Court of Appeal Supreme Court New South Wales Medium Neutral Citation: International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 186 Hearing dates: 4 July 2011 Decision date: 05 July 2011 Before: Basten JA at 1 Decision: (1) (a) Upon ILP through its counsel giving - (i) the usual undertaking as to damages, and (ii) an undertaking to prosecute expeditiously its current application for special leave to appeal to the High Court and, if leave be granted, its appeal, and (b) on condition that ILP provide security in an amount of $870,000 with respect to the amount payable by way of restitution to Chameleon and in respect of its liability to Chameleon for costs, by paying such amount into an account with a bank incorporated in Australia as agreed between ILP and Chameleon or, failing such agreement, paying such amount into court, in either case, within 14 days of this order - stay the enforcement of orders 7, 8, 9 and 10 (other than so much of order 9 as relates to Cape Lambert) of this Court's orders made on 3 June 2011 until 14 days after the determination of the proceedings in the High Court. (2) ILP be restrained from taking any steps to enforce the charge from Chameleon to ILP dated 28 December 2008 numbered 1752725 as registered on 4 February 2009 until 14 days after the determination of the proceedings in the High Court. (3) The security is to remain in the account or with the court until the determination of the proceedings in the High Court, at which time, if the parties are not able to agree as to its release, application may be made to the Registrar for directions. (4) Order that the costs of the stay application be the respondents' costs in the proceedings in this Court. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PROCEDURE - stay - pending application to High Court for special leave to appeal - prospects of success - balance of prejudice. PROCEDURE - stay - assessment of prejudice to parties - stay on conditions - provision of security. PROCEDURE - stay - costs of application. Legislation Cited: Corporations Act 2001 (Cth), s 925A Judiciary Act 1903 (Cth), s 35 Uniform Civil Procedure Rules 2005 (NSW), r 36.11 Cases Cited: Adeels Palace Pty Ltd v Moubarak (No 2) [2009] NSWCA 130 Chameleon Mining NL v International Litigation Partners Pte Ltd [2010] NSWSC 972 Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; 161 CLR 681 John Fairfax and Sons Ltd v Kelly (No 2) (1987) 8 NSWLR 510 Category: Procedural and other rulings Parties: International Litigation Partners Pte Ltd - Applicant Chameleon Mining NL - First Respondent Cape Lambert Resources Ltd - Second Respondent Representation: Counsel: R A Dick SC/R Yezerski - Applicant M Jones - First Respondent J Giles - Second Respondent Solicitors: Blake Dawson - Applicant Swaab Attorneys - First Respondent Lavan Legal - Second Respondent File Number(s): CA 2010/267410 Decision under appeal Citation: International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 50 Date of Decision: 2011-06-03 00:00:00 Before: Giles JA, Hodgson JA and Young JA File Number(s): CA 2010/267410 Judgment 1BASTEN JA : Judgment in this matter was handed down on 15 March 2011: International Litigation Partners Pte Ltd v Chameleon Mining NL [2011] NSWCA 50 (Giles, Hodgson and Young JJA). The appellant was unsuccessful, both in respect of its appeal and in respect of a cross-appeal. It seeks a stay of this Court's orders, pending determination of its application for special leave to appeal to the High Court and, if leave be granted, the appeal. This is the appropriate forum in which to seek a stay: Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; 161 CLR 681 (Brennan J). 2The present litigation arose out of a funding agreement entered into by International Litigation Partners Pte Ltd ("ILP") and Chameleon Mining NL ("Chameleon"). Funding was provided under the terms of a deed for the purposes of litigation in the Federal Court between Chameleon and Murchison Metals Ltd. The broad thrust of the agreement can be readily seen from the judgment of Hammerschlag J (the primary judge), Chameleon Mining NL v International Litigation Partners Pte Ltd [2010] NSWSC 972 at [3]-[15]. 3The deed was executed on 28 October 2008. Contemporaneously, Chameleon executed a charge over its assets as security for payment of moneys owed by it to ILP. The deed also contained provision for an "early termination fee" in circumstances where there was a change in control of Chameleon. 4On 10 August 2010 Chameleon entered into a form of agreement with Cape Lambert Resources Ltd ("Cape Lambert") contained in the document entitled "Terms Sheet". Upon acceptance of the terms by Chameleon, Cape Lambert was entitled to nominate 50% of the board of Chameleon. The agreement provided a standby facility in an amount of $6.5 million in exchange for which Chameleon was to give a charge over its assets. The identified specific purpose of the facility was to permit Chameleon to pay out ILP, with the result that Cape Lambert's charge would be a first ranking charge, following discharge of the security held by ILP: see at [24]-[25] below. 5On 10 August 2010 Chameleon wrote to ILP disputing ILP's entitlement to any payment under the funding agreement, on the basis that ILP was carrying on a financial services business in Australia, and did not hold a relevant licence, nor was it the beneficiary of an exemption. Chameleon gave notice of rescission of the funding agreement pursuant to s 925A of the Corporations Act 2001 (Cth): primary judgment at [30]. 