Supreme Court New South Wales Medium Neutral Citation: Gujarat NRE India Pty Ltd v Wollongong Coal Ltd (No 2) [2018] NSWSC 1622 Hearing dates: 19 October 2018 Date of orders: 26 October 2018 Decision date: 26 October 2018 Jurisdiction: Equity Before: Robb J Decision: The Court makes the following orders: (1) Order the defendant pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 22 December 2017 and on an indemnity basis thereafter. (2) Dismiss the defendant's claim in par 1 of the notice of motion filed by the defendant on 12 October 2018. (3) Grant leave to the defendant to renew its application for a stay of execution of the judgment entered against it in this proceeding by arranging with the associate to Robb J for its notice of motion filed on 12 October 2018 to be relisted for directions, limited to the circumstance where the defendant offers to provide some reasonable level of security to the plaintiff to protect the plaintiff against the consequences of the stay being granted. (4) Order the defendant to pay the plaintiff's costs of the defendant's notice of motion filed on 12 October 2018 to date, as well as the plaintiff's costs of the application for a special cost order in the proceeding. Catchwords: CIVIL PROCEDURE — Stay of proceedings — Application by defendant for a stay of execution or enforcement of order 1 until the determination of an appeal the defendant has commenced against the orders made in the primary judgment — Defendant's application for a stay of enforcement is rejected with leave granted to offer to provide security to the plaintiff — Leave granted to the defendant to renew its application for a stay of execution limited to the provision of a reasonable level of security to the plaintiff to protect the plaintiff against the consequences of the stay being granted COSTS — Party/Party — Bases of quantification — Indemnity basis — Ordinary basis — Offers of compromise/Calderbank offers — Defendant to pay costs on the indemnity basis after the date of service of the valid offer of compromise by the plaintiff — Defendant to pay costs on the ordinary basis up to and including the date of service of the valid offer of compromise by the plaintiff Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Gujarat NRE India Pty Ltd v Wollongong Coal Ltd [2018] NSWSC 1459 Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 Rae v Beddison Corporation Pty Ltd (No 2) [2009] NSWSC 178 Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 Gujarat NRE India Pty Ltd v Wollongong Coal Ltd (No 4) [2017] NSWSC 1221 Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 Barakat v Bazdarova [2012] NSWCA 140 Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 Category: Procedural and other rulings Parties: Gujarat NRE India Pty Ltd (plaintiff) Wollongong Coal Limited (defendant) Representation: Counsel: D Pritchard SC/A Macauley (plaintiff) DL Williams SC/CD Wood/ND Riordan (defendant) Solicitors: Gillard Consulting Lawyers (plaintiff) Thomson Geer (defendant) File Number(s): 2014/211688 Judgment 1. Judgment in these proceedings was published on 28 September 2018: Gujarat NRE India Pty Ltd v Wollongong Coal Ltd [2018] NSWSC 1459. 2. For convenience I will use the same abbreviations in these reasons as I used in the principal judgment. 3. The plaintiff, GNI, succeeded on both of the claims that it made against the defendant, WLC. 4. I directed the parties to agree upon the amount that WLC should be ordered to pay GNI in accordance with the principal judgment. On 23 October 2018, I made orders which, by agreement between the parties, included order 1 in the following terms: "Judgment for the plaintiff against the defendant for the sum of $23,776,612.82". 5. These reasons deal with two of the issues that remain outstanding between the parties. The first concerns the basis upon which WLC should be ordered to pay GNI's costs of the proceedings. The second concerns an application by WLC for a stay of execution or enforcement of order 1 until the determination of an appeal that WLC has commenced against the orders made in the primary judgment. Basis of cost order 1. I will deal first with the issue of the basis upon which WLC should be ordered to pay GNI's costs. 2. In accordance with an invitation in that regard made in the principal judgment, GNI has sought an order for costs against WLC in the following terms: The Defendant pay the Plaintiff's costs of the proceedings on the ordinary basis up to and including 22 December 2017 and on an indemnity basis thereafter. 1. WLC has accepted that costs should follow the event in accordance with rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), but submits that the appropriate order for costs is that WLC pay GNI's costs of the proceeding on the ordinary basis. 2. The basis of GNI's claim for a special costs order is the service by it on 22 December 2017 of a formal Offer of Compromise made in accordance with UCPR rule 20.26. The Offer of Compromise was made in the following terms: 1. The Plaintiff, Gujarat NRE India Pty Ltd, offers to compromise the entirety of the proceedings, being the Plaintiff's Third Further Amended Statement of Claim filed 13 September 2017 on the following terms: Judgment for the Plaintiff against the Defendant in the amount of AUD $8.5 million. 2. This Offer of Compromise is made in accordance with rl 20.26 of the Uniform Civil Procedure Rules 2005 (NSW). 3. The Offer is open for acceptance until 5 PM on 9 February, 2018. 1. The covering letter by which the Offer of Compromise was served indicated that GNI also relied upon the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 in the event that the Offer of Compromise was not validly made, for any reason, pursuant to the Rules. 2. WLC has accepted that the Offer of Compromise was made in accordance with the Rules, and accordingly GNI has not pressed reliance upon the offer as being a Calderbank offer. 3. The parties were invited to exchange brief written submissions, and the Court heard argument on the issue on 19 October 2018. 