FEDERAL COURT OF AUSTRALIA LFDB v SM (No 2) [2016] FCA 295 File number(s): NSD 1665 of 2015 Judge(s): GRIFFITHS J Date of judgment: 23 March 2016 Catchwords: PRACTICE AND PROCEDURE - application to stay execution of judgments registered under the Trans-Tasman Proceedings Act 2010 (Cth) – appeal proceedings in New Zealand and applications to set aside the registered judgments – relevant considerations in determining whether or not to grant a stay – relevance of first applicant's conduct in previous proceedings in New Zealand and critical observations of that conduct by various New Zealand Courts – relevance of comity – stay granted on appropriate conditions Legislation: Federal Court of Australia Act 1976 (Cth), s 37AF Foreign Judgments Act 1991 (Cth), s 8 Property (Relationships) Act 1976 (NZ) Trans-Tasman Proceedings Act 2010 (Cth), ss 72(1), 76(1) Cases cited: Dawn Jade Ltd v Himanshu Girdhar Dua [2014] NSWSC 1085 LFDB v SM [2015] FCA 725 Date of hearing: 23 March 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 33 Counsel for the Applicants: Mr P Herzfeld Solicitor for the Applicants: O'Neill Partners Commercial Lawyers Counsel for the Respondent: Dr C Ward SC Solicitor for the Respondent: Marque Lawyers ORDERS NSD 1665 of 2015 BETWEEN: LFDB (and others named in the Schedule) First Applicant AND: SM Respondent JUDGE: GRIFFITHS J DATE OF ORDER: 23 MArch 2016 THE COURT ORDERS THAT: 1. Within seven days hereof the parties are to provide short minutes of order, either by consent or individually if they cannot agree, to give effect to these reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GRIFFITHS J: 1 By originating applications filed on 12 February 2016 (NSD 1664/2015 and NSD 1665/2015), the applicants seek orders under s 72(1) of the Trans-Tasman Proceedings Act 2010 (Cth) (the Act) setting aside registration of two judgments of the High Court of New Zealand given on 26 November 2015 and orders under s 76(1) of the Act staying the enforcement of those judgments and orders pending the determination of the originating applications. In the first New Zealand judgment, which dealt with relationship property under the Property (Relationships) Act 1976 (NZ), Ellis J in the High Court of New Zealand ordered the first applicant to pay his ex-partner SM an amount of approximately $5.5m plus interest and costs. The second judgment relates to five other costs orders totalling approximately $22,000 plus interest and costs. 2 By order made on 23 February 2016, the two proceedings in this Court were consolidated and given the single file number, NSD1665/2015. By orders made by this Court on 14 March 2016, the applicants were ordered to pay security for costs in respect of their application for a stay. Non-publication orders were also made on that day under s 37AF of the Federal Court of Australia Act 1976 (Cth). Background 3 The first applicant is LFDB. The second, third and fourth applicants are companies associated with him. 4 LFDB and SM were in a domestic partnership relationship for several years. Some of that time they lived in New Zealand; for a longer period, they lived in Australia. They separated in January 2009. 5 SM commenced a proceeding in the Family Court of New Zealand seeking division of property under the Property (Relationships) Act 1976 (NZ) (the NZ proceeding). The NZ proceeding was subsequently transferred to the High Court of New Zealand. The parties have engaged in serial litigation in both the High Court and the Court of Appeal. Some of the history of what one New Zealand High Court Judge described as "the intractable and protracted litigation" in which the parties were locked is described in Gleeson J's judgment in this Court in LFDB v SM [2015] FCA 725 (which related to the setting aside of the registration of freezing orders made by the High Court of New Zealand). The intensity and frequency of the litigation between the parties is reflected in the fact that, when the proceedings were transferred to the High Court in October 2011, the parties had already engaged in 23 interlocutory applications, filed 53 affidavits and received seven court judgments or directions. Justice Ellis was particularly critical of what her Honour described as the first applicant's deliberate strategy of "dragging things through the Courts" in circumstances where he had: (a) made six unsuccessful challenges to the jurisdiction of the Courts, including two which were described as "oppressive" or "vexatious"; (b) brought seven unsuccessful appeal proceedings: three of which were out of time, and four of which were abandoned (one of which the defendant applied to reinstate); (c) made five unsuccessful stay applications, including one that duplicated an application that the defendant had withdrawn upon making consent orders and at his request; (d) made nine unsuccessful applications for extensions of time: seven of which were made in respect of monetary orders, and two of which were abandoned; (e) made 15 unsuccessful attempts to possess or sell M Street, including duplicate applications in the tort proceedings (that he failed to prosecute); (f) unsuccessfully disputed, or ignored every monetary order as and when made, including 15 costs orders (resulting in bankruptcy proceedings and two "unless orders"), two orders to pay mortgages over the parties' properties, and an interim distribution; and (g) failed to comply with three discovery orders, having sought to impose conditions on their terms. 