6On 11 August 2010, ILP appointed receivers to Chameleon pursuant to its rights under the charge and on the same day, Chameleon sought relief on an urgent interim basis in the Equity Division. There was a final hearing of Chameleon's claim to relief on 17, 18 and 19 August 2010. The primary judge handed down judgment on 31 August 2010. In effect, his Honour upheld ILP's entitlement to engage in litigation funding in Australia, without a licence under the Corporations Act , upheld ILP's right to an early termination payment (later assessed at $8.6 million), but dismissed ILP's claim to a further payment in the order of $9 million. 7ILP appealed and Chameleon cross-appealed from these orders. The appeal was heard on 12 October 2010. This Court unanimously dismissed ILP's claim to a further payment, thus dismissing its appeal, but divided in its approach to the cross-appeal by Chameleon. Ultimately two members of the Court, Giles and Young JJA, writing separately, upheld the cross-appeal (Hodgson JA dissenting). The result was that ILP lost the benefit of the judgment in its favour for $8.6 million, was ordered to pay by way of restitution an amount of $618,855.70 to Chameleon and was ordered to take steps to discharge its security over the assets of Chameleon, failing which, the Registrar of the Court was empowered to execute such documents on its behalf. ILP (and the receivers) were ordered to pay the costs of Chameleon and Cape Lambert of the proceedings in the Court of Appeal, and before the primary judge. Principles applicable to say application 8It is desirable to identify the principles applicable in determining this matter, although the dispute turned more upon the proper application of those principles. 9Following the judgment in Burgundy Royale , this Court accepted that it was necessary for it to deal with stay applications in respect of its own judgments where there had been or was proposed to be an application for special leave to appeal: John Fairfax and Sons Ltd v Kelly (No 2) (1987) 8 NSWLR 510 (Kirby P, Mahoney and McHugh JJA). The Court stated that, upon being advised of an intention of the unsuccessful party to appeal, this Court "will normally grant a stay ... [which] will normally endure until such application is made or, if leave be granted, the appeal pursuant to such leave is disposed of by the High Court or until the High Court itself otherwise orders": p 512D. A stay would not be granted, however, if the Court deemed the application to be "plainly hopeless": p 512F. 10It may be that a more robust approach has been adopted over the years. In Adeels Palace Pty Ltd v Moubarak (No 2) [2009] NSWCA 130, Hodgson JA stated at [2]: " Prima facie the successful party is entitled to the benefit of a judgment, but a stay may be granted where an applicant demonstrates an appropriate case to warrant the exercise of discretion in its favour." 11His Honour noted that the first question for consideration was whether there was "a reasonable basis for the application for special leave": at [3]. He identified this as "not a high threshold" because the period of the stay, in the first instance, will only be until the High Court considers the application; thereafter, if the application is refused the stay will come to an end and if it be granted the grant carries its own assessment that there are reasonable prospects of success on the appeal. 12The second limb of the test is, in effect, a determination of the prejudice likely to be suffered by each party respectively if the stay were or were not to be granted. First issue: prospects of success 13Special leave to appeal is granted pursuant to s 35(2) of the Judiciary Act 1903 (Cth). The criteria by which an application is to be assessed are set out in s 35A. This is not a case in which there are conflicting decisions of intermediate courts of appeal: s 35A(a)(ii). Nor is it a case in which maintenance of the regularity of the administration of justice requires consideration of the judgment of this Court: s 35A(b). Rather, the application is supported on the ground, broadly, that it raises a question of law of public importance in relation to the operation of the Corporations Act in respect of litigation funding and the licensing of those providing financial services. 14The respondents do not dispute that the judgment, in its terms, may give rise to an issue of general public importance. They raise doubts as to whether this is an appropriate vehicle for considering the operation of the relevant statutory provisions on two grounds. First, they note that the funding agreement was not well drafted, reflecting comments in various judgments delivered in these proceedings. Secondly, they noted that the Australian Securities and Investments Commission ("ASIC") released a statement on 1 July 2011 announcing its intention to extend an order which, it stated, "will enable the temporary operation of a litigation funding scheme ... that is characterised as a managed investment scheme ... [and] will also exempt a litigation funding arrangement ... [that] is otherwise characterised as a financial product, including an interest in a single member arrangement, from complying with the requirements in the [ Corporations Act ]." 15Finally, an application for special leave will not be successful unless the High Court is satisfied that it will have reasonable prospects of success. A failure to raise a sufficient doubt as to the correctness of the judgment below will lead to leave being refused, even if the issue raised is one of general importance. 