claims were founded on statements made in press releases by Seafolly which attributed to her a malicious intent of damaging Seafolly when she made her impugned statements. 3 I gave judgment for Seafolly: see Seafolly Pty Ltd v Madden [2012] FCA 1346. I upheld some, but not all, of its claims against Ms Madden and awarded costs against Ms Madden. I dismissed Ms Madden's cross-claim and ordered that she pay Seafolly's costs of that claim. 4 Ms Madden subsequently sought to vary these orders because she had made a Calderbank offer to Seafolly prior to the determination of the parties' competing claims. I refused Ms Madden's application: see Seafolly Pty Ltd v Madden (No 2) [2013] FCA 46. 5 As a result my original orders remained undisturbed. They are the subject of an appeal by Ms Madden. That appeal is listed to be heard before a Full Court on 22 May 2013. THE PRESENT APPLICATIONS 6 Both parties have now filed further interlocutory applications. 7 Seafolly has applied for a lump sum costs order pursuant to Rule 40.02(b) of the Federal Court Rules 2011 (Cth) ("the Rules"). 8 Ms Madden opposes this application. 9 She, for her part, has applied for an order, pursuant to Rules 41.03 and 41.11 of the Rules, or in the inherent jurisdiction of the Court, that enforcement of the costs orders made against her be stayed pending the hearing and determination of the appeal. 10 Seafolly opposes Ms Madden's application. 11 Both parties have filed detailed written submissions on all issues in advance of today's hearing. These written submissions have been supplemented by oral submissions. 12 For reasons which I will later explain it will be convenient to deal first with Ms Madden's stay application. THE STAY APPLICATION 13 An appeal does not operate as a stay of execution of an order made at first instance: see r 36.08 of the Rules. 14 Rule 41.03 provides that a party who is bound by an order of the Court may apply for an order that that order be stayed. Rule 41.11 provides for a party to make application for a stay of execution of an order made by the Court. 15 Ms Madden's application relates only to the enforcement of the costs orders which have been made against her. She has already paid to Seafolly the damages which were awarded against her for engaging in misleading and deceptive conduct. 16 The Court has a wide and unfettered discretion to grant stays of operation of its judgments or orders. The power must, of course, be exercised judicially. 17 In Alexander v Cambridge Credit Corp Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 693-5 the New South Wales Court of Appeal undertook a comprehensive review of the authorities relating to the exercise of comparable powers. The Court distilled a number of principles which were to guide the exercise of the discretion. It said (at 694-5) that: "… The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties: Trlin. The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears: see Supreme Court Rules, Pt 51, r 10; Waller v Todorovic. The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it: Attorney-General v Emerson (1889) 24 QBD 56. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay: cf Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857. Sometimes as a condition of the grant of a stay, where funds are available, a court will impose on the applicant the payment of the whole, or part, to the judgment creditor: Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184. Even where no order is made for the payment of part of a verdict, it is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties. … Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay: Scarborough v Lew's Junction Stores Pty Ltd (at 130); applied in Sun Alliance Insurance Ltd v Steiger (Full Court, Supreme Court of Victoria, 22 March, 1985, unreported). Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay: Wilson v Church (No 2) (1879) 12 Ch D 454; Re Middle Harbour Investments Ltd (In Liq) (at 2). Secondly, although courts approaching applications for a stay will not generally speculate about the appellant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case." 18 The Court also rejected the notion that stay orders of the kind presently sought should only be made in special or exceptional circumstances. The Court held (at 694) that it was "sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of discretion in his favour." 19 These principles have been adopted and applied in a number of cases in this Court: see, for example, Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65 at 66; ACCC v BMW (Aust) Limited (No 2) [2003] FCA 864 at [5]; Momentum Productions Pty Ltd v Lewarne [2007] FCA 1988; and Premier Pet Pty Ltd v Brown [2013] FCA 17 at [9]. 20 Seafolly has not prepared a bill of costs in taxable form. It is, as a result, only possible to estimate the quantum of the costs orders made against Ms Madden within a significant range. Costs experts engaged by the two parties have estimated the costs at $351,241.95 (Ms Madden's expert) and $508,392.05 (Seafolly's expert). 