Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Dai v Zhu [2013] NSWCA 134 Hearing dates: 20 May 2013 Decision date: 24 May 2013 Before: Basten JA Decision: (1) Execution by way of proceedings under the Bankruptcy Act 1966 (Cth) of the orders of Rothman J identified in the Schedule set out below be stayed pending determination of the proceedings in this Court seeking leave to appeal from those orders and, if leave be granted, the appeal, subject to the following conditions: (a) that the applicants pay into court the amount of $500,000 within 28 days, subject to satisfaction of the respondents' obligation in paragraph (b); (b) the respondents file with the Registrar an undertaking to the Court, signed by their solicitor, to consent to any application made by the applicants in the Federal Circuit Court or the Federal Court seeking an extension of time within which to comply with any bankruptcy notice issued by the respondents to a date 28 days after the determination of the proceedings in this Court; (c) in the event that an undertaking in compliance with paragraph (b) is not proffered to the Registrar in a form acceptable to him within 14 days of the date of this judgment, the condition imposed on the applicants by paragraph (a) will lapse; (d) if, at any time after moneys have been paid into court in pursuance of paragraph (a), the Registrar is satisfied that the respondents have failed to comply with their undertaking, the condition provided in paragraph (a) will lapse and the Registrar may arrange for the release of the moneys to the applicants, and (e) the applicants take all necessary steps to ensure the expeditious determination of the proceedings in this Court. (2) The application for leave to appeal and the appeal should be listed for concurrent hearings. (3) The costs of the motion will be costs in the proceedings. [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 - civil - judgments and orders - whether stay should be granted pending determination of leave application and any subsequent appeal - where respondents have commenced bankruptcy proceedings to execute judgment -risk that applicants will lose power to proceed with proposed appeal - where amount in issue significant - where challenged judgment included findings regarding breach of discovery obligations and dissipation of assets PROCEDURE - civil - judgments and orders - stay pending determination of leave application and any subsequent appeal - appropriate form of orders - whether applicants should be required to pay into court full amount of judgments - where applicants would be unable to comply - whether applicants should be required to affirm affidavits regarding assets and liabilities - delay involved - whether order should require parties to take certain steps in federal court proceedings - power of State court to make orders regarding federal court proceedings Legislation Cited: Bankruptcy Act 1966 (Cth) Cases Cited: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 Barwick v Goodridge [2011] NSWSC 1233 ML v Australian Securities and Investments Commission [2013] NSWCA 109 Category: Procedural and other rulings Parties: Qin Fen Dai (First Applicant) Carter Bai (Second Applicant) Yi Lin Zhu (First Respondent) Lei Jiang (Second Respondent) Representation: Counsel: M Dicker SC (Applicants) A Di Francesco (Respondents) Solicitors: Luminous Legal (Applicants) Thomsons Lawyers (Respondents) File Number(s): 2012/362844 Decision under appeal Jurisdiction: 9111 Citation: Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In liq) [2012] NSWSC 1305 Date of Decision: 2012-10-26 00:00:00 Before: Rothman J File Number(s): 2008/289276; 2011/185762 Judgment 1BASTEN JA: The applicants seek leave to appeal from a judgment delivered by Rothman J in the Common Law Division, with respect to two proceedings. In the earlier proceedings (commenced in 2008) the trial judge struck out the defence filed by the applicants and gave judgment in favour of the plaintiffs (the present respondents) by default: Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In liq); Zhu v Dai (No 2) [2012] NSWSC 1305. Subsequently, judgment was entered in an amount of approximately $1.37 million and a stay of the operative orders ordered on condition that, within seven days, the applicants paid an amount of more than $1.6 million into Court: Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In liq) (No 3). That condition was not satisfied and, accordingly, there is no stay in place with respect to the operative orders. 2In the other proceedings (commenced in 2011) the trial judge also gave judgment in favour of the respondents, in an amount of almost $2 million. A stay was granted, contingent upon the applicants paying an amount in excess of $2 million into Court within seven days. Again, the condition was not satisfied and there is no stay in place with respect to those orders. 3The matter presently before this Court is not the application for leave to appeal in respect of each proceeding, but an interlocutory application for a stay of execution of the orders made by the trial judge, pending determination of the leave application and, if leave be granted, the appeal. The immediate motivation for such orders is to be found in proceedings brought by the respondents in the bankruptcy jurisdiction of the Federal Circuit Court. As the applicants explained in oral submissions, their concern is that if the matter proceeds to the making of a sequestration order and the appointment of a trustee in bankruptcy, they will lose the power to proceed with their proposed appeal. 