Ozzy States Pty Ltd (In Liquidation) (ACN 128 112 498) v Norton Property Group Pty Ltd

WHITE JA: This is an application for a stay of execution of a judgment of the District Court given on 26 April 2019. Judgment was given for the respondents against the appellants in the sum of $178,000 plus interest (Ozzy States Pty Ltd v Norton Property Group Pty Ltd & Anor [2019] NSWDC 145). On 28 June 2019 the primary judge ordered that the appellants pay the defendants’ costs of the proceedings.

It appears from the reasons of the primary judge (Weber SC DCJ) that the respondents are property developers. They entered into a buyers agency agreement with the first appellant (Norton Property Group Pty Ltd (“Norton”)) on 7 April 2016. The primary judge found:

The primary judge found that the second appellant, Mr Christos Exarhos, told a Mr Nigro of the respondents that the 2.2 per cent commission was payable on execution of each option agreement. Norton issued invoices totalling $400,620. Between 23 August 2016 and 21 April 2017 the first respondent (Ozzy States Pty Ltd) paid $200,000 to Norton. On 10 April 2017 the respondents demanded repayment of the commission paid (said to be $220,000). After that demand was rejected they commenced proceedings for recovery. They claimed that the payments had been made by misrepresentations to them that the commission was payable and thereby Norton engaged in misleading and deceptive conduct. Mr Exarhos was joined as a second defendant on the basis that he was the primary contravenor. The primary judge recorded that the respondents also alleged that the appellants had engaged in unconscionable conduct and also sought recovery from Norton on the ground of unjust enrichment. Norton cross-claimed for the balance of the commission claimed.

The primary judge held that the commission had not become payable on execution of the option agreements. His Honour held that on the proper construction of those agreements, they should not be characterised as conditional contracts of purchase, but as offers to purchase with a contract not to revoke the offers (Judgment [44]-[47]).

The primary judge held that the first respondent was induced to pay the moneys by reason of the representations made to Mr Nigro by Mr Exarhos (at [57]-[58] and [60]). Judgment was given against both Norton and Mr Exarhos in favour of both respondents for $178,000 plus interest. $178,000 was the difference between $200,000 paid and $22,000 payable under clause 3(i) of the Buyers Agency Agreement quoted above (at [2]).

As I have said, judgment was given on 26 April 2019. On 23 April 2019 the first respondent placed itself into voluntary administration. On 1 August 2019 its creditors resolved that it be wound up. The appellants contend that they do not have the means to pay the judgment sum and that if execution of the judgment is not stayed, the appeal will be stultified.

The appellants also say that if the judgment sum could be paid, and was paid, there would be a significant risk that the payment could not be reimbursed if the appeal were successful, owing to the winding-up of the first respondent.

It is not disputed that, prima facie, the respondents were entitled to the fruits of their judgment and this is so notwithstanding the filing of the appeal. The onus is on the appellants to persuade the court that a stay would be the fairest outcome and the outcome least likely to be productive of injustice (see Alexander v Cambridge Credit Corporation Ltd (Receivers appointed) (1985) 2 NSWLR 685 at 695; Vaughan v Dawson [2008] NSWCA 169 at [17]). In Yeshiva Synagogue Inc v Karimbla Properties (No 10) Pty Ltd [2017] NSWCA 331 Basten JA said:

Evidence that the appeal would be stultified if a stay is not granted was given by the appellants’ solicitor, Mr Pavlos Stavropoulos. The evidence as to the appellants’ financial position was given by him on information and belief. The sole director and shareholder of Norton is Mr Constantinos Exarhos who I understand to be Mr Christos Exarhos’ brother. Constantinos Exarhos told Mr Stavropoulos that Norton owns no real estate, no shares and has no other investments and has no assets of value. It sold its rent roll business in November 2017 and since then its business is restricted to acting as a real estate agent on sales of property. It presently has no commissions payable to it. Mr Exarhos advised Mr Stavropoulos that whilst a few settlements were coming up in the next few months that should lead to payment of commission, those commissions would not be enough to pay the judgment debt. He also said that Norton has only one bank account. Copies of statements of that bank account show in effect a nil balance. Mr Exarhos told Mr Stavropoulos that he was not willing to lend money to Norton to enable it to pay the judgment debt, and in any event, he did not have the financial means to do so, even if he were willing. He also told Mr Stavropoulos that his wife was not willing or able to lend money to Norton to pay the judgment debt and that Norton has no loan facilities available to it.

Mr Stavropoulos deposed that Christos Exarhos told him that he, Christos, owned no real estate, had no car, no shares or other investments, nor any other asset of value. Christos told Mr Stavropoulos that he had one bank account in his own name and no joint bank accounts. Bank statements attached to Mr Stavropoulos do not disclose any moneys standing to the credit of the account. Christos told Mr Stavropoulos that he did agency work for a company of which his father was the director and he was the licensee, but did not receive a salary. He said that he was paid commission if and when commission became payable by the client. He lives in rental accommodation with a wife and two children. His wife supports him financially, but is not willing to pay the judgment debt. He said to Mr Stavropoulos that he had no assets and had a bad credit rating.

