Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Snell v Glatis [2020] NSWCA 78 Hearing dates: 20 April 2020 Date of orders: 24 April 2020 Decision date: 24 April 2020 Before: Basten JA Decision: (1) Stay the enforcement of orders (4) and (7)-(14) made by Rees J on 27 November 2019 until the determination of the appeal, subject to the following conditions: (a) the first appellant not remove from Australia or dispose of, deal with or diminish the value of, any assets owned by him in Australia without the prior written consent of the respondents, except for the purposes of: (i) paying ordinary living expenses; (ii) paying reasonable legal expenses; (iii) paying reasonable medical expenses. (2) The costs of the motion be the respondents' costs in the appeal. (3) Each party have liberty to apply to vary these orders on three days' notice. Catchwords: PRACTICE AND PROCEDURE – stay of judgment pending appeal – capacity of appellant to pay debt –net worth in illiquid form – liquidation of personal assets during COVID-19 pandemic – short delay pending hearing of appeal – creditor a US citizen – stay of buy-out orders – conditions of stay Category: Procedural and other rulings Parties: Keith Eddy Snell (First Appellant) Owen Francis Cully (Second Appellant) Scientific Management Associates Pty Ltd (Third Appellant) Scientific Management Associates (Australia) Pty Ltd (Fourth Appellant) Scientific Management Associates (Victoria) Pty Ltd (Fifth Appellant) Scientific Management Associates (Operations) Pty Ltd (Sixth Appellant) Christopher Glatis (First Respondent) Glatis Family Limited Partnership (Second Respondent) Representation: Counsel: Mr A Fernon (Appellants) Mr N J Kidd SC / Mr J Foley (First Respondent) Solicitors: Chamberlains Law Firm (Appellants) Dentons Australia Ltd (Respondents) File Number(s): 2019/401280 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity – Corporations List Citation: [2019] NSWSC 1643 Date of Decision: 27 November 2019 Before: Rees J File Number(s): 2016/183457 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. BASTEN JA: The appellants in this matter include Keith Eddy Snell (first appellant) and four companies he controls (third-sixth appellants). (The second appellant played no part in the present application.) The appellants filed a notice of motion on 2 April 2020 seeking a stay of orders made in the Equity Division, pending determination of the appeal. The appeal has been listed for hearing on 25 June 2020. 2. In order to understand the scope of the proposed stay, it is necessary first to summarise the orders made by the trial judge, Rees J, on 27 November 2019. Order (1) was a declaration that the affairs of four companies under the control of the first appellant had been and were being conducted in an oppressive manner which was unfairly prejudicial to the plaintiffs, Mr Glatis and his family partnership (the respondents). 3. Order (2) was not an order, but a notation that the fifth defendant, known as SMA (Vic), had consent to an order to pay the second plaintiff an amount of $620,101. An affidavit of Darren Booth, filed for the respondents, stated that that amount was paid. 4. Order (3) required payment of interest on the sum referred to in order (2) in the amount of $781,561.80. That order was directed to SMA (Vic). According to Mr Booth, it has not been paid: nor is it subject to the appeal. 5. Order (4) may be put to one side for the moment. Order (5) was another notation to the effect that the sixth defendant, known as SMA (Operations), had consented to an order that it pay Mr Glatis the sum of $300,000. That amount also has been paid. 6. Order (6) required payment by SMA (Operations) of an amount of interest calculated on the sum already paid, namely $59,020.54. Mr Booth stated that that sum has not been paid. Mr Booth's statements are contained in letters to the solicitor for the appellants dated 2 April 2020: the statements have not been disputed. 7. Order (4) required Mr Snell to pay to Mr Glatis an amount on account of unpaid dividends, the sum in question, comprising capital and interest, being $1,394,144.65. It has not been paid and is sought to be the subject of the proposed stay. 8. Orders (7)-(13) each required Mr Snell to purchase from one of Mr Glatis, the Glatis Family Partnership, or a Jonathon Moore, shares in the four companies. The total outlay was in the order of $66 million. 9. Order (14) required the defendants (the present appellants) to pay the plaintiffs' costs of the proceedings. 10. The amended notice of appeal seeks to set aside orders (4) and (7)-(14) made on 27 November 2019. Each order, other than order (14), requires a payment to be made by Mr Snell. Neither corporate defendant subject to an order to pay interest under orders (3) and (6) seeks to challenge the orders applying to each respectively. The only order challenged by the companies is that for the costs of the proceedings below. 11. The respondents' agreed to the grant of a stay on three conditions, namely that Mr Snell: 1. pay or arrange the payment of each of the three money judgments which were outstanding; 2. not cause the companies to fund the appeal and repay any amount derived from company funds for the purposes of the appeal, and 3. not deal with his assets otherwise than with the consent of the respondents. 1. Mr Snell accepted that there should be some constraint on his power to dispose of assets without the prior written consent of the respondents; however, there was no agreement as to the extent of the limitations which were appropriate in the circumstances. 