4Counsel for the respondents acknowledged that there might be a legitimate concern in that respect and submitted that such a concern could best be met by an order requiring that the respondents not take that further step. The respondents were concerned that they not be required to withdraw the bankruptcy notices as that course might have consequences adverse to their interests with respect to the relation back period. However, they resisted even that limited form of relief, on the basis that the proposed appeals were without merit and leave, in due course, would be refused. 5If a stay were to be ordered, the respondents sought two other conditions. One was that the applicants file and serve affidavits as to their assets and liabilities. A second was that there be a payment into court of an amount of not less than $500,000. This figure was derived from findings made by the trial judge that the applicants had failed to provide proper discovery relating to moneys withdrawn from a bank account in the name of their daughter. The trial judge found that an amount of approximately $730,000 was transferred to the bank account of Ms Daisy Yu (the applicants' daughter), at least $500,000 of which was shown to be "drawn down from Ms Dai and Mr Bai's home loan": at [47]-[49]. The property over which the loan was secured, namely the applicants' home in Sydney, was later sold and the respondents obtained some $220,000 as the net proceeds of sale. Setting off that amount against the $730,000 which the applicants were said to have dissipated during the course of the proceedings, the respondents reached a figure of not less than $500,000 which they say should be paid into court as a condition of a stay. 6These propositions give rise to a preliminary question as to the form of an order "staying" execution of the orders made in the Common Law Division. The only mode of execution presently in contemplation by the respondents is proceedings under the Bankruptcy Act 1966 (Cth). That action is already underway. For reasons discussed in ML v Australian Securities and Investments Commission [2013] NSWCA 109, this Court does not have power to make an order directed to the Federal Circuit Court, or any other federal court. What it can do, however, is to make an order binding the parties before it. To the extent that that may require one party to take a particular step in proceedings in the Federal Circuit Court, orders can be made conditional upon that step being taken. (After the hearing of this application, the parties referred the Court to a number of authorities relevant to the limits on the power of a State court resulting from the vesting of exclusive jurisdiction under the Bankruptcy Act, s 27, in federal courts: it is not necessary for present purposes to address that question, although the authorities are helpfully analysed by Black J in Barwick v Goodridge [2011] NSWSC 1233 at [7]-[18].) 7There is a further preliminary issue. The trial judge granted a stay on onerous conditions, which were not met. The present application is made to a judge of this Court seeking the exercise of this Court's jurisdiction to preserve the subject matter of an appeal whilst the appeal is pending. The application does not constitute some form of interlocutory appeal or review of the determination of the trial judge: Alexander v Cambridge Credit Corporation Ltd (Receivers Appointed) (1985) 2 NSWLR 685 at 692G (Kirby P, Hope and McHugh JJA). The jurisdiction now invoked is to be exercised on the basis of the material before this Court. Prospects of success on appeal 8The applicants accepted the need to show that the appeal was reasonably arguable, despite the fact that the proceedings had been summarily disposed of by the trial judge. One significant factor underlying those orders was the failure of the applicants to comply with obligations of discovery. In order to establish that the proposed appeal was reasonably arguable, the applicants sought to rely on several affidavits, together with material filed in the trial court and passages from the transcripts taken at trial. A significant part of this voluminous material was tendered or read at the hearing of the stay application. This course was unfortunate; there is, absent a degree of unavoidable urgency, no justification for having a motion listed for hearing in this Court unless the supporting papers have been filed at least three days before the hearing. 9In broad terms, the applicants' case is that Mr Bai, who spends most of his time in China, left the management of the litigation to his wife, Ms Dai. From mid-2011 Ms Dai was not capable of managing the litigation because she was suffering from a mental illness. Her general practitioner in Sydney certified on 16 December 2011 that she was suffering from "major depression" and would "require legal aid". The diagnosis and the remark were made after the second adverse judgment on 22 November 2011. On 17 January 2012 Ms Dai signed an affidavit explaining her inability to cope with the defence of the proceedings and noting that she was suffering because of being separated from her family and her poor understanding of English. She annexed a draft defence to the statement of claim in the 2011 proceedings. 