6 On 29 August 2013, Ellis J made what is referred to in New Zealand as an "unless order" (the August unless order). It provided that if LFDB did not pay to SM's solicitors the sum of $24,435.08 plus interest by 5pm on 9 September 2013, he "shall be debarred from taking any further part in the proceedings". 7 LFDB did not pay the amount by the time specified. He paid it on 17 October 2013. On 22 November 2013, Ellis J made an order varying the August unless order nunc pro tunc to extend the time for payment to 17 October 2013. The effect was that LFDB was not thereafter debarred from taking part in the NZ proceeding. 8 On 14 July 2014, the New Zealand Court of Appeal allowed an appeal by SM from Ellis J's order dated 22 November 2013. The effect was that LFDB was debarred from taking any further part in the NZ proceeding. 9 LFDB was granted leave to appeal to the Supreme Court of New Zealand but, on 5 December 2014, that leave was revoked. The reasons of the Supreme Court record that this was because, during the course of the hearing, that Court became aware that a further order for costs made against LFDB on 6 October 2014 had not been fully paid. The reasons record that LFDB had become aware of the costs order on 20 October 2014, but that it was not served on him until 2 December 2014. It was then payable within 10 working days. ($20,000 was paid on 3 December 2014, the balance of $32,920.63 was paid on 11 December 2014 and interest on costs of $2,648.79 was paid on 19 December 2014). 10 Accordingly, from 14 July 2014, LFDB was debarred from taking any further part in the NZ High Court proceeding. 11 During 2015, various freezing orders were made which were directed to the assets of LFDB and his associated entities. 12 Among other things, Ellis J's final judgment required LFDB to pay the total net sums of A$3,795,748 and NZ$1,385,789 plus interest to SM. The final orders made by Ellis J on 26 November 2015 were explicitly addressed not only to LFDB (as the defendant in the substantive proceeding) but also to additional persons, including the other applicants in the proceedings before this Court (being entities associated with LFDB). It appears that these other applicants had sought to be joined to the proceeding before Ellis J but their applications had been refused. 13 It is convenient to now summarise the chronology of subsequent relevant events: (a) the final judgment and orders dated 26 November 2015 of Ellis J were served on LFDB's New Zealand addresses for service as well as being brought directly to the attention of LFDB on 22 December 2015 (when they were sent by email from the solicitors for SM in New Zealand to LFDB). The documents were again served upon LFDB on 24 December 2015 when they was attached to the applications in this Court for registration under the Act; (b) the period within which to bring an appeal as of right from a decision of the New Zealand High Court is 20 working days from the date of the decision. Any appeal in New Zealand should have been filed, at the latest, by 11 February 2016; (c) on 9 February 2016, LFDB deposed in an affidavit filed in this Court that the applicants "intended" to seek an extension of time in which to appeal from the final judgment in the "next two weeks"; (d) on 23 February 2016, LFDB appeared in person before this Court and stated an intention to appeal (out of time) in New Zealand; (e) on 10 March 2016, the Registry of the New Zealand Court of Appeal rejected LFDB's appeal documentation on the ground that it purported to be brought in the names of entities that were not parties to the High Court proceedings. LFDB was provided with a template application form for an extension of time in which to appeal from Ellis J's final judgment; (f) on 10 March 2016, LFDB requested a review of that decision; (g) on 16 March 2016, the New Zealand Court of Appeal rejected that request for review; and (h) on 22 March 2016, LFDB resubmitted the appeal papers to the Court of Appeal, deleting the associated applicants as parties to the proceeding. The draft notice of appeal was in similar terms to the draft notice of appeal which LFBD had attempted to file in the Court of Appeal earlier that month. The material which was resubmitted to the Court of Appeal included an affidavit sworn by LFDB which seeks to provide an explanation for his failure to commence the appeal proceeding within time. In brief that explanation is that it was not until 22 December 2015 that LFDB obtained a copy of Ellis J's reasons for judgment dated 26 November 2015 and that it was not until Christmas Eve that formal service of her Honour's final orders and decision occurred. In brief, LFDB deposes that, because of that late service and the ensuing Christmas break, he had not been able to bring his appeal any earlier. He also deposes that the situation is further compounded by both the existing freezing orders which prevent him paying for legal representation in the appeal and an outstanding arrest warrant in New Zealand. Applicable principles 14 Section 76 of the Act provides as follows: 76 Stay of enforcement of registered NZ judgment so that the liable person can appeal it (1) An Australian court in which an NZ judgment has been registered may, on an application by a liable person under subsection (3), order that a proceeding in that court for enforcement of the judgment: (a) not be commenced until a specified time or event; or (b) be stayed for a specified period. (2) The order: (a) must be made subject to the following conditions: (i) that the liable person