21 Ms Madden has deposed that her liquid assets are minimal and certainly inadequate to meet costs orders of this magnitude. She does, however, own three parcels of real property. One is unencumbered. That is her family home. She lives there with her two children. She places a value of $1.6 million on this property. She is presently building another house in which she proposes, eventually, to reside. She places a value of $2.2 million on the property on which this house is being built. She also owns a development property. At present a house stands on the property but it is proposed to demolish the house and to replace it with a commercial development. This land is valued at about $500,000. It is, however, subject to a mortgage of $460,000. The property on which her new residence is being constructed is also being used to provide security for the loan on this development property. Ms Madden's only other significant asset is a motor vehicle valued at about $60,000. 22 Ms Madden submitted that the principal consideration was one of timing. She is not, presently, in a position to satisfy the costs orders made by the Court. She has a limited income and is not in a position to borrow the necessary funds because she would not be able to service such a loan. She could put her present residence on the market but it may take time to sell and a time for settlement would have to be negotiated with the purchaser. By that time the appeal will, in all likelihood, have been heard, if not determined. Were Ms Madden to be successful she would not be required to satisfy the costs orders but would have been forced to sell one of her principal assets. 23 Ms Madden further contended that she had acted bona fide in appealing and that she had reasonable prospects of succeeding on the appeal. 24 Ms Madden also expressed a concern that, if the orders are not stayed, Seafolly may pursue bankruptcy proceedings against her. If such proceedings are successful she may be prevented from prosecuting her appeal. 25 Seafolly asserted a prima facie entitlement to payment of the costs orders without further delay. It contended, rightly, that the existence of the pending appeal did not operate as a stay. It asserted that Ms Madden had assets against which she could borrow in order to meet her obligations. It expressed concern that Ms Madden might dispose of some of the assets if a stay were to be granted. Were that to occur and were Seafolly to succeed in defending Ms Madden's appeal, it may not be able to obtain payment of the costs orders because Ms Madden would be without the resources to make the necessary payments. If the stay is refused and Ms Madden satisfies the costs orders, Seafolly would, it submitted, have no difficulty in making a prompt repayment to Ms Madden. 26 Ms Madden sought to meet one of Seafolly's concerns by offering undertakings to the Court that she would not dispose of her interest in her present residence or encumber her interest in that property to an extent greater than $400,000 pending the hearing and determination of the appeal. 27 It is for Ms Madden to establish that a proper foundation exists for acceding to her application for a stay. I put to one side, immediately, the speculation that, in the absence of a stay, Seafolly may proceed to bankrupt Ms Madden and thereby prevent her pursuing her appeal. Even if it wished to do so, Seafolly could not satisfy the relevant temporal requirements of the Bankruptcy Act 1966 (Cth) prior to the hearing of the appeal. 28 There is, however, greater force in Ms Madden's argument that the only realistic way in which she could satisfy the costs orders would be by placing her home on the market and using part of the sale price to satisfy the orders. Although Seafolly did suggest that alternatives to a sale, such as borrowing, might be available, I accept Ms Madden's evidence that her only practicable option, in the event that a stay is refused, would be the sale of her only unencumbered property. 29 Whilst it is not appropriate that I should venture any assessment of the likelihood of her appeal succeeding, what can be said is that it cannot simply be dismissed as being obviously unmeritorious. It would be grossly unfair to her were she to be forced to sell her home and then be successful on her appeal. She would then be put in a position of having uprooted her family and moved to alternative accommodation only to find that this significant disruption to her family's daily lifestyle need never have occurred. 30 The appeal hearing is a matter of weeks away and it is unlikely that any sale could be effected before the hearing takes place and, possibly, before the appeal is determined. Seafolly's interests would, in the meantime, be protected by the undertaking which has been proffered by Ms Madden. 31 A stay, subject to the proposed undertakings, would, in my judgment, be fair in the present circumstances. THE LUMP SUM 32 It is not necessary to resolve Seafolly's application for the fixing of a lump sum. It may never be necessary to do so. The appropriate course is to adjourn its application pending the hearing and determination of the appeal. If the appeal is successful the application can be listed for a speedy hearing. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey. Associate: Dated: 9 April 2013