Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Alexander James Pty v Pozetu Pty Limited [2015] NSWCATAP 137 Hearing dates: 19 June and 2 July 2015 Date of orders: 02 July 2015 Decision date: 09 July 2015 Jurisdiction: Appeal Panel Before: J Redfern, Principal Member Decision: Stay pending appeal granted on condition that the appellants pay interest monthly on the money order into a controlled money account and that the second, third and fourth appellants not further encumber properties. Catchwords: APPEAL – stay application pending appeal – principles to be applied – risk of dissipation of assets – whether undertaking adequate - stay on condition Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW) Retail Leases Act 1974 (NSW) Cases Cited: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 Bentran Pty Ltd v Sabbarton [2014] NSWCATAP 37 Burriss v Hallit [2014] NSWCATAP 39 McLean Tecnic Digi Tech; Kalifair Pty Limited v Digitec (Australia) Pty Limited [2002] NSWCA 383 (2002) 55 NSWLR 737 Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231 Category: Procedural and other rulings Parties: Alexander James Pty Ltd, first appellant Christopher Dedman, second appellant Christopher Hancock, third appellant Anthony Maxworthy, fourth appellant Pozetu Pty Limited, respondent Representation: Counsel: Mr Mark Southwick, appellants Ms Rachel Francois, respondent Solicitors: James Legal, appellants Surry Partners, respondent File Number(s): AP 15/31810 Publication restriction: Nil Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: N/A Date of Decision: 22 April 2015 Before: D Bluth, Senior Member File Number(s): COM 14/45929 reasons for decision Background 1. The first appellant, Alexander James Pty Limited, was the tenant of retail premises in Woollahra owned by the respondent, Pozetu Pty Limited. The first appellant entered into a lease of the premises which commenced on 1 September 2003 for a five-year term with an option to renew for a further five years. The lease was terminated on 31 March 2009. The second, third and fourth appellants are guarantors of the first appellant's obligations under the lease. They are jointly and severally liable under the guarantee. The third and fourth appellants are directors of the first appellant but the second appellant ceased to be a director on or about 20 October 2006. It is contended he has not been involved in the first appellant's business since October 2005. 2. The first appellant exercised the option to renew the lease on 6 March 2008 and it is in respect of this renewal, and the rights and obligations arising, that the current dispute between the parties arose. The first appellant alleged that the respondent repudiated its obligations under the lease by causing the registered a strata plan without seeking its consent. The first appellant accepted the repudiation and was entitled to give one month's notice. The respondent alleged repudiation and, amongst other things, claimed damages and rectification of the lease. Both parties commenced proceedings under the Retail Leases Act 1974 (NSW) in the Consumer and Commercial Division of the Tribunal and the proceedings were heard together. 3. On 22 April 2015 the Tribunal ordered that the appellants pay the respondent $400,000 by 7 May 2015. This decision followed an earlier decision made by the Tribunal on 30 September 2014 that the first appellant was liable to the respondent for damages for breach of the lease. 4. On 5 May 2015 the appellants lodged an internal appeal against the orders made by the Tribunal. They applied for a stay of the orders. An interim stay was ordered pending the hearing of the stay application. The appeal was listed for call over and hearing of the stay application on 3 June 2015. Directions were made for the hearing of the appeal, which is listed for hearing on 24 August 2015. The hearing of the stay application was adjourned, with directions about evidence and submissions, to 19 June 2015. The stay was continued, by consent, until this date and the parties were encouraged to reach an agreed outcome pending the appeal. The dispute between the parties could not be resolved and, following a contested hearing and submissions about the terms of any conditions that should be imposed, the Appeal Panel granted a conditional stay on 2 July 2015 pending the determination of the appeal. The reasons, which were reserved, follow. Stay application and submissions of the parties 1. The appellants submitted that a stay of the operation of the monetary order made on 22 April 2015 should be granted because the prospects of the appeal succeeding were good, enforcement of the order would cause irreparable damage and any stay would be for a relatively short period. The respondent did not accept that the prospects of the appeal were good, although conceded the prospects were not "manifestly hopeless", but contended that if a stay was granted without conditions, it would also suffer irreparable damage because it would be unable to recover the post judgment interest and the appellants would remain free to deal with their assets, potentially to the disadvantage of the respondent. 2. While there was agreement between the parties about the legal principles to be applied, there was considerable dispute about a number of factual matters said to be critical to determination of the application for a stay and, in particular, how those principles should be applied in the circumstances of the case. 3. The appellants submitted that, apart from the second appellant, the appellants have insufficient assets to meet the monetary order made by the Tribunal. The only assets owned by the second, third and fourth appellants were their family homes, which were mortgaged and jointly owned by their respective spouses. Any attempt to enforce a judgment would require severance of the joint tenancies and forced sales. Registration of a judgment in the District Court would cause default under the first appellant's mortgaged to the ANZ Banking Corporation. Both these matters would cause detriment that would be difficult to reverse. If there was no stay and the respondent attempted to register the order and enforce the judgment, the process for the forced sale of assets would be lengthy, could not be completed before the appeal was determined and "once started it could not easily be undone". It was contended the appellants would thereby lose the benefit of a successful appeal. 