4. UCPR rule 42.14 provides: (1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer. (2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim: (a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and (b) assessed on an indemnity basis: (i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and (ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made. 1. WLC accepts, for the purposes of UCPR rule 42.13, that Division 3 of Part 42 of the UCPR, concerning Offers of Compromise applies, as the Offer of Compromise was made under UCPR rule 20.26 with respect to GNI's claim. WLC did not accept the offer, and it accepts, as it clearly must, that for the purposes of rule 42.14(1), GNI has obtained a judgment on its claim that was no less favourable to GNI than the terms of the offer. 2. WLC accepts that, under rule 42.14(2), it will be ordered to pay GNI's costs on the ordinary basis up to 11 AM on 23 December 2017, and on the indemnity basis thereafter, unless "the court orders otherwise" under rule 42.14(2). 3. Before I state the grounds upon which WLC relies for the Court to 'order otherwise', it will be appropriate to state briefly the nature of the claims made by GNI against WLC in these proceedings. 4. First, GNI sought a declaration that it was entitled to be indemnified by WLC in respect of the value of 150,000,000 shares in WLC owned by GNI that GNI had charged to a company called UIL to which WLC was indebted in respect of a series of transactions that culminated in a deed called the Override Deed. The transactions are described at [26]-[87] of the principal judgment. UIL and WLC entered into what was called the Deed of Settlement and Release, described at [90]-[97] of the principal judgment, under which UIL sold GNI's shares in WLC and applied the sale price in reduction of WLC's indebtedness to UIL. 5. It was accepted between the parties at the hearing that, in the usual course, the consequence of these transactions would have been that WLC would be liable to indemnify GNI in respect of the value of the shares sold because GNI was effectively the guarantor of WLC's liability to UIL, and accordingly entitled to be indemnified in equity. 6. In defence of this claim, WLC relied upon clause 5.3 of the Override Deed (considered at [56]-[87] of the principal judgment) which provided: 5.3 Waiver of rights [GNI] irrevocably waves and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [WLC]. 1. If clause 5.3 was enforceable in accordance with its ordinary meaning by WLC, it would have provided a complete defence to GNI's claim for an indemnity. 2. As explained at [133]-[149] of the principal judgment, I found in favour of GNI on this issue on the basis that on its proper construction clause 5.3 of the Override Deed was not a term that was made for the benefit of or was enforceable by WLC. 3. The second claim made by WLC in the proceedings was a separate claim for a debt that was assessed in the amount of $6,565,398.06 as at the time of final submissions in the proceedings. Apparently, at the date the Offer of Compromise was made, the amount of the debt claimed by GNI (inclusive of interest) was $8,372,434.08. 4. In the principal judgment I found that WLC was indebted to GNI for the amount claimed, either on the basis that it was a simple debt or because GNI was entitled to the amount claimed on account of money had and received because the original payment that gave rise to the debt was made in anticipation of GNI being issued further shares in WLC in accordance with a sub-underwriting agreement, and that agreement had been cancelled by the interested parties without the contemplated consideration for the payment being provided by WLC to GNI. The latter basis of GNI's claim gave rise to the most significant forensic issue in the proceedings, being whether GNI had fabricated the sub-underwriting agreement after the underlying payment by GNI to WLC had been made. I rejected the claim that the sub-underwriting agreement had been fabricated. 5. As explained at pars 2.6 to 2.10 of its written submissions on the present application, WLC submitted that the Court should 'order otherwise' on the relatively narrow ground that GNI changed its case on its claim for an indemnity in respect of the sale of its shares in WLC after the date of the Offer of Compromise, and although GNI succeeded, it only succeeded on its changed case and it failed on all other grounds that it had articulated before the Offer of Compromise was made. WLC argued that following the receipt of the Offer of Compromise it took the reasonable view that the indemnity claim would not succeed at trial. 6. In support of this argument WLC relied upon the judgment of Harrison J in Rae v Beddison Corporation Pty Ltd (No 2) [2009] NSWSC 178 at [44], where his Honour said: [44] The circumstances that resulted in the order or judgment upon which the plaintiff relies were not the same circumstances that the defendant was required or able to consider at the point when its decision to accept or to reject the plaintiff's offer was being made. The strengths and weaknesses of the parties' respective positions changed at the trial from what they were in late 2007. To a small, but significant, degree at least the plaintiff succeeded on a case that was not advanced at the time of the offer. However, the difference between the amount of the offer and the maximum amount that the plaintiff appeared to be entitled to at the time was also small. This does not appear to me to be a case where in all of the circumstances it would be appropriate to order that costs payable by the defendant be paid on an indemnity basis. 