AT Air Group Pty Limited v Dieter Siewert (No 4) [2014] NSWSC 1186

Supreme Court New South Wales

Medium Neutral Citation: AT Air Group Pty Limited v Dieter Siewert (No 4) [2014] NSWSC 1186 Hearing dates: Wednesday, 27 August 2014 Decision date: 27 August 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Stay of orders. Defendants to pay plaintiff's costs of Notice of Motion. Catchwords: PROCEDURE - judgments and orders - stay of proceedings pending application for leave to appeal - where stay or refusal will practically determine appeal - where appeal relies on evidence not previously adduced - where appeal relates to discretionary decision on a matter of practice and proceedings - balance of convenience. Category: Interlocutory applications Parties: AT Air Group Pty Ltd (first plaintiff) Ross Edward Seller (second plaintiff) Aquatic Air Pty Ltd (third plaintiff) Avtex Air Services Pty Ltd (fourth plaintiff) Dieter Siewert (first defendant) Lieselotte Siewert (second defendant) Heron Airlines Travel Pty Ltd (third defendant) Wingaway Air Pty Ltd (in liq) (fourth defendant) AT Air Group Pty Limited (in liq) (fifth defendant) Representation: Counsel: D K L Raphael (plaintiff) B DeBuse (defendants) Solicitors: Gibsons Lawyers (third plaintiff) Marsdens Law Group (first and second defendants) File Number(s): 2012/169096

Judgment 1HIS HONOUR: On 31 July 2014, I gave judgment in respect of motions brought by each of the third plaintiff and the defendants respectively which sought to vary a consensual interlocutory regime that had been established by orders made on 25 June 2012. 2I then made the following orders: (1)The defendants withdraw caveat AG571747 in respect of folio identifier 2/SP55795 upon completion of the sale of that property by the National Australia Bank, or by the third plaintiff, provided that upon handing over the withdrawal of caveat the net proceeds of sale after payment of the amounts required to discharge the mortgage to the National Australia Bank, pay the agent's commission and selling expenses and costs of sale, and any necessary usual conveyancing adjustments, be paid into Court to the credit of these proceedings, or into a controlled moneys account in the name of the solicitor for the plaintiffs and the solicitor for the defendants jointly, to abide the outcome of these proceedings. (2)The defendants' notice of motion filed on 18 July 2014 be dismissed. (3)The third plaintiff's motion filed on 28 July 2014 be otherwise dismissed. (4)There be no order as to costs, to the intent that each party bear its own costs of those motions. (5)The plaintiffs be relieved from the undertaking contained in paragraph 6 of the orders of 25 June 2012, but only to the extent that they are at liberty to list the property for sale and sell it by public auction. (6)The plaintiffs be released from the undertakings contained in paragraphs 7 and 8 of the orders of 25 June 2012, to the extent that those undertakings would prevent them from surrendering possession to a party entitled to possession under a judgment or order for possession. (7)With effect from the completion of the sale of the property, order 2 of 25 June 2014 be discharged, and the third plaintiff be released from the undertakings contained in paragraphs 4, 5, 6, 7 and 8 of the orders of 25 June 2012. 3On 25 August 2014, the defendants filed in the Court of Appeal a summons seeking leave to appeal from that judgment. The summons for leave to appeal is returnable in the Court of Appeal for directions on 29 September. The summons includes an application for an expedited hearing. 4By notice of motion filed on 25 August 2014, the defendants seek a stay of the orders of 31 July 2014 pending the hearing of the summons for leave to appeal (which they propose be heard concurrently with the appeal if leave be granted). 5As it was elaborated in the course of submissions, in effect what is sought today is a stay of order 1 insofar as it would require withdrawal of the caveat upon completion of a sale by the third plaintiff, though not one by the National Australia Bank, and a stay of order 5 (which relieved the plaintiffs from their undertaking not to transfer or deal with the subject property but did so only to the extent that they were to be at liberty to list the property for sale and sell it by public auction). 6Since 31 July 2014, the third plaintiff has appointed a selling agent and caused the property to be listed for sale by public auction on 16 September. They have also procured from the National Australia Bank its agreement to hold proceedings on its claim for possession until 24 September 2014, conditional upon provision of a copy of the front page of an unconditional exchanged contract of sale (presumably, immediately after 16 September), with a sale price that covers all money owed to the Bank and with a settlement period not longer than 42 days. The monies owed to the bank are approximately $1.85 million. 