4. The respondent disputed the assertion that the appellants had insufficient assets to meet the orders. According to the respondent, this was not established by the evidence and the appellants had the onus to satisfy the Tribunal about the merits of their application. There would be significant disadvantage to the respondent if the Tribunal granted a stay without conditions because the appellants could dealing with their assets, potentially against the interests of the respondent as an unsecured creditor, pending the determination of the appeal. Even though the appeal was listed for hearing in late August 2015, it may well take more than three months to be determined because there were complex legal issues to be considered. The respondent submitted that this could be addressed by the Tribunal ordering a stay conditional on the appellants providing mortgages to the respondent to secure the monetary order in registrable form, with an undertaking not to further encumber their assets. 5. A further contested issue was that the respondent could not be compensated for the loss of post judgment interest unless it was able to register its order in the District Court. This problem was said to arise because the respondent alleges it suffered loss in excess of $400,000 but this was the maximum that could be recovered under the Retail Leases Act 1974. The appellants contended this would expose the first appellant to default under the terms of its mortgage with the ANZ. 6. In written submissions served by the appellants' after the hearing of the stay application, the appellants offered to pay interest into a controlled moneys account, as an alternative to the registration of its order in the District Court, and proffered undertakings by each of the second, third and fourth appellants directly to the Tribunal not to further encumber their property or to draw down any facilities secured over their property pending the determination of the appeal. 7. In response to this submission, the respondent opposed the undertakings and noted it would agree to a stay on condition that the appellants pay interest on the money order into a controlled money account and provide security by way of a bank guarantee of $400,000. 8. Having regard to the submissions filed by the parties after the hearing of the stay application, it was apparent that the critical issue in dispute remaining was how to address the potential risk to the respondent in not being able to secure recovery of their monetary order pending the appeal. Consideration 1. An appeal does not affect the operation of a decision to which the appeal relates unless the Tribunal makes an order staying the operation of the decision: s 43(2) of the Civil and Administrative Tribunal Act 2013 (NSW) (the Act). Relevantly, s 43(3) provides: The Tribunal may make such orders (whether with or without conditions) staying or otherwise affecting the operation of a decision to which a pending general application or appeal relates as it considers appropriate to secure the effectiveness of the determination of the application or appeal. 1. Section 58 of the Act provides that the power of the Tribunal to make an order includes the power to make the order subject to conditions as specified. 2. The Appeal Panel summarised the principles relevant to stay applications in Bentran Pty Ltd v Sabbarton [2014] NSWCATAP 37 and more recently in Burriss v Hallit [2014] NSWCATAP 39. As noted by the President in Burriss at [13], "the overriding principle in an application for a stay is to ask what the interests of justice require". 3. Generally the successful party is entitled to the benefit of the decision at first instance but a stay may be granted where an applicant demonstrates an appropriate case to warrant the exercise of the discretion in its favour. The filing of appeal is insufficient by itself and the applicant must establish there are arguable grounds of appeal and that there is a risk the appeal will be rendered nugatory unless the stay is granted. It is for the applicant to demonstrate there is a proper basis that the stay that will be fair as between the respective interests of the parties. In exercising the discretion the Tribunal should also weigh the balance of convenience and the competing rights of the parties and may impose conditions to achieve a result that is fair to the parties. (Refer Bentran at [37] and Burriss at [13] and the authorities cited of Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694 – 695; McLean Tecnic Digi Tech; Kalifair Pty Limted v Digitec (Australia) Pty Limited [2002] NSWCA 383 (2002) 55 NSWLR 737 at [28] and Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231 at [7], [21] and [22]). 4. It is unnecessary to recount the grounds of the appeal and analyse their prospects of success. The appellants contended the appeal is strong, the respondents contended the prospects are poor but it is common ground that the appeal is at least arguable. Both parties contended that the real issue in dispute is whether the stay should be granted on condition and, if so, the nature of any conditions. 5. The key aspects of the evidence filed by the appellants in favour of the stay can be summarised as follows: 1. The first appellant has been trading at a loss for the financial years ended 2013 and 2014 and its borrowings and trade debts have increased to $589,854 and $1,232,777 respectively in the period 2013 to 2014. Its net liabilities are recorded in the 2013/4 balance sheet as $237,604. 2. The first appellant's current combined liability to the ANZ Banking Group Ltd is $589,000, which is secured by guarantees from the third and fourth appellants and their spouses together with mortgages over their family homes. 