10Despite noting in her affidavit that her daughter was due to return to Australia "during February/March 2012", it appears that Ms Dai returned to China to seek treatment for her mental condition and to obtain the support of her family. Her solicitor, in an affidavit dated 1 March 2012, noted that she had returned to China on 18 January 2012 and had since been diagnosed with schizophrenia. Medical certificates were attached to the affidavit. Her solicitor further stated that he had spoken to her husband (for whom he also acted), but Mr Bai had said that his wife should "not be disturbed" in relation to the litigation, as that might cause her health to deteriorate again. 11With respect to Mr Bai, the applicants' case is that whilst he left his wife in control of the litigation in Australia, he knew nothing about her mental illness or her inability to cope: affidavit of Carter Bai dated 27 April 2012, at paragraph 4. 12The respondents submitted that there is little of substance in these submissions or in the material relied on. Rothman J made orders on 26 February 2010, 21 April 2010 and 24 May 2011 with respect to discovery each of which he held had not been complied with. The applicants were legally represented by Colin Biggers & Paisley throughout that period, their representation being terminated in June 2011. Ms Dai was not shown to be mentally ill or otherwise incapacitated during that period. 13There is no direct evidence as to the circumstances in which the applicants' legal representation was terminated June 2011. Their counsel submitted that the Court would infer from statements made by Ms Dai in Court on 3 November 2011 that no funds were available, the respondents having "depleted all my money" and "[w]e cannot hire the lawyer because we don't have money": Tcpt, p 2(35). Nevertheless, they now have representation including a solicitor and senior and junior counsel. Further, the fact that each of the applicants is in China and neither has provided an affidavit in support of this application (nor indeed any affidavit since April 2012) leaves open the concern that there is little admissible evidence to challenge in the proposed appeal the findings of the trial judge. 14Nevertheless, as explained in Alexander at 695E, "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". The amount in issue between these families is by no means insignificant (being a sum comfortably in excess of $3 million); nor are the findings as to breach of obligations with respect to discovery and dissipation of assets trivial matters. The applicants are now legally represented and there is no reason to suppose they do not intend to pursue their application for leave to appeal. They have complied with an order for payment of security for costs in respect of that application. In those circumstances, it is appropriate to make an order protecting the subject matter of the proceedings in this Court. Form of orders 15The appropriate form of the stay should be one directed to the adjournment of the bankruptcy proceedings so as to avoid an order vesting control of the proceedings in a trustee pending determination of the proceedings in this Court. Further, the grant should be conditioned upon a payment into court. In their written submissions, the respondents had proposed that any stay should be conditioned on payment into court of the full amount of the judgments, or a substantial part thereof. 16There is no direct evidence from the applicants that they would be unable to meet such a condition, if provided more time than that allowed by the trial judge. However, they did not comply with the condition of the stay imposed by him, nor did they seek further time within which to comply. It may therefore be inferred that they were not able to comply with the condition, a circumstance which continues to the present. Accordingly, to impose a condition in the terms originally sought by the respondents would be little better than rejecting the application. 17The alternative position articulated before this Court would require the payment into court of $500,000. The basis for calculation of that figure and the reason for proposing it has been noted. The findings of the trial judge with respect to the source and fate of the $730,000 is by no means conclusive: Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In liq) [2012] NSWSC 1305 at [47]-[49]. Nevertheless, there has been no explanation forthcoming from the applicants as to the source and fate of those moneys since the date of that judgment. 