7It was necessary to refer briefly to the context of the judgment of 31 July 2014. 8The defendants' motion was in substance simply for a dissolution of the injunction which, up to that point, restrained it from exercising its powers under the call option to transfer the property to itself or to deal with the property. The defendants argued that an undertaking upon which the injunction was expressed to be conditional having been breached, the injunction should be set aside. They did not put before the court any evidence as to what they proposed would or should happen in that event, but simply argued that default in performance of the undertaking meant that the injunction should be set aside and they should be at liberty to exercise their rights should they wish to do so. 9The third plaintiff's motion, on the other hand, sought in effect to dissolve such restraints as precluded the plaintiffs from dealing with the property pending the hearing, for the reason that the National Australia Bank had instituted proceedings for possession and had manifested a clear intention to proceed to exercise its rights as mortgagee, culminating in a mortgagee sale of the property. The third plaintiff wished to avoid that outcome by endeavouring to sell the property without the intervention of the bank as mortgagee. 10It was essentially in that context the judgment of 31 July was given. 11On an application for a stay, one of the essential considerations is whether there is an arguable case of error such as would result in the judgment being set aside or varied on appeal in a material way. Where the application is one for leave to appeal, the question as to whether the case is one of a kind that might attract leave is also a relevant consideration. 12In their application for leave to appeal the defendants seek, in addition to the setting aside of the orders made on 31 July 2014, the making of the orders sought in their notice of motion which would position them to exercise their rights under the call option. 13Upon the hearing of the motions on 31 July, no evidence was adduced, nor any argument advanced, to suggest that there was no longer a serious question to be tried as to the voidability of the security documentation on which the defendants relied. 14I proceeded on the basis then that, in those circumstances, it should be accepted that there was a serious question to be tried in that respect. I also concluded that, because the breach of the undertaking on which the defendants relied appeared to be an inadvertent one, it did not of itself require the dissolution of the injunction restraining the defendants from exercising their alleged rights. 15But for the intervention of the National Australia Bank, the outcome on 31 July would have been simply to leave in place the regime of 25 June 2012. But the intervention of the National Australia Bank and the threatened mortgagee sale wrought a significant change of circumstances, because it meant that, regardless of any restraint on the plaintiffs and the defendants dealing with the property, it was highly probable that the National Australia Bank would sell the property at a mortgagee sale and, for reasons that are well-understood, that would be to the potential disadvantage of all parties, both in terms of the price achieved at sale and the costs associated with it. 16There was only one proposal before the court as to any alternative, and that was the third plaintiff's proposal that they proceed to endeavour to sell the property. The defendants advanced no proposal in that respect and, when pressed by the court to indicate what their intentions or proposals were, did not indicate that they had any but said, more or less, that they reserved their rights and wished to be in a position to decide what to do. It was in those circumstances that I considered that the balance of convenience favoured permitting the third plaintiff to endeavour to sell the property upon terms that would preserve the proceeds of sale in substitution for the property itself so that their destination, save for the interests of the mortgagee, could be determined at the hearing. 17It now appears, from the documentation filed in support of the summons for leave to appeal, that the defendants wish to contend that they, rather than the plaintiffs, should have the opportunity to sell the property - or perhaps, in preference to that, to negotiate with the National Australia Bank to buy out the mortgage. This was not a case that was advanced on 31 July. 18The application for leave to appeal is one from a decision, essentially on a matter of practice and procedure, concerning the interlocutory preservation of the subject matter of proceedings, involving a challenge to the exercise of discretion of the court and the court's assessment of the balance of convenience. That does not provide an auspicious basis for an application for leave to appeal, perhaps all the more so in the context that the final hearing that has now been set down for eight days in February 2015. (I interpose that the court indicated to the parties that it could hear the matter in October of this year but, for various legitimate reasons, neither party wished or was able to accept hearing dates before early 2015). In addition, as it seems to me on a quick reading of the draft notice of appeal and the summary of argument, many of the grounds of appeal proposed were not agitated at the hearing on 31 July 2014, and the chief case that the applicants for leave to appeal would seek to put forward is one that was not then advanced. 