16In John Fairfax and Sons , the Court noted that it "could be embarrassing" to have to speculate upon whether or not the Court's own judgment is one in which special leave will be granted. Such embarrassment is commonplace in respect of applications for stays pending appeal and should be put to one side. Greater embarrassment is likely to be caused if it appears that this Court is prejudging an application for special leave to appeal to the High Court. However, this Court is required to do no more than to assess whether there are reasonable prospects of an application being successful and must in any event exercise the jurisdiction which, as was emphasised in Burgundy Royale , is properly brought to this Court and not to the High Court. 17In the present case, the condition is well satisfied. The merit of the application cannot be dismissed summarily in circumstances where reasoned judgments of two members of the Supreme Court favoured the outcome proposed by the applicant, whereas two favoured a different view. Further, it cannot be doubted that the provisions of the Corporations Act with respect to managed investment schemes, which have proved difficult in their application, raise an issue of general public importance. Whether this is an appropriate vehicle for those issues to be agitated is entirely a matter for the High Court. However, as to the matters raised on this application by the respondents, the inadequacies in the drafting of the funding agreement have relevantly been resolved unanimously in this Court and by the primary judge and the possibility of an exemption with respect to some such funding arrangements by ASIC is neither a foregone conclusion, nor precise in its terms. Accordingly, a stay should not be rejected on this basis. The relevant orders 18The notice of motion relied on by ILP was imprecise as to the orders which were sought to be stayed. The difficulty was not reduced by the uncertainty as to the form of the orders. The Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR") provide, in respect of entry of judgments and orders: " 36.11 Entry of judgments and orders (1) Any judgment or order of the court is to be entered. (2) Unless the court orders otherwise, a judgment or order is taken to be entered when it is recorded in the court's computerised court record system. (2A) If the court directs that a judgment or order be entered forthwith, the judgment or order is taken to be entered: (a) when a document embodying the judgment or order is signed and sealed by a registrar, or (b) when the judgment or order is recorded as referred to in subrule (2), whichever first occurs." 19In the present case, both occurred; thus the Court's computer record contains the following entries: "Appeal dismissed with costs. Cross-appeal allowed with costs. Declaration that first respondent validly rescinded funding agreement. Consequential orders as first respondent's short minutes of order." 20The contents of a minute of order signed and sealed by a registrar do not appear on the computerised record system, but do appear as having been made or given on 3 June 2011 and are dated 20 June 2011. They are in different terms to the orders contained in the computerised record system. However, it is the written document which was relied upon by the parties as recording the orders. This may be accepted for present purposes. 21As counsel for Chameleon pointed out, the relevant orders fall into two categories. First, there are the financial payment orders, being orders 7 and 9. Order 7 required that ILP pay Chameleon the amount of $618,855.70 forthwith by way of restitution. Order 9 required that the appellant (and the receivers) pay the costs of Chameleon and Cape Lambert. ILP withdrew any intention to seek a stay in respect of the costs of Cape Lambert, which it agreed to pay in accordance with the terms of the order. 22So far as costs are concerned, there was an affidavit from the solicitor for Chameleon estimating his client's recoverable costs before the primary judge and on appeal in the range $243,000-$278,000. This range was not challenged. Taking a figure at the lower end of that range, and adding it to the amount repayable by way of restitution, the amount in question, to be paid by ILP, is in the order of $870,000. 23The second aspect of the stay application concerned the discharge of ILP's security over the assets of Chameleon. If it were to be successful in the High Court, it would be entitled to a payment by Chameleon of approximately $8.6 million. ILP placed before the Court on affidavit accounts of Chameleon indicating its financial circumstances from December 2010 to March 2011. It is not necessary to set out the details in these half-yearly and quarterly reports. It suffices to say that the assets of the company, including its cash on hand, would be insufficient to meet a judgment in favour of ILP, if it were successful on the appeal. 24The respondents base their resistance to the stay in respect of the discharge of the security on an entirely separate proposition, namely that Chameleon would be financially better off if the security held by ILP were to be discharged. That course, it was submitted, would release a limited recourse loan facility in an amount of $6.5 million provided by Cape Lambert, which was conditional upon Cape Lambert obtaining a first charge over the assets of Chameleon. Two critical clauses, presumably relied on for this submission, read as follows: "8. [Cape Lambert] warrants that it has the funds available to provide the Standby Facility and agrees to pay, within 1 business day of a request from [Chameleon] such amount of the Standby Facility as required by [Chameleon]: 8.1 for such purposes may be agreed by [Cape Lambert] in writing; 8.2 to make a payment to International Litigation Partners Pte Ltd in discharge of their security; or 8.3 to make a tender of payment to International Litigation Partners Pte Ltd conditional upon discharge of its security." 