The respondents adduced evidence as to company searches that cast doubt on Christos Exarhos’ evidence that he does not own any shares. It appears from the company searches that he did (and continues to) own, some shares in private companies. The financial position of those companies is unknown. The respondents also submit that it is unsatisfactory that the evidence of the appellants’ financial position should be given on information and belief so that it cannot be tested. There was no explanation as to why the evidence as to the appellants’ financial position was given only on information and belief. Nonetheless, it is not disputed that the evidence was admissible. Having said that, the evidence would be insufficient to warrant a stay of the judgment, unless it appears that the proposed appeal is at least reasonably arguable.

It is conceded by the respondents that the appeal raises serious issues to be decided. An assessment of the strength of the appeal is constrained by the necessary attenuation of argument on the stay application. Nonetheless, at least the following matters suggest that the appeal is at least reasonably arguable.

First, the primary judge construed the words in clause 3(ii)(a) that refer to the entering into of a contract for purchase as not applying to entry into the option agreements for the reason that the option agreements were not properly characterised as conditional contracts, but rather as irrevocable offers. It is arguable that the obtaining of call options would achieve the purpose of the Buyers Agreement as stated in paragraph [5] of the primary judge’s reasons, at least as well as, or perhaps better than, the procuring of entry into unconditional contracts of purchase.

It is arguable that the parties are to be taken as having intended that if properties were secured for purchase by the entry into of call option agreements, the options should be treated as conditional purchase contracts for the purposes of clause 3(ii)(a).

Secondly, the primary judge rejected the appellants’ argument that when Mr Christos Exarhos stated that the buyers fees were payable upon execution of the option agreements, he was expressing an opinion and one which was genuinely held by him. I assume, if it became necessary to do so, they would also say that there were reasonable grounds for that opinion.

The primary judge found that the statements in question were statements of fact that moneys were owed (Judgment [56]). The primary judge found that that those statements were misrepresentations. I think this raises a question which is plainly arguable. I am satisfied that the proposed appeal is reasonably arguable.

It was submitted for the respondents that the appellants have delayed in bringing this application. The judgment was given on 26 April.

A Notice of Intention to Appeal was filed on 21 May 2019 and the Notice of Appeal was filed on 26 July 2019. The notice of motion seeking a stay of the judgment was filed on 29 August 2019. It may be inferred that the filing of that notice of motion was prompted by service of a statutory demand on Norton. I do not consider that there has been such delay in bringing the application for a stay as would warrant the refusal of the order if otherwise appropriate.

The appeal is listed for hearing on 2 December 2019. Hence, a stay would not operate for an excessive period.

The respondents sought to meet the appellants’ objection that if a stay were refused and moneys were paid in payment of the judgment, there would be a real risk that those moneys would not be able to be recovered if the appeal were successful. In response, the respondents say that the appellants’ concern can be met by having the payment of the judgment debt quarantined in the separate account under the joint control of the solicitors for the parties until the outcome of the appeal is known. That procedure may well overcome the potential prejudice of moneys being paid to the first respondent which is in liquidation, with possible difficulties with them being disgorged.

On the other hand, it is a proposal which might create its own complexities in that if, as would appear to be the case if the appeal is unsuccessful, the appellants are insolvent, then payment into such a joint account might create a security over the moneys in favour of the respondents to the potential detriment of other creditors of the appellants.

On balance, I consider that, notwithstanding the unsatisfactory nature of the way in which evidence as to the financial position of the appellants was adduced, and in that I refer not to the detail of the evidence belatedly adduced through Mr Stavropoulos, but to the evidence being given on information and belief, having regard to the arguability of the appeal, the prospects that if a stay is not granted the appeal might be stultified and the complexities that might arise from the proposal to pay moneys into a joint account, that the course that creates the least risk of injustice is to grant a stay.

That however, is subject to such steps being taken as can be taken, to reduce the risk to the respondent that between now and the determination of the appeal, the appellants might take steps to reduce any assets that they might have, notwithstanding their denials.

In response to questions I asked, the appellants have proffered an undertaking to the Court that pending the determination of the appeal, they will not charge, dispose of or otherwise deal with their assets, otherwise than in the ordinary course of business or to pay reasonable legal costs, or, in the case of the second appellant, to pay reasonable living expenses. On those undertakings I will grant the stay sought.

On those undertakings I order that execution of the judgment and orders of the District Court on 26 April 2019 and 28 June 2019 be stayed, pending the hearing and determination of the appeal or earlier further order.

In my view the costs of the application should be costs in the appeal. I say that, notwithstanding that the appellants have had substantial success on the application. A significant reason for the appellants’ having success was the proffering of the undertaking to which I have referred. Those undertakings were only proffered during the course of the hearing of the application and upon my suggestion. Accordingly, I order that the costs of the appellant’s notice of motion be costs in the appeal.