2. The bulk of the grounds in the amended notice of appeal are directed to the buyout orders. There is no evidence of any steps being taken to enforce those orders and it seems unlikely that steps would be taken to that effect in the period of two months before the hearing of the appeal. Indeed, there is some merit for the respondents if a stay is granted to the extent that the proposed conditions will restrain Mr Snell from disposing of property or obtaining funds for the appeal from the companies. 3. No steps have been taken by the respondents to enforce the money judgments involving the fifth and sixth defendants, being SMA (Vic) and SMA (Operations). Steps have been taken, however, to enforce the amount of $1.394 million payable pursuant to order (4). A bankruptcy notice was issued by the Federal Court which was served on Mr Snell on 27 February 2019, one day after the commencement of the appeal. This Court was informed that further proceedings with respect to that notice have been adjourned pending determination of the present stay application. Accordingly, the critical question for present purposes is whether Mr Snell should obtain a stay of the money judgment against him in the sum of $1.394 million. 4. One factor, which militates against a stay, is the basis of the challenge to the $1.394 million debt. The amount payable to Mr Glatis was calculated by reference to dividends which should have been paid by SMA (Vic) to Mr Glatis. It appears that 20% of the shares in the company were held by Mr Snell on trust for the estate of Mr Glatis' father, of which Mr Glatis and his mother were the beneficiaries. The estate did not become a shareholder in SMA (Operations) as a result of a "tax issue". The issue in dispute is whether the company should have paid an "extra" dividend to Mr Glatis, or whether Mr Snell should account to Mr Glatis for 20% of the dividends received by him during the relevant period. The appellants submit that the primary judge gave no reasons to explain why order (4) was made in terms requiring Mr Snell personally to make the payment. The respondents submit that the relevant ground of appeal lacks merit. 5. Although Mr Snell asserts that a payment made to Mr Glatis, who is a US resident, may not readily be recoverable in the event of success on the appeal, Mr Glatis responds that he has valuable assets in Australia, namely the shares held in the companies which must have a value of at least $30 million. Of course, he would cease to have those assets if the buyout orders were not stayed and were complied with. 6. An affidavit of Mr Snell filed on 19 March 2020 set out the shareholdings and directorships of the corporate appellants, together with some information, contained in a large exhibit to the affidavit, as to their present financial status. The principal business of the corporations was twofold, namely what was described as the "defence business" and a property portfolio. The defence business was sold pursuant to an agreement entered into in November 2019, settlement being achieved on 13 March 2020. The net amount of the sale was $14 million of which $2 million was withheld for a period of 12 months. $10.5 million was paid to the National Australia Bank ("NAB") in reduction of a loan facility and a further $1 million was retained by the NAB until a security bond was returned. Further payments are required to be made under the loan facility with NAB, under which $10.3 million is still owing. A loan facility with Macquarie Bank is also outstanding and has a balance of $3.3 million. 7. Mr Snell says that he is taking steps to liquidate the property portfolio, but anticipates that further expenditure will be required for that purpose and the whole portfolio will take two-three years to sell. There is, however, no statement in the affidavit that SMA (Operations) is unable to pay $59,000 owing pursuant to order (6). There is no statement as to whether the somewhat larger amount of $780,000 payable by SMA (Vic) can be made from the liquid assets of that company. 8. So far as Mr Snell's personal assets are concerned, some 38 properties were identified with an estimated value of $27 million. He has a little more than $200,000 in personal bank accounts. His total net assets, including interests in the companies, was in the order of $44 million. He stated that he was 80 years old and in ill health and, as a consequence, unable to refinance the company assets or his personal assets to satisfy the orders. He clearly did not have cash available to pay the $1.394 million judgment; further, I take his reference to being unable to "refinance" as indicating that there was no available credit facility which he could draw down. 9. Although I accept that some of the information contained in the affidavit is imprecise and incomplete, I am satisfied on balance that Mr Snell is not presently in a position to pay the judgment debt. I am also conscious of the fact that there are constraints on selling real estate at the present time which are likely to affect his ability to obtain the necessary cash, at least in the two months prior to the hearing of the appeal. 10. Mr Snell also stated in his affidavit that in order to secure the NAB and Macquarie Bank loans he was required to provide personal guarantees. He said that if he were to be "placed into bankruptcy", presumably by a sequestration order, there would be a "further default" under the loan facilities which might lead to the banks calling in their debts and appointing a receiver over the secured assets of the group. I infer that such a step would not improve the prospects of the respondents in obtaining payment of the outstanding court orders. 11. Those considerations militate in favour of the grant of a stay, subject to the ability to formulate appropriate conditions, for the following reasons. 