Dialog Group Pty Ltd v Qureshi [2011] QDC 135

1 [2011] QDC 135 DISTRICT COURT CIVIL JURISDICTION JUDGE JONES No 1136 of 2010 DIALOG GROUP PTY LTD (ACN 119 326 573) Plaintiff and ZIA QURESHI Defendant BRISBANE ..DATE 18/07/2011 ORDER -- 1 of 14 -- 2 ORDER 1 10 20 30 40 50 60 HIS HONOUR: This proceeding concerns an application for a stay of judgment brought by the applicant/defendant. The granting of this stay is opposed by the plaintiff/respondent. On 14 April 2010 the respondent to this application, filed and served a claim and statement of claim seeking damages in the sum of $220,000 for breach of contract. The breach being on the part of the applicant/defendant. No defence was filed by the applicant and on 14 July 2010 default judgment was entered by the Deputy Registrar of this Court. An application to have the default judgment set aside was heard by his Honour Judge Devereaux, who on 1 March 2011 gave written reasons for refusing that application. The decision of his Honour is the decision under appeal and underpins the stay application I am dealing with today. During the hearing of the application to set aside the judgment before Judge Devereaux, a draft defence and counterclaim was tendered as part of the material. Pursuant to that defence, the applicant denies liability in respect of the sum claimed and seeks, in effect, the return of payments previously made purportedly under the agreement. At the heart of the applicant's defence is that he was duped into entering into the contract because of false and/or misleading and/or deceptive and/or fraudulent and/or otherwise unconscionable representations made by the plaintiff about the financial status of the company, that company being the -- 2 of 14 -- 3 ORDER 1 10 20 30 40 50 60 subject matter of the contract between the applicant and the respondent. After referring to Rules 761 and 800 of the Uniform Civil Procedure Rules, Ms Payne, counsel for the applicant, in paragraph 3 of her written submissions states: "The principles concerning an application for a stay are clear. It is not necessary for an applicant for a stay pending appeal to show 'special or exceptional circumstances' which warrant the grant of the stay, but the applicant must show 'a sufficient basis' that outweighs the competing considerations. What an applicant must generally show is that; (a) the appeal is arguable, at least in the sense that the defendant's prospects are not so poor as to relieve this Court of the need to concern itself further; (b) the applicant will be disadvantaged if a stay is not ordered, (c) there is no competing disadvantage to the respondent should the stay be granted, which outweighs the disadvantage suffered by the applicant if the stay is not granted." As I said, the application for a stay is contested, but those three general propositions were not disputed by Mr Martin, counsel for the respondent. In paragraphs 5 and 6 of Ms Payne's written submissions it is asserted further: -- 3 of 14 -- 4 ORDER 1 10 20 30 40 50 60 "What distinguishes the present case from others where a plaintiff has been found to be entitled to immediately recover the fruit of their judgment is that there has been no trial of the issues and no decision on the merits. The defendant cannot fairly be described as a party who has been unsuccessful in litigation. He has not yet had the opportunity to litigate his defence or counterclaim." Then in paragraph 6 goes on to say: "Another distinguishing factor in the present case is that if the stay is not granted, the defendant will be made bankrupt. As a result any appeal will be rendered nugatory because irremediable harm will be suffered by the defendant in the interim. In contrast the plaintiff is no longer operating so has no immediate need for payment for the judgment debt. There is also justifiable concern about the plaintiff's ability to repay the judgment debt, which concern is not entirely alleviated by the plaintiff's offer to pay any sums it receives into trust." As to the last of these matters, in my opinion the respondent's undertaking to pay any monies recovered under the judgment into its solicitor's trust account pending the outcome of the appeal goes a long way to alleviating any concerns the applicant may have about recovering those funds in the event of a successful appeal. Also, as Mr Martin pointed out, the plaintiff is a part of a corporate structure with considerable financial means available to it. -- 4 of 14 -- 5 ORDER 1 10 20 30 40 50 60 In my view, at the heart of the applicant's case is that to not grant the stay would be likely to place him into bankruptcy. This would have two negative consequences according to Ms Payne. First, there would be a real risk that the trustee in bankruptcy would not prosecute the appeal, and second, as a bankrupt the applicant would not be able to be a director and it would otherwise seriously jeopardise his future business opportunities. In this regard I note that the respondent has in fact served a bankruptcy notice on the applicant based on the judgment in dispute. On 24 December 2010 the applicant filed proceedings in the Federal Magistrates Court seeking to have that bankruptcy notice set aside. These bankruptcy proceedings such as they are, are presently adjourned as I understand it. The respondent has declined to give any undertaking not to prosecute the bankruptcy proceedings against the appellant pending the outcome of the appeal. Returning to the three general propositions referred to earlier but not necessarily in order, Mr Martin candidly conceded that being denied the judgment funds would not materially prejudice his client. The fact that his client is prepared to put those moneys into trust pending the appeal tends to support that proposition. -- 5 of 14 -- 6 ORDER 1 10 20 30 40 50 60 Mr Martin, however, quite