make an application to set aside, vary or appeal against the judgment to a New Zealand court or tribunal that has power to grant the application by the end of a period specified in the order; (ii) that the liable person prosecute that application expeditiously; and (b) may be made subject to any other conditions that the Australian court considers appropriate (including conditions as to the giving of security). (3) The liable person's application must be made within: (a) 30 working days of the Australian court after the day the liable person was given notice of the registration under section 73; or (b) if, before or after that period, the liable person applies to the Australian court for a longer period—any longer period the Australian court considers appropriate. (4) This section does not affect any other powers of the Australian court to stay the enforcement of the registered NZ judgment on any grounds on which the court could stay the enforcement of a judgment of an Australian court or tribunal. 15 Neither party drew the Court's attention to any direct authority concerning the exercise of the power under s 76(1) of the Act. However, in the similar context of s 8 of the Foreign Judgments Act 1991 (Cth), courts have applied the principles applicable to the stay of execution of judgments of Australian courts pending an appeal. Those principles are helpfully set out by Adamson J in Dawn Jade Ltd v Himanshu Girdhar Dua [2014] NSWSC 1085 at [34]-[37]: (a) the onus is on the applicant to demonstrate a proper basis for the stay, and that a stay will be fair to all parties; (b) in the exercise of its discretion, the court will weigh considerations such as the balance of convenience and the competing rights of the parties; (c) where there is a risk that, if a stay is granted, the assets of the applicant will be disposed of, the court may refuse a stay, but this may be able to be addressed by the imposition of appropriate conditions, including but not limited to security which, in an appropriate case, should at most protect the existing value of the registered judgment and not increase its value; (d) where there is a risk that the appeal will prove abortive if the applicant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay; and (e) courts approaching applications for a stay will not generally speculate about the applicant's prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated. The court needs to be satisfied that the case which is sought to be adduced by the party seeking a stay is brought bona fide and is not merely a delaying tactic. The applicants' financial position 16 LFDB gave affidavit evidence concerning the financial position of the applicants. Although LFDB was cross-examined on his affidavits, including his evidence concerning that financial position, his evidence was not relevantly shaken and, on this subject, I accept it. The respondent filed no competing evidence on this subject. 17 LFDB holds a bank account which has an available balance of $2,629.56 but is the subject of a loan of $1 million. He holds two MasterCard accounts which each have approximately $15,000 and $6,000 credit available but on which are owed approximately $14,000 and $13,000, respectively. LFDB holds one asset of significant value, worth $1.3 million – securing the loan referred to above, as well as LFDB's liability as guarantor in respect of a separate loan of approximately $864,000 outstanding by DBT. 18 DBA was valued as at 4 March 2015 at between approximately $1 million and approximately $1.4 million but only between approximately $185,000 and approximately $700,000 after liabilities to LFDB were taken into account. Of the bank accounts held by DBA: one is over $8,000 overdrawn, another has a balance of around $50,000, another has a balance of around $24,000 and the others are almost valueless. 19 DBT has a liability on the loan referred to above. Otherwise, it holds a bank account with around $4,000. It holds real property, furniture and artworks valued at around $500,000, 1,000 shares in SE valued at around $1,000 and a loan to LFDB of $2.1 million and another liability to LFDB of $900,000. 20 SE holds a bank account which is essentially valueless. 21 BWP holds a bank account which is also essentially valueless. It owns a car which, taking account of the finance owed on it, has a net value of approximately $2,000. Security 22 The applicants submitted that any perceived risk that, if a stay is granted, the assets of the applicants will be disposed of can be addressed by an undertaking which they proffered. The proposed undertaking is in the nature of a freezing order in respect of the applicants' assets in Australia. Consideration 23 For the following reasons, and not without some reservations, I consider that it is appropriate to stay the execution of the registered judgments pending the outcome of the proceedings in the Court of Appeal of New Zealand and the possible hearing and determination of the originating applications in this Court, but subject to appropriate conditions. 24 First, the essential purpose of the stay is to enable: (a) the first applicant to seek an extension of time to appeal Ellis J's final orders and to prosecute an appeal if an extension is granted; and (b) if necessary, and depending upon the outcome of the New Zealand appellate proceedings, for the applicants to prosecute their originating applications in this Court to have the registered judgments set aside. 