1. In coming to this conclusion, Harrison J followed Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212 in which McColl JA (Mason P and Hunt AJA agreeing) said at [30]-[31]: [30] In determining whether an indemnity costs order should be made, the Court considers the circumstances at the time the offer was made: Rolls Royce Industrial Power (Pacific) Ltd (Formerly John Thompson (Australia) Pty Ltd) v James Hardie & Co Pty Ltd (Pacific) Ltd [2001] NSWCA 461; (2001) 53 NSWLR 626 (at [95]) per Stein JA (Davies AJA agreeing). Thus, it will be relevant to consider the strengths and weaknesses of each party's case as they may have been apparent to the parties at the time the offer was made: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 (at [90]) (Hunt AJA, Mason P and McColl JA agreeing). [31] The test of whether or not indemnity costs of a trial should be granted does not depend on whether the offeree acted reasonably in not accepting it: Port Stephens Shire Council v Tellamist Pty Ltd (No 2) [2004] NSWCA 415 (at [16]) Giles JA (Santow and Ipp JJA agreeing). However, success on a different case from that being advanced at the time of the offer could be significant: Port Stephens Shire Council v Tellamist Pty Ltd (at [16]) referring to Rolls Royce Industrial Power (Pacific) Ltd v James Hardie. 1. As Harrison J noted at [40]: "The basis upon which the plaintiff succeeded was a new point advanced in final submissions: see par [40] of the principal decision". Although the matter is not entirely clear, a review of par [40] of his Honour's judgment on liability suggests that the outcome of the case was affected by the plaintiff's abandonment in final submissions of an argument that certain bonus payments were invalid: see [2009] NSWSC 27. 2. I will accept as a matter of principle that there will be cases where the Court should 'order otherwise' because the reason that the plaintiff has achieved a judgment no less favourable to the plaintiff than the terms of the offer has been some material circumstance introduced into the proceedings after the date of the Offer of Compromise, so that the defendant could not reasonably be expected to take into account the new material circumstance at the time it was required to consider the Offer of Compromise. 3. It is necessary to consider in more detail how WLC puts its argument that the circumstances in which it was required to consider GNI's Offer of Compromise in this case materially changed after 22 December 2017. 4. It is also necessary to understand how GNI pleaded its claim that WLC was not entitled to enforce clause 5.3 of the Override Deed, and how GNI's submissions in support of this argument evolved over the course of the hearing. This issue is dealt with at [103(2)] of the principal judgment. 5. In par 128 of the statement of claim in effect at the commencement of the hearing, GNI simply alleged that, on a proper construction of the Override Deed, it had not waived its right of indemnity, and the only particulars given of this argument was a reference to clause 5.3 of the Override Deed without elaboration. 6. The written outline of argument served by GNI before the commencement of the hearing in accordance with the Usual Order for Hearing dealt with the proper construction of clause 5.3 of the Override Deed at pars 108 to 119, and raised three separate arguments as to why clause 5.3 on its proper construction did not bar GNI's claim for an indemnity. Those three arguments are set out in pars 114 to 119. None of those constructions was based upon the argument that as a matter of construction clause 5.3 was not made for the benefit of WLC, and accordingly it could not be enforced by WLC. The three submissions made seemed to accept that in principle WLC, as a party to the Override Deed, could enforce clause 5.3, but that right would not be effective because of three different limitations on the circumstances in which WLC could enforce the provision. 7. GNI maintained this position during the hearing, save that on the second last day, during the course of final submissions, GNI served written reply submissions that included an argument "that clause 5.3 cannot be enforced or relied upon by WLC – it was for the benefit of UIL". 8. WLC relied upon the proposition that GNI raised a substantial number of other arguments as to why it was entitled to an indemnity notwithstanding the terms of clause 5.3 of the Override Deed, on all of which arguments it failed. GNI only succeeded on the argument raised in the briefest terms in its submissions in reply. 9. The arguments relied upon by GNI are listed at [103] of the principal judgment and a schedule handed up by WLC to the Court during the costs submissions. It is true that GNI either abandoned or was unsuccessful in relation to all of the arguments except the construction argument upon which it succeeded (although the Court did not make positive findings dismissing all of the arguments). 10. The view that I took in the principal judgment was that the argument upon which GNI succeeded was available on the pleadings, even though it was not positively put in GNI's opening, and was only confirmed in a specific way in reply. 11. The following considerations are in my view relevant to the question whether the Court should 'order otherwise' because GNI materially changed its position after the date that the Offer of Compromise was served. 12. First, although it is true that GNI did not in any clear way focus in its opening on the argument on which it ultimately succeeded, that argument was, as I have explained, raised in GNI's statement of claim. 13. Secondly, as the issue concerned the proper construction of clause 5.3 of the Override Deed, it raised a legal rather than a factual issue, so that its determination did not depend on the manner in which the hearing was conducted by either party. 14. Thirdly, as GNI argued at the costs hearing, clause 5.3 of the Override Deed was raised by WLC in its defence. It was clear that in equity GNI was entitled to the indemnity that it sought unless the defence raised by WLC based on clause 5.3 succeeded. The construction argument was therefore not an aspect of GNI's claim, but went to the issue of whether WLC was entitled to succeed in its defence. That is a matter that strictly arose in GNI's reply to WLC's defence. GNI submitted that it is therefore not decisive that GNI opened the proceedings in a way that did not focus on the construction argument by which it ultimately defeated WLC's defence based upon clause 5.3 of the Override Deed. WLC always had the burden to make out the defence based upon that provision. 