18The respondents also seek, as a condition of a stay, that each of the applicants personally affirm affidavits setting out their assets and liabilities and the movements of property since the commencement of the proceedings. They further submit that the applicants should be available for cross-examination on their affidavits. There are, however, difficulties with such a step. Assuming such affidavits were filed, if they disclosed no substantial assets, one would expect an application for cross-examination; if assets were disclosed, one would anticipate requests for freezing orders or further payments into court. Either way, these steps would be time consuming and a distraction from the early resolution of the application for leave to appeal. I do not propose to make such an order. 19Neither in written nor in oral submissions, did the parties pay close attention to the precise orders sought to be stayed. There are problems with the form of the orders made by the trial judge appearing on Justicelink. The Schedule set out below seeks to identify the substantive orders requiring payment of damages and costs. If it is incorrect the parties may invite the Registrar to vary the Schedule. The relevant orders should be identified and any correction made to the record on Justicelink before the hearing of the summons. 20In their summary of argument, the applicants submitted that the application for leave and the appeal should be heard together. The respondent opposed that course, primarily on the basis that the application lacked reasonable prospects of success and would be dismissed. 21The course of the proceeding today suggests that there would be considerable overlap between the arguments presented in support of the leave application and those in respect of an appeal. The challenges are largely factual. The amount in issue is significant. If the applicants were able to persuade two members of this Court that leave should be granted, additional costs and time would be incurred in a matter which should be dealt with as expeditiously as convenient. In these circumstances it is preferable that the application for leave and the prospective appeal be heard together. That does not mean that the presiding judge at the hearing may not direct that the question of leave be addressed first. The parties should be prepared to deal with the matter as a full appeal and as an application for leave to appeal. 22Each party has had a degree of success on the motion. That achieved by the respondents, in terms of the conditions, was not put forward until the hearing of the application. As a result, the applicants were unable to obtain instructions as to whether or not to agree to the terms. In these circumstances, it is appropriate to make the costs of the motion costs in the proceedings in this Court. 23The Court makes the following orders: (1) Execution by way of proceedings under the Bankruptcy Act 1966 (Cth) of the orders of Rothman J identified in the Schedule set out below be stayed pending determination of the proceedings in this Court seeking leave to appeal from those orders and, if leave be granted, the appeal, subject to the following conditions: (a) that the applicants pay into court the amount of $500,000 within 28 days, subject to satisfaction of the respondents' obligation in paragraph (b); (b) the respondents file with the Registrar an undertaking to the Court, signed by their solicitor, to consent to any application made by the applicants in the Federal Circuit Court or the Federal Court seeking an extension of time within which to comply with any bankruptcy notice issued by the respondents to a date 28 days after the determination of the proceedings in this Court; (c) in the event that an undertaking in compliance with paragraph (b) is not proffered to the Registrar in a form acceptable to him within 14 days of the date of this judgment, the condition imposed on the applicants by paragraph (a) will lapse; (d) if, at any time after moneys have been paid into court in pursuance of paragraph (a), the Registrar is satisfied that the respondents have failed to comply with their undertaking, the condition provided in paragraph (a) will lapse and the Registrar may arrange for the release of the moneys to the applicants, and (e) the applicants take all necessary steps to ensure the expeditious determination of the proceedings in this Court. (2) The application for leave to appeal and the appeal should be listed for concurrent hearings. (3) The costs of the motion will be costs in the proceedings. SCHEDULE In proceedings 2008/289276: Orders 2 and 5, made on 22 November 2012 and entered on 23 November 2012, namely that: 2. Judgment is entered for the plaintiffs by default, against each of the second and third defendants, in the amount of $1,367,524.85.... 5. The second and third defendants are to pay the plaintiffs' costs of these proceedings on an indemnity basis. In proceedings 2011/185762: Orders made and entered on Justicelink on 30 November 2011, namely that: Qin Fen Dai, First Defendant, Carter Bai, Second Defendant are to pay Yi Lin Zhu, First Plaintiff, Lei Jiang, Second Plaintiff the sum of $1977794.25 inclusive of costs. The Second Defendant is to pay the Plaintiffs' costs of and incidental to the proceedings as agreed or assessed. Order 2 made on 22 November 2012 and entered on 23 November 2012, namely that: 2. The defendants are to pay the plaintiffs' costs of the proceedings, including the costs of the defendant's Notice of Motion filed on 17 January 2012, on an indemnity basis. ********** 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: 24 May 2013