25 Secondly, I accept Mr Herzfeld's submission that this Court should not proceed to hear and determine the application to set aside the registered judgments until the outcome of the proceedings in the New Zealand Court of Appeal is known. That is principally because the applicants propose to argue in this Court that registration was contrary to public policy having regard to what they say are serious denials of procedural fairness at various levels of the proceedings to date in the New Zealand Courts, including but not limited to the making, operation and effect of the "unless orders". Some of those matters are outlined above. It is both unnecessary and undesirable to express any view at this stage regarding the strength of those contentions. I should also add that I do not mean to suggest that the applicants' "contrary to public policy" ground is limited to procedural unfairness. I accept, however, Mr Herzfeld's submission that considerations of comity justify this Court awaiting the outcome of the appellate proceedings in the Court of Appeal in which, if time is extended, that appellate court will have an opportunity to remedy any legal deficiencies in the final judgment and final orders which would then absolve this Court from having to determine the applicants' public policy contentions. In other words, if the appeal succeeds, the registered judgments could not stand and there would be no need to determine the originating applications in this Court seeking to have those judgments set aside. 26 As noted above, the first applicant submitted revised appeal documents in the New Zealand Court of Appeal yesterday. It is unknown how long it will take for the extension of time application to be heard (although it is evident that there is available in an appropriate case a fast-track procedure), nor how long the appeal processes will take if an extension were granted. It may reasonably be assumed, however, that the extension of time application will be heard and determined fairly shortly. 27 I do not accept the respondent's contention that "it is unlikely in the extreme" that time will be extended. It will be a matter for the Court of Appeal to determine whether LFDB's explanation for the delay should be accepted. Nor am I persuaded that the first applicant's proceedings in New Zealand are not being brought in good faith. It is notable that that proposition was not put to LFDB in cross-examination. 28 For the reasons given above, and in accordance with general principle, it is both unnecessary and inappropriate to express a considered view of the prospects of LFDB's proposed appeal, but I can say that I am not persuaded that the draft notice of appeal is untenable. 29 If time is not extended by the New Zealand Court of Appeal, that will be the end of the matter and the applicants will presumably then press their originating application in this Court to have the registered judgments set aside, which should proceed with all deliberate speed in those circumstances. If time is extended by the Court of Appeal, LFDB will be obliged to conduct his appeal in New Zealand expeditiously. If this does not occur without good reason, the respondent will have liberty to restore the matter in this Court and the stay may be dissolved. 30 Thirdly, while I acknowledge that the respondent is generally entitled to enjoy the fruits of the registered judgments in her favour, it seems plain from the unchallenged evidence concerning the applicants' financial position that there is a real probability that enforcement of those judgments now would result in the bankruptcy of the first applicant and the winding up of his associated entities. That would presumably stymie the proceedings in New Zealand and also create a formidable barrier to the prosecution in this Court, if it proves necessary, of the applicants' originating applications to have the registered judgments set aside. It is also apparent from LFDB's evidence that the applicants do not have the financial capacity to pay the judgment amounts as security for a stay. 31 Fourthly, it is evident from the summary above that LFDB's conduct of the proceedings in New Zealand have attracted trenchant criticisms by various judges of those courts. It is unnecessary in this application to determine the validity of those comments. Those comments have naturally weighed heavily with me, however, I do not consider that they should preclude this Court from granting a stay on appropriate conditions in circumstances where, as I believe to be the case, the matter is one which is otherwise appropriate for such orders to be made. The numerous critical comments and observations by the New Zealand Courts serve to highlight, however, the need for strict vigilance in ensuring that the stay is not abused. The conditions of the stay are intended to facilitate that vigilance. Conclusion 32 For these reasons, and noting the applicants' proposed undertaking, orders should be made staying the execution of the registered judgments. Appropriate conditions should attach to the stay. The terms of the proposed undertaking and the proposed orders should be amended to reflect the comments which I made at the end of the hearing. 33 The parties should provide short minutes of order within seven days which reflect these reasons for judgment and those comments. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. Associate: Dated: 23 March 2016 SCHEDULE OF PARTIES NSD 1665 of 2015 Applicants Second Applicant DBA(AU) Third Applicant DBA(AU) as trustee for DPT Fourth Applicant SE Fifth Applicant BWP