15. Fourthly, WLC has not put before the Court any evidence to the effect that, if it had known at the time GNI served the Offer of Compromise that GNI would rely upon the argument upon which it ultimately succeeded, it would have accepted the offer. I infer that it is unlikely that WLC would have accepted the offer, or taken a different course than that which it has taken. My view in that regard is reinforced by my knowledge of the terms of WLC's draft notice of appeal, which has been put before the Court in support of WLC's application for a stay. 16. Finally, it should be noted that GNI's claim for an indemnity will always have succeeded unless WLC was entitled to enforce clause 5.3 of the Override Deed. GNI's entitlement to an indemnity, apart from the application of clause 5.3, could be made out on the documents in the Court Book. GNI's responses to WLC's reliance upon clause 5.3 were either legal arguments, or arguments that could substantially, if not entirely, be made out on the basis of the documents contained in the Court Book. 17. There are, in my view, other considerations relevant to this issue that require a more elaborate understanding of the course of these proceedings than has been given above. 18. I have mentioned above that WLC defended GNI's second claim in debt on the ground that the sub-underwriting agreement was fabricated after the date that it bears. WLC did not mention the fabrication argument in the outline written submissions that it served before the commencement of the hearing. Nonetheless, senior counsel for WLC relied upon the fabrication defence in his opening. In this regard WLC relied upon the fact that in its pleaded defence it had denied GNI's allegation that it had entered into the sub-underwriting agreement. During the first three days of the hearing, the parties were at issue as to whether WLC was entitled to conduct an elaborate fabrication defence based upon the bare denial in its defence. As it happened, it became apparent that the time set aside for the hearing was inadequate for the hearing to finish in the time allowed. That had the consequence that the Court could defer dealing with the pleading issue. 19. It is sufficient to note that WLC filed a notice of motion seeking leave to amend its defence to raise the fabrication argument (which it was ultimately permitted to plead in par 84 of its amended defence). The application was heard on 31 August 2017, and I delivered judgment on 4 September 2017: see Gujarat NRE India Pty Ltd v Wollongong Coal Ltd (No 4) [2017] NSWSC 1221. I permitted WLC to amend its defence to formally allege that the sub-underwriting agreement had been fabricated, and to plead that defence properly. The hearing then continued on 4 and 5 September 2017, when it was again adjourned and hearing dates fixed for 6 to 8 September 2017 were vacated. 20. It was only after these events that, on 22 December 2017, the Offer of Compromise was served by GNI on WLC. 21. Following the service of further evidence, the hearing was completed in the period 28 May 2018 to 31 May 2018, and the Court heard submissions on 6 and 7 June 2018. 22. The significance of this outline history of these proceedings is to make the point that the primary cause, in my view, of the expansion of the proceedings was the course taken by WLC, which was first explicitly raised in its opening on 13 March 2017, to challenge the authenticity of the sub-underwriting agreement upon which GNI relied on the ground that the document had been fabricated. That claim accused GNI's principal, Mr Jagatramka, not only of having forged the sub-underwriting agreement, but of having done so in order to manufacture evidence to support the effectiveness in proceedings in the Federal Court of Australia of a statutory demand served by GNI on WLC. The advent of the fabrication defence plainly escalated the intensity of the litigation, and in my view the issue that predominated after the date the Offer of Compromise was served was the issue of whether WLC had fabricated the sub-underwriting agreement. 23. That is an issue that went to WLC's defence of GNI's second claim in which it sought to recover the debt of $6,565,398.06 from WLC. 24. As I explained at [317]-[322] of the principal judgment, GNI was entitled to succeed on its debt claim whether or not it was established that the sub-underwriting agreement was fabricated. 25. I do not suggest that the Court and the parties did not have to deal with the issue of whether WLC's defence to GNI's indemnity claim based upon clause 5.3 of the Override Deed was entitled to succeed, in the conduct of the hearing after the Offer of Compromise was served, but I am satisfied that proportionately the defence of the indemnity claim occupied a relatively minor part of the subsequent hearing. 26. In the light of these considerations I am satisfied that this is not a case in which it will be appropriate for the Court to 'order otherwise' for the purposes of rule 42.14(2) of the UCPR. 27. As I understand it, the parties were agreed that the Court should accept the following observations by McColl JA in Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, notwithstanding the earlier observations made by Tobias AJA in Barakat v Bazdarova [2012] NSWCA 140 at [42]-[50] on the issue of whether the Court should only 'order otherwise' "in exceptional circumstances". McColl JA (Gleeson JA and Sackville AJA agreeing) said at [47]-[48]: [47] An "exceptional circumstances" test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to "otherwise order[s]" in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely "convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case". In my view his Honour's observation sufficiently encapsulates the approach to be adopted in the present case. [48] It is impossible exhaustively to state the circumstances in which the court's discretion to "order otherwise" might be exercised: New South Wales Insurance Ministerial Corporation v Reeve (at 102). