Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust

1. [1]

   GLEESON JA: Application is made by Mr Andrew Nadinic for a stay pending appeal against orders made by a judge in the Equity Division on 21 May 2019.

Background

1. [2]

   The appeal concerns judgments of Emmett AJA delivered on 5 April 2019 and 21 May 2019: Drinkwater as trustee for the Cheryl Drinkwater Trust v Nadinic [2019] NSWSC 365; Drinkwater as trustee for the Cheryl Drinkwater Trust v Nadinic (No 2) [2019] NSWSC 604. The dispute in the proceeding below related to a deed of settlement dated 24 November 2015 between, among others, Ms Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust, and Mr Nadinic.

2. [3]

   The recitals to the deed recorded, among others, that Ms Drinkwater and Brooks Parade Pty Ltd (Brooks) had entered into a joint venture agreement in April 2013 for the purposes of constructing a mixed residential and commercial project and subsequently the parties had entered into an addendum to the joint venture agreement in November 2013, that Ms Drinkwater, in her capacity as trustee of the Cheryl Drinkwater Trust, was the owner of certain land at Belmont, New South Wales (the Belmont land), that Brooks had been established for the purposes of the joint venture with Mr Nadinic and Ms Drinkwater as directors, that Brooks and Commercial Builders (NSW) Pty Ltd (formerly Maxstra (NSW) Pty Ltd) had entered into a building contract to construct the project, that various disputes had arisen between the parties and that the parties had resolved their disputes on the terms of the deed and subject to registration of a mortgage over the Belmont land in favour of Mr Nadinic.

3. [4]

   In his principal judgment, Emmett AJA found that:

4. [5]

   Emmett AJA concluded that Mr Nadinic had engaged in misleading or deceptive conduct in contravention of s 18 of the Competition and Consumer Act 2010 (Cth), Sch 2 — Australian Consumer Law (Australian Consumer Law) in failing to disclose to Ms Drinkwater that there was no longer any GST input tax credits available to Brooks at the time when the deed was entered into, that Ms Drinkwater would not have entered into the deed in the terms in which it was signed had there been disclosure of the correct position, and that Ms Drinkwater had suffered loss and damage in the sum of $1,679,790 and was entitled to judgment against Mr Nadinic in that sum, together with interest.

5. [6]

   In his second judgment, Emmett AJA gave reasons for making the following orders:

6. [7]

   The evidence on the present application established that the bank account with National Australia Bank referred to in orders 4 and 5 is a controlled monies account in the joint names of the respective solicitors for Mr Nadinic and Ms Drinkwater, established for the purpose of receiving the proceeds of sale of units in the Belmont land. As at 31 May 2019, that account had a credit balance of $3,604,918.86. The interest rate on the account seems to be about 0.4 per cent per annum.

7. [8]

   The 28-day stay ordered by Emmett AJA expires on 18 June 2019. Mr Nadinic sought an extension of that stay, specifically in relation to orders 3-6, until the determination of the appeal.

Consideration

1. [9]

   The applicable principles when exercising the Court’s power to grant a stay pending an appeal are not in dispute: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694-695; Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [17]-[20].

2. [10]

   Prima facie the successful party is entitled to the benefit of a judgment, but a stay may be granted where an applicant demonstrates an appropriate case to warrant the exercise of discretion in its favour. The mere filing of the appeal is insufficient, of itself, to demonstrate such a case. Usually it is demonstrated by showing that there are arguable grounds of appeal and that there is a significant risk that if money is paid it will be unable to be recovered if the appeal succeeds or by demonstrating that unless a stay is granted the appeal will be rendered nugatory: TCN Channel 9 Pty Ltd v Antoniadis (No 2) (1999) 48 NSWLR 381 at [15]. It is for the applicant to demonstrate a proper basis for a stay that will be fair as between the respective interests of the parties: see Alexander v Cambridge Credit Corporation Ltd at 694; Adeels Palace Pty Ltd v Moubarak; Adeels Palace Pty Ltd v Najem (No 2) [2009] NSWCA 130 at [2].

3. [11]

   The grounds in the notice of appeal grounds are directed to two issues. The first challenges the primary judge’s finding that Ms Drinkwater had a reasonable expectation that Mr Nadinic would correct the misapprehension she had concerning the GST input tax credit position of Brooks. The second challenges the finding that the GST input tax credits, the subject of the misapprehension, would have been available to Brooks to set-off against Brook’s obligation to pay GST on the sales of the units in the development.

4. [12]

   Both parties made competing submissions as to whether the appeal is an arguable one. In oral argument, the solicitor for Ms Drinkwater took the extreme position that the appeal was groundless. This submission, without more, was not particularly helpful. Unless there are very limited prospects, the Court is not usually minded to speculate on the strength or weakness of the appeal. The present case is no exception. I proceed upon the basis that the appeal is arguable.