correctly says that as a general proposition his client is entitled to the benefit of the judgment it now has in its favour. Turning to the alleged disadvantages the applicant says he would suffer if the stay was not granted, in paragraph 21 to 24 of his affidavit filed 12 July 2011, the applicant deposes: "If I do not pay the judgment debt then Dialog has indicated that it fully intends to seek a sequestration order against me. If I am made bankrupt then this would irreparably harm my business and earning capacity. My primary occupation is that of a business consultant. The nature of this occupation is that it is critical that I have an unblemished business and ethical record. I am also presently exploring a number of new business opportunities and I believe that if I am made a bankrupt those opportunities will come to an end." And then in paragraph 24: "I am also a director of a number of companies in Australia and I understand that in accordance with the Corporations Act 2001 Commonwealth I will be unable to hold those positions should I be made bankrupt. This will adversely affect my ability to earn income and support my family." The applicant gives no details as to what the business opportunities he refers to are, nor does he state the name of any of the companies of which he says he is a director, and no -- 6 of 14 -- 7 ORDER 1 10 20 30 40 50 60 company records are exhibited to the material. On the other hand his evidence on these matters has not been challenged in any direct way. In a series of cases concerning judgments made under taxation legislation, the threat of bankruptcy - and here I note that there is a genuine or real threat of bankruptcy; not merely a possibility - the real risk of bankruptcy is considered a significant factor. Counsel for both sides referred me to the case of the Deputy Commissioner of Taxation v. Denlay, 2010 QCA 217. In that case his Honour Justice Chesterman referred with apparent agreement to an earlier decision of the Deputy Commissioner of Taxation v. Jennings, a decision of his Honour Justice Philip McMurdo, [2005] QSC 312 where Justice McMurdo relevantly said: "The defendants each swear that if the judgments are not stayed and they are made bankrupt, one consequence will be that they will be unable to continue to prosecute their challenges to the assessments presently made in the Administrative Appeals Tribunal. There is no suggestion by the Deputy Commissioner of Taxation that bankruptcy proceedings would not be pursued if the judgments were not stayed, and in particular will not be pursued ahead of what seems to be the imminent hearing of the cases in the Tribunal. I am persuaded that there is at least a real prospect that if the judgments are not stayed, the defendants would be bankrupted and would be unable to continue to conduct their -- 7 of 14 -- 8 ORDER 1 10 20 30 40 50 60 business with the likely cessation of those businesses ahead of hearing their cases in the Tribunal." In Denlay his Honour Justice Chesterman at paragraphs 45 to 50 relevantly said: "It was, I think, common ground that the mere possibility of bankruptcy following a judgment would not amount to extreme personal hardship. Unless, therefore, there was evidence to support a finding that bankruptcy was highly likely or probable in the absence of a stay, it could not be said that the judgments would result in the requisite degree of hardship." I should pause there to note that under the relevant legislation under consideration different considerations apply, but nonetheless counsel before me proceeded on the basis that the general propositions stated in these judgments were relevant in this application. Then to continue with the quote of his Honour Justice Chesterman in paragraph 46 it says: "In my opinion the evidence justified the finding. The appellant moved for judgment at a time when the respondents' appeals were progressing through the Federal Court. The appellant declined to offer any undertaking that he would not proceed to bankruptcy pending the hearing of those appeals. The inference that the appellant will commence bankruptcy proceedings is more than fairly raised. -- 8 of 14 -- 9 ORDER 1 10 20 30 40 50 60 "Next, the appellant contends that the likelihood of bankruptcy was not sufficient to justify the stay. The submission was that the outcome of any bankruptcy proceedings would be determined by a Federal Court which might not order sequestration because of the pendency of the appeals. A Court exercising Federal jurisdiction, Mr Looney submitted, was the proper forum to determine whether the judgment should result in bankruptcy. It is the point made by Ireland J in Ho. The Supreme Court, it was urged, should not pre-empt that jurisdiction by granting a stay of execution because it could not in most cases, and should not in any event, embark upon an assessment of the merits of any appeal.I would reject that submission. It seeks to deprive the Supreme Court altogether of its power to stay execution in appropriate cases." His Honour then goes on to say: "It should not be overlooked that bankruptcy is not the only avenue open to the appellant to obtain satisfaction of the judgments. Absent the stays, the appellant can enforce the judgments by any of the means of execution provided for by the UCPR." Then in paragraph 50: "This leads to the appellant's third point, that the loss of their property and consequent inability to prosecute their appeals does not constitute extreme personal hardship." -- 9 of 14 -- 10 ORDER 1 10 20 30 40 50 60 That being the test under the legislation being then considered. His Honour then went on to say: "The point may be answered shortly. It is preposterous to contend that the loss of the respondents’ entire estate, and with it any chance of demonstrating that the basis for the assessments