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: Morgan v Johnson (at 582). However that does not mean that reasonableness of the rejection is an irrelevant consideration: see Seven Network Ltd v News Ltd (at [64]–[67]); Uniting Church in Australia Property Trust (NSW) t/as Northaven Retirement Village v Takacs (No 2) [2008] NSWCA 172 (at [15]) per Hodgson JA (McColl JA agreeing); cf Basten JA (at [32]–[33]). 1. Sight must not be lost of the fact that GNI offered to compromise a claim that was always likely to be significantly more than $20,000,000 if it succeeded, on the basis of a payment by WLC of $8.5 million. The Court now entered judgment in favour of GNI against WLC for $23,776,612.82. GNI's offer was on any view a genuine offer of compromise, particularly in the light of the fact that GNI had a relatively strong claim for recovery of the debt under its second claim. 2. WLC sought to justify its non-acceptance of the Offer of Compromise because $8.5 million was about $127,500 more than the debt claimed by GNI in its second claim when the offer was made. I am not sure that I follow this argument, which seems to imply that it was reasonable for WLC to value GNI's chances of succeeding on its indemnity claim at zero. In fact as the Offer of Compromise was in respect of two separate claims, it was a matter for WLC to judge the reasonableness of the offer in relation to both of the claims. 3. While it is entirely true that GNI did not open its case by relying upon its pleaded claim that on the proper construction of clause 5.3 of the Override Deed WLC was not entitled to rely upon the provision, in the way that I have explained above that is a matter that went to WLC's defence, not to GNI's claim for an indemnity. 4. In any event, WLC only asserted that it proceeded upon the basis that GNI's indemnity claim was entirely doomed to fail because GNI did not foreshadow the construction argument upon which it ultimately succeeded, and did not call evidence on that issue. 5. Further, as WLC did not call evidence that it would have accepted the Offer of Compromise if it had known that GNI would rely upon the construction argument upon which it succeeded, the manner in which GNI opened its case did not affect the course of the hearing. 6. WLC's argument implies that it was reasonably entitled to treat all of GNI's alternative arguments to defeat WLC's reliance upon clause 5.3 of the Override Deed as being hopeless, and that position is justified by the fact that the Court did not find in favour of GNI in respect of any of those arguments. It does not follow from the fact that ultimately the arguments did not succeed that it was reasonable to treat them as being hopeless from the outset. 7. It would not in any event be appropriate for the Court to 'order otherwise' in circumstances where the predominant issue that was litigated after the date the Offer of Compromise was served was a newly introduced claim by WLC that the sub-underwriting agreement was fabricated, which was a claim that had nothing to do with GNI's indemnity claim, and which was ultimately pointless and did not succeed. While it is impossible to be certain, there is a high likelihood that if WLC had not introduced the fabrication defence in its opening, the Court could have completed the hearing in the five hearing days that occurred up to 5 September 2017 (or indeed, the three additional days that were vacated on 5 September 2017), so that the hearing would have been completed before the Offer of Compromise was served. 8. In the circumstances I will make the costs order sought by GNI. Stay of execution on judgment 1. The second issue that requires determination is the claim made by WLC in its notice of motion filed on 12 October 2018, by which it seeks the making of the following order: 1. Pursuant to rule 51.44 of the Uniform Civil Procedure Rules 2005 (NSW), the final orders made by which a monetary judgment and an order for costs is awarded in favour of the plaintiff against the defendant so as to give effect to the reasons for judgment published on 28 September 2018 in New South Wales Supreme Court of New South Wales (sic) proceedings numbered 2014/211688, be stayed until the determination of the defendant's appeal, or until such other period as the Court may order. 1. On 23 October 2018, by agreement reached at the hearing on 19 October 2018, I made an order staying the orders made in the principal judgment until seven days after the delivery of these reasons for judgment. 2. As I understand it, there was no issue between the parties as to the principles that the Court should apply in determining WLC's application for a stay. The parties accepted that the following observations made by the Court of Appeal (Handley, Sheller, Ipp JJA) in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 are to be applied: [17] In Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 this Court (Kirby P, Hope, McHugh JJA) restated the principles to be applied in exercising this Court's jurisdiction to grant a stay pending an appeal. The Court said (694, 695): "In our opinion it is not necessary for the grant of a stay that special or exceptional circumstances should be made out. It is sufficient that the applicant ... demonstrates a reason or appropriate case to warrant the exercise of discretion in his favour ...The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion the Court will weigh considerations such as the balance of convenience and the competing rights of the parties ... Two further principles may be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay ... where it is apparent that unless a stay is granted an appeal will be rendered nugatory this will be a