19Accordingly, while I would not go so far as to say that the application for leave to appeal is unarguable, at first sight it does not have the appearance of one with substantial prospects of success. 20But a primary judge should be reluctant to dispose of a leave application on that basis and I should, in any event, consider the balance of convenience. As it seems to me, if a stay is granted the practical effect will be that the prospects of the third plaintiff effecting a sale without the intervention of the mortgagee, and in particular the prospects of the sale proceeding on 16 September, will be defeated. On the other hand, if a stay is not granted, the application for leave to appeal will, for all practical purposes, be rendered nugatory, because the sale will have proceeded on 16 September and a contract resulted before the application for leave to appeal can be heard. In other words, the decision of the stay question will be largely dispositive of the application for leave to appeal, either way. If the stay is refused, the application for leave to appeal will be rendered practically nugatory; if it is granted, the application for leave to appeal will have practically succeeded by default. Those considerations weigh equally in the balance on both sides. 21If a stay is refused, the defendants may be deprived of the opportunity to acquire the subject property pursuant to the call option and to preserve their asset by paying out the mortgagee because, if they are right in the substantive argument, they are beneficially entitled to the subject property, albeit subject to the mortgage. That is a significant detriment, but its significance is substantially mitigated by the circumstance that the proceeds of the property, save for the amount required to discharge the NAB mortgage, will be preserved such that the proceeds, rather than the property itself, will be the subject of argument in the substantive proceedings. While I do not overlook, in that respect, the significance that equity attaches to real property, that too is reduced in the context of this case because of the nature of the underlying transaction, which has many features of being a security transaction rather than an out-and-out sale. 22If a stay is refused, the sale will proceed under the control of the plaintiff, subject to the mortgagee bank's ability to control it. That will deprive the defendants of the opportunity of selling in more favourable circumstances or by different means and techniques which might arguably produce for them a better ultimate outcome. But their entitlement to sell the property is, in any event, the subject of a seriously arguable dispute. As it seems to me, the plaintiff has as much an interest in maximizing the proceeds of sale as have the defendants. Moreover, the prospects of the defendants averting a mortgagee sale seem remote, as I shall illustrate when I return to the question of utility. The jeopardy to the defendants in this respect might also be mitigated by stipulating a reserve price, to which I shall also return. 23The defendants argued that a further aspect of detriment to them was that, if the property were sold and the proceeds preserved in lieu of the property, they would have to become cross-claimants and file a cross-claim whereas, to this point, they were merely defendants resisting a claim. It seems to me that this is really no more than procedural and that it is clear enough that, should the property be sold and the proceeds preserved in the way the orders of 31 July contemplated, all that would happen is that the existing issues would be fought over the subject matter of the preserved moneys, rather than over the real property itself. I do not count this for much at all in the balance of convenience. 24On the other side of the record, if a stay is granted the plaintiff will be deprived of the opportunity to avoid the detriment and additional costs of a mortgagee sale. That is mitigated, to some extent, by the defendants' undertaking as to damages which, though not formally proffered, it has been indicated that they would be prepared to give as a condition of relief. That said, while the phenomena that mortgagee sales produce less than sales by the owner is well-known, proof of damage in that respect may be very difficult, so that the undertaking is not a perfect mitigator for that. The other significant detriment to the plaintiff would be that the moneys invested to this point and agreed to be incurred in order to market and sell the property, would be wasted. 