12. First, there is a real issue raised by the notice of appeal as to the appropriateness of the buyout orders and the amounts involved. The respondents did not challenge that proposition. There is no doubt that Mr Snell does not have the resources to make the payments required under orders (7)-(13) at the present time. Further, if those payments were made recovery would be difficult. Mr Glatis would no longer have the only assets he apparently owns in Australia, namely the shares in the companies. 13. Secondly, the stay should extend to the $1.39 million payable under order (4). On the one hand, there is no doubt that Mr Snell has more than sufficient assets to pay that sum; on the other hand, I am satisfied that he does not have those assets in liquid form, either by way of cash in the bank or by access to a credit facility. It is not feasible to expect him to sell property in order to obtain the funds to pay the debt prior to the hearing of the appeal. That would be so in ordinary circumstances; in the midst of steps taken to deal with the COVID-19 pandemic, it is more so. 14. Thirdly, while it is true that Mr Snell's case appears not to challenge the amount of the debt, but rather whether it is he or SMA (Operations) which should pay it, the source of the funds may not be unimportant for Mr Glatis. 15. Fourthly, there is no evidence that Mr Glatis was in immediate need of such funds. 16. Fifthly, the respondents' position should be protected by making the stay conditional. 17. Although the respondents sought that Mr Snell be directed to arrange for the companies to make the payments the subject of orders (3) and (6), that does not seem to me to be an appropriate condition of the stay. If the respondents wish to enforce the debts owed by the companies, and not challenged on the appeal, they can do so. While Mr Glatis remains a major shareholder of the companies, there may be little incentive to take such a step. Nevertheless, it is not appropriate to condition any stay of the orders under challenge upon Mr Snell taking steps to have the companies pay those amounts. 18. The respondents seek as a condition that Mr Snell reimburse the companies immediately with amounts they have paid for the legal costs of the proceedings in this Court and "ensure" that Mr Snell, and not the companies, continues to meet the legal costs of the appeal. The only interest the companies have in the appeal is the challenge to the costs order (order (14)) which required each of the appellants to pay the respondents' costs of the trial. It is possible that the companies would be entitled to a variation of the costs order in respect of them, even if Mr Snell were unsuccessful in respect of other aspects of the appeal. However, while there is current joint representation of the appellants, that possibility remains theoretical. Mr Snell did not challenge the proposition that funding for the appeal had been obtained from the SMA group and that it should properly be repaid. However the question of misuse of company funds for his personal benefit is not one which can readily be resolved on the stay application. It should not form part of the conditions of the stay. 19. Finally, Mr Snell accepted that there should be a constraint on him disposing of assets without the prior written consent of the respondents. He sought an exception with respect to living expenses, legal expenses and medical expenses. Those exceptions are not challenged. However, he also sought exceptions to allow him to dispose of assets in the ordinary course of business, including for the purpose of paying business expenses, and to dispose of assets to discharge obligations under any contract entered into before the orders are made. Those contested exceptions should not be included. There was no evidence as to the amounts in issue, or as to the terms of any contract already entered into. Such matters can be dealt with by obtaining written consent from the respondents or, if there is a significant difficulty which cannot be resolved by agreement, it will have to be the subject of an application to the Court. 20. There is also, as Mr Glatis' solicitor pointed out in a letter to Mr Snell's solicitor, something of a dilemma in the companies being appellants in the proceedings when Mr Snell, as the first appellant, is seeking to transfer the liability for the debt payable by him to one of the companies, albeit a company which he presently controls. That dilemma may be accentuated by the fact that there is a challenge to the finding that Mr Snell's conduct was, and continued to be, oppressive and unfairly prejudicial to Mr Glatis and his family partnership if the status quo persists. The difficulty might be described as technical if Mr Snell is to end up as the 100% shareholder in the companies. However, the bulk of the grounds of his appeal challenge the buyout orders which would achieve that result. This is a matter for the parties to consider prior to the hearing of the appeal. Its only relevance for present purposes is the possibility to which it gives rise that there may be an application to vacate the hearing date. Mr Snell should understand that if that were to happen, whether for this or any other reason, the respondents will have an opportunity to invite the Court to reconsider the orders to be made today. 21. For these reasons the Court makes the following orders: 1. Stay the enforcement of orders (4) and (7)-(14) made by Rees J on 27 November 2019 until the determination of the appeal, subject to the following conditions: 1. that the first appellant not remove from Australia or dispose of, deal with or diminish the value of, any assets owned by him in Australia without the prior written consent of the respondents, except for the purposes of: 1. paying ordinary living expenses; 2. paying reasonable legal expenses; 3. paying reasonable medical expenses. 1. The costs of the motion be the respondents' costs in the appeal. 2. Each party has liberty to apply to vary these orders on three days' notice. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2020