substantial factor in favour of the grant of a stay". [18] Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court, and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience. [19] The overriding principle is that stated by Lord Cairns in Rodger v Comptoir d'Escompte de Paris (1871) 3 LR PC 465, 475: "... one of the first and highest duties of all Courts is to take care that the act of the Court does no injury to any of the Suitors and when the expression 'the act of the Court' is used, it does not merely mean the act of the primary Court, or of any intermediate Court of Appeal, but the act of the Court as a whole, from the lowest Court which entertains jurisdiction over the matter up to the highest court which finally disposes of the case. It is the duty of the aggregate of those Tribunals ... to take care that no act of the Court in the course of the whole of the proceedings does an injury to the suitors in the Court". 1. It will be convenient at the outset to deal with a number of issues so that the Court can then address the difficult questions that lie at the heart of the application for a stay. 2. First, the Court has been provided with a draft of the Notice of Appeal that WLC proposes to file: see pages D to I of Exhibit RG-1 to the affidavit of Ross Garland affirmed 12 October 2018. 3. Paragraphs 1 to 6 of the draft Notice of Appeal challenge the Court's finding in the principal judgment that on the proper construction of clause 5.3 of the Override Deed, the provision was made for the benefit of UIL (the creditor) and not WLC (the debtor) and is not enforceable by WLC. That finding is sought to be overturned on a number of separate grounds that do not require further elaboration here. I am satisfied that these grounds of appeal raise serious issues for the determination of the appellate court, and of its nature the construction of clause 5.3 adopted by the Court in the principal judgment is inherently contestable. 4. Paragraphs 7 to 9 of the draft Notice of Appeal challenge the ruling of the Court that WLC is not entitled in equity to set off the debt of $6,565,398.06 referred to at [492] of the principal judgment against Gujarat India's liability to pay WLC US$59,718,101.53 under this Court's judgment referred to at [470] of the principal judgment. 5. In its submissions in response to the application for a stay, GNI accepted that the appeal grounds in relation to the construction of clause 5.3 of the Override Deed provided a proper basis for a stay being granted (although it opposed the stay on other grounds). GNI submitted that WLC's grounds for appeal on the equitable set-off issue were meritless. 6. However, I indicated during the course of argument that I was of the view that, although the grounds for appeal on the equitable set-off issue may not be as obviously contestable as the question of the proper construction of clause 5.3 of the Override Deed, I considered those grounds to be relatively narrow and properly arguable, particularly in so far as par 9 of the draft Notice of Appeal seems to raise a point of principle concerning the proper basis for the availability of the set-off claimed under the modern law, and that was a proper matter to be considered by the Court of Appeal. In response, GNI graciously withdrew its submission that the part of the draft Notice of Appeal that concerned the equitable set-off issue was not an adequate basis for the Court to consider making an order staying its judgment on the debt issue in favour of GNI. 7. In short, I am satisfied that in selecting the grounds for its draft Notice of Appeal, WLC has been reasonably selective and conservative and raised grounds that are proper for the consideration of the Court of Appeal. While I would not presume to comment on the business of the Court of Appeal, the grounds contained in the draft Notice of Appeal are relatively narrow (having regard to the extensiveness of the issues that were required to be determined in the principal judgment) and may possibly be able to be dealt with by the Court of Appeal on the basis of relatively limited material, and with some reasonable expedition. 8. Accordingly, I am satisfied that the appeal grounds raised by WLC in its draft Notice of Appeal form a sufficient basis for the Court to consider whether or not it should grant a stay of judgment in favour of WLC. 9. The second preliminary matter to be noted arises out of the fact that Gujarat India is, as was noted at [5] of the principal judgment, the subject of an order for its winding up. WLC provided evidence in support of its application for a stay, in the form of the affidavit of Ross Garland affirmed on 12 October 2018, to the effect that the shareholders in GNI appear to be four companies that are part of what I have called the Gujarat group of companies. GNI itself appears to have few substantial assets save for various shareholdings that it may have. The short point is that the evidence justifies a real concern that, by means that cannot be predicted with certainty, any money paid by WLC to GNI in accordance with the judgment made by the Court may find its way to Gujarat India and become subject to the consequences of the winding up of that company; so putting in jeopardy the prospects of WLC recovering the money paid to the extent that it may be successful on its appeal. 10. Responding to this issue, by letter dated 18 October 2018 from GNI's solicitors to the solicitors for WLC, GNI made the following offer to preserve the value of WLC's right of appeal in respect of any money paid by WLC under the Court's judgment: see affidavit of Brian James Gillard affirmed 18 October 2018 Exhibit BJG-1 page 26: We are instructed to consent to put aside the full judgment amount (being $23,776,612.82). We propose the funds be paid into our trust account on an undertaking the funds be held in controlled moneys pending the outcome of the appeal. 