3. The third appellant's only asset is his share in the family home which is jointly owned with his spouse and he values at $1.1 million with an indebtedness of $1 million owing to the bank. 4. The fourth appellant's only asset is his share in the family home, also jointly owned with his spouse, which he values at about $890,000. According to the fourth appellant, the property is fully encumbered comprising a residential mortgage of $360,000 and a third party security of $600,000 to secure the first appellant's borrowings. 5. The second appellant's assets comprise his family home, jointly owned with his spouse, the value of which the third appellant estimates at $1.6 million with a mortgage of $100,000. The second appellant did not give evidence about his assets and the respondent objected to this evidence being given by the third appellant on information and belief without the basis of the opinion being disclosed. 1. According to an affidavit from Mr Samuel Ballas, a director of the respondent, based on valuations obtained in respect of the properties owned by the third and fourth appellants, the respondent would be prepared to take a second mortgage over these properties to secure the orders made by the Tribunal on 22 April 2015. The valuation attached to the affidavit of Mr Ballas was dated 17 June 2015 and was expressed to have been made on the basis of information obtained from RP Data and on the assumption the properties were of average condition and presentation and did not require repair or renovation. Both properties were valued in the range of $1.3 to $1.4 million. There was no valuation of the second appellant's property. 2. The fourth appellant was cross-examined about his valuation of the family home. His estimates may have been conservative given the valuation obtained by the respondent. Similarly, the evidence about the second appellant's financial position was less than satisfactory because it was not substantiated, other than from imprecise hearsay evidence from the third appellant. However, ultimately the controversy about the value of the equity in the second and third appellants' properties was not determinative of the merits of the stay application for the following reasons. 3. There was evidence that if the respondent enforced recovery at this time, it was likely there would be sufficient assets for the respondent to recover the monetary order, or at least part thereof, from the appellants. This is common ground. It follows that this would also be the case in a few months' time, provided the family homes of the second, third and fourth appellants are not further encumbered. 4. While, this deficiency makes no difference to the merits of the application for a stay. 5. Even if the evidence about the precise value of appellants' assets is not established, the principles remain the same. If there is equity in the appellants' properties to pay part or all of the money order, it would be important to ensure the properties are not further encumbered to preserve the status quo. If there is no equity, no condition would be effective. As noted in Kalifair at [28] and [29]; 28 A successful party is prima facie entitled to the fruits of his judgment. He is entitled to be protected, as far as practicable, from the risk that if the appeal fails assets which earlier were available to satisfy the judgment will no longer be available for that purpose. The Court will endeavour to see that a stay does not cause that kind of prejudice to a judgment creditor. An appellant may be required to provide appropriate security as the price of a stay which may make the judgment creditor a secured creditor. Otherwise a requirement for security is only intended to protect the status quo, that is the existing value of the judgment and not to improve the position of the judgment creditor by increasing that value. 29 Security for these judgments is not needed to protect the judgment creditor from the risk of loss caused by the stay. The judgments are already worthless and the judgment creditor is not entitled to have conditions imposed on the appellants for the purpose of increasing their value. These appellants are therefore entitled to orders staying execution on the judgments without any conditions requiring security. 1. There is uncontested evidence that the second, third and fourth appellants jointly own their family homes with their respective spouses and that their homes are mortgaged. As already noted, if there is no equity in these properties, there is no prejudice to the respondent in granting a stay (Kalifair). If there is equity, the prejudice to the respondent would be the risk of the appellants dissipating or further encumbering their assets. While the appellants and the respondent dispute the value of the assets available to satisfy a money order in respect of each appellant, both agreed there would be equity available taking into account their combined asset position. 2. The question is how to preserve the respondent's right to recovery pending the determination of the appeal in a manner that is fair to the parties. 3. To grant a stay on condition that the second, third and fourth appellants provide mortgages in registrable form would not only be disproportionately unfair to the appellants but would be beyond power. It would be inappropriate for the Tribunal to, in effect, direct the appellants to undertake an action that would impact on the rights of third parties who are not liable to pay the money order and who are not parties to the proceedings. This would not only improve the position of the respondent but would either impose a condition that cannot be fulfilled, because the Tribunal has no power to direct it, or exert undue pressure on the third-party spouses to give security for their partners' debts. 