25Clause 9 provided for security by way of a fixed and floating charge over the assets of Chameleon. Clause 10 provided: "10. Such charge be first ranking (subject to discharge of fixed and floating charge in favour of International Litigation Partners Pte Ltd)." 26This, being the evidence of the arrangement between Cape Lambert and Chameleon, did not reflect an unambiguous agreement between the parties. Far from requiring discharge of ILP's security as a condition of drawdown, the specified purpose of the loan was to provide the resources to permit payment to ILP and thus obtain a discharge of its security. Ultimately, this agreement has little relevance to the proposed stay. 27Prior to the hearing of the application, the respondents had not suggested in writing that there be any conditions imposed on a stay, if it were to be granted. It was only in the dying stages of the hearing that conditions were proposed. 28While it is apparent that Chameleon has limited resources from which it might pay a judgment in favour of ILP if it were successful on its appeal, it is also true that ILP has not, on the evidence, demonstrated a capacity to pay the amounts presently owing to Chameleon. It is a private company incorporated in Singapore, having a share capital of one share (nominal value $1) owned by a company resident in the British Virgin Islands. To the extent that it has current liabilities, it should be required to provide security. Conclusions 29The preferable course, pending determination of the special leave application and any consequent appeal to the High Court, is to preserve, so far as possible, the interests of each part in being able to recover in the event of a successful outcome. To give effect to that purpose, the parties have agreed that the following orders should be made: (1) (a) Upon ILP through its counsel giving - (i) the usual undertaking as to damages, and (ii) an undertaking to prosecute expeditiously its current application for special leave to appeal to the High Court and, if leave be granted, its appeal, and (b) on condition that ILP provide security in an amount of $870,000 with respect to the amount payable by way of restitution to Chameleon and in respect of its liability to Chameleon for costs, by paying such amount into an account with a bank incorporated in Australia as agreed between ILP and Chameleon or, failing such agreement, paying such amount into court, in either case, within 14 days of this order - stay the enforcement of orders 7, 8, 9 and 10 (other than so much of order 9 as relates to Cape Lambert) of this Court's orders made on 3 June 2011 until 14 days after the determination of the proceedings in the High Court. (2) ILP be restrained from taking any steps to enforce the charge from Chameleon to ILP dated 28 December 2008 numbered 1752725 as registered on 4 February 2009 until 14 days after the determination of the proceedings in the High Court. (3) The security is to remain in the account or with the court until the determination of the proceedings in the High Court, at which time, if the parties are not able to agree as to its release, application may be made to the Registrar for directions. Costs 30The applicant has been largely successful in obtaining the stay which it sought, once the relevant orders had been identified. The condition of the stay is one which it proffered promptly when the proposed condition was sought. It submitted that it should either have its costs or they should be costs in the proceedings in the High Court. 31The respondents submitted that the applicant was seeking an indulgence and they should have their costs in any event or, alternatively, the costs should be respondent's costs in the proceedings. 32While there is no doubt that these proceedings arise in the exercise of federal jurisdiction in this Court, there is doubt as to whether this Court has power to make a costs order to take effect in the High Court proceedings. Even if it did have such power, the consequences are not self-evident and it is inappropriate that it be exercised. It is also undesirable that the parties return to this Court at some later date in order to resolve the issue of costs. 33Although the respondents characterised the application as the seeking of an indulgence, the consequence for that in respect of costs requires to be identified. The general rule remains applicable, namely that costs follow the event. There is no reversal of the rule, simply because one party is seeking to be relieved, temporarily, of an obligation to which it is currently subject. Nor should it be assumed that respondents to such a motion will automatically obtain their costs in the event that they are partly or wholly unsuccessful in resisting the application. Unnecessary or inappropriate resistance to stay applications is not to be encouraged. 34The appropriate order is that the costs of the application be the respondents' costs in the appeal in this Court. At present, that means that they will obtain their costs as part of the costs ordered to be paid by ILP. Enforcement of that order is, however, stayed by these orders. If ILP is successful in having that order reversed in the High Court, each party will end up bearing its own costs of this application. Accordingly, the Court makes the following order as to costs: (4) Order that the costs of the stay application be the respondents' costs in the proceedings in this Court. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 July 2011