1. WLC did not submit at the hearing on 19 October 2018 that this offer did not provide adequate security for any payment made by WLC, such that there would be a continuing risk that its success on the appeal would be futile. 2. The application by WLC for a stay of the judgment therefore becomes one of assessing the balance of convenience. On the one hand, WLC has raised proper grounds of appeal for consideration by the Court of Appeal. On the other hand, GNI has acted to remove any risk that any payment made by WLC under the judgment will be irrecoverable if the appeal succeeds. 3. I consider that in the present case the following statement of principle by the Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd is also material: [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. 1. It is to be noted that in that case the Court of Appeal considered the position where appellants have no assets and stated at [29]: "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". 2. The difficulty in the present case is that, while the financial circumstances of WLC are highly doubtful, so the issue is not as simple as if WLC had no assets, WLC has not put before the Court any evidence concerning its capacity to pay the amount of the Court's judgment into GNI's solicitors' trust account, or what the consequences of the requirement that such a payment be made would likely be. WLC has provided no evidence concerning any specific prejudice it might suffer, if the Court does not order a stay of execution on its judgment, and GNI is left to pursue recovery of the amount of the judgment in whatever manner may be lawfully available to it. 3. The position adopted by WLC at the hearing of the stay application was simply that it should be granted a stay of execution on the judgment without any conditions, and that this would not prejudice GNI because any payment made would be at risk of being a preference payment in any event, which would be voidable against any liquidator of WLC if paid within six months of the commencement of any winding up of WLC. 4. When the Court responded in argument that most creditors reasonably took the view that they were better off having the debts owed to them paid, even at the risk that payments received would have to be disgorged to a liquidator as preferences, and that payments received might be protected by the passage of time reflecting the possibility the commencement of any winding up might occur outside the period of six months from the date of payment, WLC responded by saying that it would undertake to apply to the Court of Appeal for expedition on the first date the appeal was listed before the Registrar of the Court of Appeal, and that because of the confined grounds of appeal there was reasonable prospect that the appeal could be heard and disposed of within a period of six months. The thrust of this response was the argument that it would not in a practical sense avail GNI for the Court to grant a stay of execution on its judgment only on the condition that WLC pay all or some part of the judgment sum to GNI's solicitors to be held upon the basis of the undertaking that has been offered and is set out above. 5. The framework in which this dispute falls to be resolved by the Court may be found in the summary of WLC's key financial metrics for the fiscal years 2012 to 2018 (extracted from WLC's Annual Reports available on the ASX) which has been set out in par 28 of Mr Gillard's affidavit. It is as follows: ($m) 2012 2013 2014 2015 2016 2017 2018 Revenue 184.6 166.8 69.1 8.5 8.1 36.2 27.4 Costs of Sales (118.9) (131.3) (111.1) (36.0) (40.0) (49.3) (25.1) Gross Profit 65.7 35.5 (42.0) (27.5) (31.9) (13.1) 2.3 Net Profit/(Loss) 9.8 (386.9) (169.4) (195.6) (181.9) (5.5) (73.9) Asset Write Offs (5.6) (357.6) (5.9) (44.5) (125.5) 50.3 (2.3) Adj. Net Profit/(Loss) 15.4 (29.3) (163.5) (151.1) (56.4) (55.8) (71.6) Net Assets 585.5 277.2 (259.6) (167.0) (3.2) (0.1) (80.3) 1. Note that minor adjustments have been made to the way this table has been set out so that it can be included in these reasons. 2. WLC's 2018 Annual Report includes the following as part of "Note 2. Going concern": Funding and support from Jindal Group Since taking over the majority stake and management control in October 2013, Jindal Group has been funding and supporting the Company. To date the Company has received in excess of $542 million by way of equity and loans. The Company has received a support letter dated 20 April 2018 from JSPML reiterating their previous support letter issued on 23 November 2017 stating that JSPML will continue to support the consolidated entity for a period of at least 12 months from the date of signing of the annual report of Wollongong Coal Group for the period ended 31 March 2018, unless there is an acceleration and demand from of (sic) the lenders or creditors at WLC or JSPML. In addition, Cash Advance Facility of $200 million provided by JSPML has been extended up to 30 September 2019 with interest rate of 5% been reduced (sic) to 0% (Nil) effective from December 2017. As at 25 May 2018, the Company has received a short-term loan repayable on demand for a total amount of $30,016,000 from Jindal Steel and Power (Australia) Pty Ltd (JSPAL), wholly owned subsidiary of JSPML. JSPAL has also provided a letter of support confirming not to recall aforesaid loan for at least the next 12 months from the signing date of the annual report of Wollongong Coal Group for the period ended 31 March 2018. The letter further confirms that the inter-company restructured and redrawn loans (Foreign Currency Term Loan below) through JSPAL will not be called upon for repayment for a period of at least 12 months from the date of signing of the annual report of Wollongong Coal Group for the financial year ended on 31 March 2018 unless there is an acceleration and demand from the lenders in case of any event of default. 1. Mr Gillard also provided evidence that WLC is being investigated by the New South Wales Department of Industry and Investment for the purposes of s 301A of the Mining Act 1992 (NSW) to determine if WLC is fit and proper to hold a mining license. 