4. A condition that the appellants provide security by way of bank guarantee is equally harsh because any bank guarantee would need to be secured, ultimately resulting in the same outcome as granting a stay on condition that the second, third and fourth appellants provide mortgages in registrable form. 5. The position would be different if each of the appellants owned assets in their own name or even, possibly, as tenants in common, but this is not the case. The practical problem is that the appellants' assets are jointly owned with their spouses and therefore any security or bank guarantee would necessarily involve security over the whole of the family home. 6. The appellants submitted there is no evidence they will dissipate their assets and provided undertakings to the Tribunal to reinforce this contention. The respondent rightly contended that such undertakings would not be enforceable. The appellants were given the opportunity to provide authority or a source of power as to how such an undertaking would be enforced but were apparently unable to do so. 7. The Tribunal accepts the submission made by the respondent that such undertakings are unsatisfactory in the circumstances of the case. They cannot be enforced or monitored and, while arguably a contempt under Division 2 of Part 5 of the Act, the mechanism for enforcement is unclear and therefore of questionable value. 8. The respondent has the benefit of an order made in its favour on 22 April 2015 and has reasonably conceded that a stay may be appropriate pending the determination of the appeal. The money order is substantial and it is possible there may be some delay in determining the appeal given the complex legal arguments raised by the appellants and opposed by the respondent, as disclosed in the notice of appeal and reply. The appellants contended there is no evidence they will dissipate their assets. The onus is not on the respondent to establish the risk but rather on the appellants to satisfy the Tribunal there is either no risk or it has been mitigated. Based on the available evidence, the appellants have not established this. 9. On the other hand, the Tribunal accepts the contentions of the appellants that if they are required to pay the money order immediately or if the order is registered and enforcement proceedings were commenced, they may suffer irreparable damage. 10. The issue is further complicated by the fact that there are indemnities between the second, third and fourth appellants arising from the second appellants' departure from the business in 2005 and that the asset position of each is vastly different. The appellants proffered undertakings by all guarantors; even though the evidence from the third and fourth appellants was to the effect they had no equity. There was dispute about this and evidence from the respondent contradicted this position. Ultimately, the Appeal Panel was satisfied there was evidence that each of the second, third and fourth appellants had sufficient assets available to warrant the imposition of the condition. The appellants did not argue to the contrary and it was implicit from the terms of the undertakings proffered that the appellant guarantors should be treated equally. 11. The Tribunal also accepts it would be unfair to require security over the second, third and fourth appellants' family homes by way of a condition, for three compelling reasons. First, such a condition would be doomed to fail if any one of the spouses refuses to agree (which they are entitled to do) thereby frustrating the stay. Secondly, this would improve the position of the respondent. Thirdly, such a condition would unfairly impact third parties who have no liability to pay the money order. 12. The appellants have agreed to pay into a controlled money account interest accruing on the money order at the relevant court rates. This addresses the prejudice initially raised by the respondent at the outset of the application. However, to grant a stay without providing the respondent with a more substantial security for the undertaking would also be unfair. Balancing the competing interests of the parties involves some compromise of each party's optimum position. 13. Taking these matters into account, the Appeal Panel determined to grant a stay but subject to a condition, rather than an undertaking, that each of the second, third and fourth appellants not further encumber their real property or draw on any facilities secured over those properties. 14. This condition is significant because there are consequences if there is a breach of an order made by the Tribunal. Section 72(2) of the Act provides that a person must not, without reasonable excuse, contravene an order of the Tribunal under the Act or other legislation (other than a "designated order" which has more consequences). An order, which is expressed to be conditional, includes the condition as a necessary element of the order. Accordingly, failure to comply with a condition will constitute a contravention of an order. Contravention of an order is a "civil penalty provision" (s 72). If the Tribunal is satisfied a person has contravened a civil penalty provision, the Tribunal may, on application by an authorised official, order a monetary penalty of up to $11,000 for an individual to be paid (s 77(2) and (3)). Alternatively, the Tribunal has, if it is alleged or it appears to the Tribunal on its own view that a person is guilty of a contempt of the Tribunal, the same powers as the District Court (s 73 of the Act). While contempt is more difficult to establish, it is important to note that there are enforcement remedies against parties who do not comply with Tribunal orders, including conditions. 15. The Tribunal also imposed a condition that the appellants agree to pay and to continue to pay interest monthly on the Tribunal order from 7 May 2015 into a controlled money account nominated by the respondent's solicitor. This condition addresses the respondent's concern about the failure to recover post judgment interest. If the appellants are successful in respect of all or only part of the appeal (which includes a challenge about the quantum of damages ordered), the interest accrued can be repaid to the appellants from the controlled money account. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 09 July 2015