25That, I think, illustrates that this is a case in which the balance of convenience is fairly finely balanced, and all the more difficult because of the practically final effect of the decision on a stay, so far as the application for leave to appeal is concerned. However, one matter which I do think is important is a consideration of the utility of a stay from the perspective of enabling the defendants to achieve what they say it is they want to achieve, namely, to seek to buy out the mortgage. As I have said, the plaintiff's proposed sale is listed for 16 September. The bank has indicated that it will withhold action until 24 September, which presumably means that it wants to see an exchanged contract with satisfactory terms before 24 September and will otherwise proceed to obtain a judgment for possession and thereafter, to a mortgagee sale. 26The summons for leave to appeal will not come before the court, even for directions, until 29 September and it is difficult to see how, even if expedited, it would be heard and determined before, say, the end of October. Even that may be a very optimistic view. Perhaps more significantly, the defendant Mr Siewert says that he is currently overseas, that he would require time to organise a loan for the buy-out of the NAB mortgage, and that he could not return from overseas to arrange any buy-out until some time after 3 October. It is difficult to see how, even if freed to do so by the Court of Appeal allowing his application for leave to appeal, that could happen before early November. 27Given the likely time-frame in the Court of Appeal, the probability of the National Australia Bank, which has agreed to withhold action to 24 September, agreeing to do so if it learns that the present orders are stayed pending an appeal to enable a completely different regime to be put in place, seems to me remote in the extreme. Accordingly, it seems to me that in a case which is otherwise fairly finely balanced on the balance of convenience, the loss of the opportunity to avoid the detriment and costs of the mortgagee sale is reinforced by the improbability that a stay will, in fact, enable the defendants to put in place an alternative arrangement. Because, where an interlocutory decision will have a practically dispositive effect, it is, as McLelland J said in Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, appropriate to look at the relative strengths of the ultimate cases, the limited prospects of the application for leave ultimately succeeding point in the same direction. 28I have mentioned that the detriment to the defendants might be mitigated by imposing a requirement for a reserve price. A number of arguments can be advanced on that front. The selling agency agreement, entered into by the plaintiff with the agent, includes an agent's opinion of a range of $2.5 million to $2.7 million. The mortgage to the bank secures about $1.87 million and the amount of equity effectively invested by the defendants is $700,000 which implies that, if they were to avoid any loss, the selling price would need to be in the order of $2.6 million. The defendants have, however, themselves adduced evidence suggestive that a more likely and realistic sales estimate is in the vicinity of $2.3 million to $2.4 million. 29As it seems to me that the real alternative to the plaintiff selling the property is the National Australia Bank selling the property, the fact that the defendants might not recover the whole of their equity is not really a basis for saying that the property ought not be sold now but at some later time. On the other hand, it is reasonable enough that the defendants' interest not be sacrificed. It is important not to impose an unreasonable fetter on the sale, bearing in mind that the plaintiff itself has a substantial interest in maximizing the selling price but, on the other hand, as I say, to ensure that the defendants' interest is not sacrificed. Based on the defendants' evidence, it seems to me that they cannot complain if a reserve of $2.4 million, which is at the upper end of their range, though below the plaintiff's range, is set. 30For those reasons, I decline to stay the orders of 31 July 2014. However, the court orders that, for the purposes of any sale in conformity with orders 1 and 5 made on 31 July 2014, the reserve price be such price as is fixed by the selling agent, provided that that price be not less than $2.4 million or a price agreed to by the defendants or a price fixed by the court and, for that purpose, there is liberty to apply to the court on such notice as to the Corporations Duty Judge may seem appropriate. 31I order that the defendants pay the plaintiff's costs of the motion assessed in the sum of $4,750.