2. Further, there is evidence that on 2 February 2018 WLC made an announcement to the ASX regarding the proposed suspension of the mining licences due to a failure to pay rent and levies. 3. In the face of this evidence concerning WLC's financial position, and in the absence of any evidence from WLC concerning the consequences of the Court declining to order a stay of its judgment, it is not possible for the Court to make a reliable, objective determination of the likely consequences of the Court, on the one hand, staying its judgment, and on the other hand, not doing so. The figures in the table set out above concerning WLC's present financial position would suggest that it may be difficult for the company to pay the amount of the judgment to GNI from its own resources, but on the other hand the effect of the support of the Jindal group may enable it to do so, albeit out of the facilities available to it. 4. This is not a case where the Court's judgment in favour of GNI is clearly worthless. It is not worthless. WLC has survived for many years (including when it was controlled by the Gujarat group) in financial circumstances that are broadly comparable to its present situation, as demonstrated by the evidence outlined above: see for example [258] of the principal judgment. While the judgment in favour of GNI is not worthless, the Court has been given no rational basis to assess its value, or to foretell how GNI may in a practical sense be able to realise value from its judgment by either negotiating with WLC or exercising whatever enforcement rights it may have. 5. On the one hand it might be expected that if the Jindal group has invested in excess of $542,000,000 in WLC, it would not readily see that investment go to waste by not facilitating WLC paying the amount of the Court's judgment to GNI's solicitors to be held in trust pending the determination of the appeal. On the other hand, if the Court grants the stay sought by WLC, there may in the period while that stay is in force be an "acceleration of demand from the lenders or (other) creditors of WLC" of a nature that causes the Jindal group to withdraw its support, and WLC to collapse financially. The consequence may be that GNI will in fact suffer substantial prejudice by not being able to attempt to enforce its judgment now. 6. In these circumstances, the effect of the Court granting a stay of execution of its judgment sought by WLC will make GNI a hostage to fortune, notwithstanding the Court of Appeal's statement in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd that: "A successful party is prima facie entitled to the fruits of [its] judgment". The Court would be subjecting GNI to that risk in circumstances where the Court is essentially ignorant about what in reality is the balance of convenience. That ignorance is caused by WLC's decision not to provide the Court with evidence that might justify the Court depriving GNI of its prima facie entitlement on a rational basis. 7. Returning to the considerations explored in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd, it would be wrong for the Court to require WLC to pay the whole of the amount of the judgment to GNI's solicitors as security for the possible consequences of a stay being granted, because that would value the judgment as being worth 100%, which is not warranted. Equally, if the Court were to order the stay without requiring WLC to provide any security, that would wrongly value GNI's judgment at nil. WLC has not offered any compromise that may, even if only in the broadest of terms, have reflected a proper and fair balance between the legitimate interests of both parties. 8. In these circumstances, in my view, the proper course is for the Court to reject WLC's application for a stay of enforcement of the judgment that has been made in favour of GNI. Both parties are supported by substantial commercial enterprises, albeit that Gujarat India is in the course of being wound up. It may be that GNI will have to be circumspect in its attempt to recover the judgment from WLC given that company's financial circumstances. Because the Court is in no position to understand the risks that the grant of a stay will impose on GNI, the Court should leave the resolution of the issue to negotiations between the parties and the result that GNI can achieve by resorting to the enforcement procedures that may be available to it. 9. In order to avoid, if possible, the issue of the staying of enforcement of the judgment becoming an unnecessary burden on the Court of Appeal, I would grant WLC leave to relist its notice of motion before me by arrangement with my associate, limited to the entitlement to WLC to offer, if it should be so minded, some security to protect GNI's position that WLC contends may be reasonable in the light of the reasons that I have given for rejecting its claim for a stay of execution of the judgment without security. Orders 1. I make the following orders: 1. Order the defendant pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 22 December 2017 and on an indemnity basis thereafter. 2. Dismiss the defendant's claim in par 1 of the notice of motion filed by the defendant on 12 October 2018. 3. Grant leave to the defendant to renew its application for a stay of execution of the judgment entered against it in this proceeding by arranging with the associate to Robb J for its notice of motion filed on 12 October 2018 to be relisted for directions, limited to the circumstance where the defendant offers to provide some reasonable level of security to the plaintiff to protect the plaintiff against the consequences of the stay being granted. 4. Order the defendant to pay the plaintiff's costs of the defendant's notice of motion filed on 12 October 2018 to date, as well as the plaintiff's costs of the application for a special cost order in the proceeding. ********** 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: 31 October 2018