5. [13]

   Turning to the balance of convenience or balance of hardship suffered by the respective parties in the event that a stay is or is not granted, the focus of submissions was on whether, as Mr Nadinic submitted, there is a significant risk if money is paid out of the controlled monies account in accordance with order 4 it will be unable to be recovered from Ms Drinkwater without delay or difficulty, if the appeal succeeds. Mr Nadinic submitted that an inference should be drawn that, absent a stay, it is likely that Ms Drinkwater will expend those monies in meeting her other obligations, given the submission of the solicitor for Ms Drinkwater in opposing the stay that Ms Drinkwater was entitled to disperse such monies, if paid to her, as she thought fit.

6. [14]

   Ms Drinkwater submitted that she is being prejudiced by the extremely low interest rate on the controlled monies account of approximately 0.4 per cent per annum. This rate is aptly described as paltry. So much was accepted by counsel for Mr Nadinic.

7. [15]

   Ms Drinkwater further submitted that the risk of delay or difficulty in Mr Nadinic obtaining restitution, if the appeal succeeds, is militated by the value of the real properties owned by her in her capacity as trustee of the Cheryl Drinkwater Trust (a unit in the Belmont land (Unit 1) said to be worth $850,000, and two properties owned in her own right (flats at Cessnock said to be worth $400,000 and her family home at Coal Point, said to be worth $1,900,000. No formal valuation evidence was adduced by Ms Drinkwater. The values attributed to these properties were given by the solicitor for Ms Drinkwater on information and belief based on instructions received from Ms Drinkwater herself. The weight to be given to such lay evidence is to be tempered by the absence of any expert valuations related to these properties.

8. [16]

   In response to a question raised by the Court as to whether Ms Drinkwater was prepared to offer any undertakings in relation to the monies payable to her in accordance with order 4, Ms Drinkwater initially proffered an undertaking to the Court and Mr Nadinic that the money payable to her from the controlled monies account would be invested in a term deposit with a bank or building society in her name and would not be disposed, dispersed, mortgaged, charged or otherwise dealt with pending the determination of the appeal.

9. [17]

   Mr Nadinic did not accept this undertaking, arguing that the status quo should remain in place because the security interest granted by the mortgage over the Belmont land, attached to the proceeds of sale which were held in the controlled monies account.

10. [18]

    At the conclusion of the hearing, the Court requested Ms Drinkwater to formalise the terms of the proposed undertaking she was prepared to give. The Court subsequently received by email from the solicitor for Ms Drinkwater a signed undertaking by Ms Drinkwater in the following terms, which was marked as Exhibit A:

11. [19]

    In response to the signed undertaking given by Ms Drinkwater which was wider than that initially proffered by Ms Drinkwater (see [16] above), counsel for Mr Nadinic informed the Court by email, copied to the solicitor for Ms Drinkwater, that the undertaking was acceptable insofar as it dealt with orders 4 and 5 made on 21 May 2019 and that the application for a stay, insofar as it concerns the controlled monies account, was resolved. However, counsel for Mr Nadinic indicated that the undertaking concerning the controlled monies account did not address the need for a stay in relation to orders 3 (Costs) and 6 (Provision of discharge of mortgage). The application for a stay pending appeal was pressed in relation to those two orders.

12. [20]

    As to order 3, no prejudice was identified by Ms Drinkwater if the costs order in her favour with respect to the proceedings below, which included the costs of the first trial before Pembroke J, was stayed pending the determination of the appeal.

13. [21]

    As to order 6, again no prejudice was identified by Ms Drinkwater if the order requiring the discharge of the mortgage held by Mr Nadinic, relevantly over Unit 1 in the Belmont land, was stayed pending the determination of the appeal. In this regard, the undertaking given by Ms Drinkwater includes an undertaking not to dispose, charge, mortgage or otherwise deal with Unit 1. Although the terms of the mortgage are not in evidence, it seems to be common ground that the mortgage included a common form “all monies clause” which prima facie would secure the legal costs of the proceedings between Ms Drinkwater and Mr Nadicic. Whilst there is no evidence as to the likely quantum of such costs in the event that Mr Nadinic succeeds on appeal, they can be assumed to be significant given the history of the proceedings below, as summarised in the principal judgment of Emmett AJA at [3]. It seems to me that the status quo with respect to the mortgage should remain in place.

14. [22]

    Accordingly, there should be a stay of orders 3 and 6 made on 21 May 2019 pending the determination of the appeal.

15. [23]

    As to costs of the motion, the usual rule is that costs follow the event unless it appears to the Court that some other order should be made: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Here, the “event” is the outcome of the motion on which Mr Nadinic has had mixed success. Given that the undertaking ultimately offered by Ms Drinkwater was only forthcoming after the conclusion of the hearing, the appropriate order is that costs of the motion be the applicant’s costs in the appeal.

16. [24]

    Accordingly, the Court makes the following notation and orders:

    1. (1)

       The Court notes the signed undertaking given by the respondent to the Court and the applicant in Exhibit A, the terms of which are set out in Sch 1 below;

    2. (2)

       Order that orders 3 and 6 made by Emmett AJA on 21 May 2019 be stayed pending the determination of the appeal;

    3. (3)

       Otherwise dismiss the applicant’s notice of motion filed 14 June 2019;

    4. (4)

       The costs of the motion filed 14 June 2019 be the applicant’s costs in the appeal.