was wrong so that they should not have lost their property, could not be a hardship rightly called extreme. It is not easy to imagine a greater hardship in this context." In an earlier decision of the Court of appeal in Cook's Construction Pty Ltd and Stork Food Systems Australasia Pty Ltd [2008] QCA 322 his Honour Justice Keane, as then was, in paragraph 12 referred to what I might perhaps describe as a more general proposition, namely: "The decision of this Court in Berry v Green suggests that it is not necessary for an applicant for a stay pending appeal to show "special or exceptional circumstances" which warrant the grant of the stay. Nevertheless, it will not be appropriate to grant a stay unless a sufficient basis is shown to outweigh the considerations that judgments of the Trial Division should not be treated as merely provisional, and that a successful party in litigation is entitled to the fruits of its judgment. Generally speaking, Courts should not be disposed to delay the enforcement of court orders. The fundamental justification for staying judicial orders pending appeal is to ensure that the -- 10 of 14 -- 11 ORDER 1 10 20 30 40 50 60 orders which might ultimately be made by the courts are fully effective: the power to grant a stay should not be exercised merely because immediate compliance with orders of the court is inconvenient for the party which has been unsuccessful in the litigation." In reference to the submissions made by Ms Payne concerning the effects of bankruptcy on the applicant, Mr Martin referred me specifically to paragraph 16 of his Honour's decision in Cook where his Honour said: "I should say immediately that I do not consider that the refusal of a stay will render Cook's appeal to this Court nugatory. Even if the refusal of the stay were to lead to the receivership or liquidation of Cook, Cook's substantive rights, if any, against Stork could be pursued on the appeal by the receiver or liquidator of Cook. This would occur if the appeal were assessed by the receiver or liquidator as having worthwhile prospects of success; and no-one here suggests that a receiver or liquidator would not make such an assessment in this case. In these circumstances, the benefit of the successful outcome of any such appeal would ensure for the benefit of creditors and contributories of Cook." -- 11 of 14 -- 12 ORDER 1 10 20 30 40 50 60 In my view there is a real distinction between the receivership or liquidation of a corporate entity and that of an individual being placed into bankruptcy. If I could turn then to the prospects of a successful appeal. I must say that the material to which Mr Martin referred me suggests quite strongly to me that the appeal may well fail. In this regard Mr Martin took me to a number of emails and also various parts of the applicant's own affidavit material and also pointed out the applicant's personal involvement with the subject company, all of which Mr Martin says points very strongly to the defences now seeking to be raised as being really doomed to fail and having no justification. But at this stage the evidence of the defendant has not yet been tested at trial. In Cook in paragraph 13 Justice Keane pointed out that: "In cases where this Court is able to come to some preliminary assessment of the strengths of the appellant's case, the prospects of a successful appeal may weigh heavily in the balance of relevant considerations. The prospects of success will obviously tend to favour the refusal of a stay if the prospects on appeal can be said to be very poor. That is because if there is obviously little prospect of ultimate -- 12 of 14 -- 13 ORDER 1 10 20 30 40 50 60 reversal of existing orders, the concern to ensure that the existing orders can be overturned without residual injustice will have less claim on the discretion than might otherwise be the case." In Drew v. Makita (Australia) Pty Ltd [2008] QCA 312 Justice Keane also relatively said: "As is often the case, on an application for a stay, the Court to whom the application is made can do no more by way of preliminary assessment of the prospects of the defendant's appeal than to determine whether the appeal is arguable, at least in the sense that the defendant's prospects are not so poor as to relieve this Court of the need to concern itself to ensure that the appeal not be rendered nugatory by the refusal of the stay. "In my opinion, I am not able to say that the appeal is so hopeless that this Court should not be concerned with the prospect that the appeal will be rendered nugatory." While I consider the appellant's prospects of appeal to be not particularly strong, I am not prepared to say that the prospects are so poor as to be hopeless or not unarguable. In reaching this conclusion I am also conscious that this appeal -- 13 of 14 -- 14 ORDER 1 10 20 30 40 50 60 involved an appeal against exercise of a discretion by Judge Devereaux. In summary, I have reached the following conclusions. First, that while prospects of a successful appeal are relatively poor in my view, I am not prepared to find that the appeal is deemed to fail. Second, the very real threat of bankruptcy is a relevant consideration, particularly where the right and ability to prosecute the appeal would be taken away from the applicant. Third, the granting of the stay will have no material negative impact on the company, or to use Ms Payne's words, there would be no competing disadvantage to the respondent should the stay be granted, which would outweigh the disadvantages suffered by the applicant if the stay were not to be granted. For these reasons I will grant the stay. ... HER HONOUR: The orders will be in terms of order 1 per the draft, and order 2 will be the party's costs of this application be costs in appeal number CA 5699 of 2011. ----- -- 14 of 14 --