Hudson Investment Group and Anor v Pacific Holdings [2006] NSWSC 873 (31 August 2006)

Last Updated: 5 September 2006

NEW SOUTH WALES SUPREME COURT

CITATION: Hudson Investment Group & Anor v Pacific Holdings [2006] NSWSC 873



CURRENT JURISDICTION: Common Law

FILE NUMBER(S): 11348/2006

HEARING DATE{S): 29 August 2006

DECISION DATE: 31/08/2006

PARTIES:
Hudson Investment Group Limited - Second Plaintiff
Hudson Pacific Group Limited - Third Plaintiff

Pacific Holdings Limited - Defendant


JUDGMENT OF: Associate Justice Harrison

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Mr J Stoljar - Plaintiffs
Mr T H Barrett - Defendant

SOLICITORS:
Mallesons Stephen Jaques - Plaintiffs
Bamford Associates, Lawyers - Defendant


CATCHWORDS:
Stay of foreign judgment

ACTS CITED:
Foreign Judgments Act 1991 (Cth) - s 8
Uniform Civil Procedure Rules 2005 (NSW) - Rule 25.8

DECISION:
(1) A stay of enforcement of the judgment registered in this Court pending the outcome of the appeal is granted was the basis that Hudson Investment Group Limited provide the proposed written undertaking by 5.00pm on 1 September 2006
(2) Costs are reserved
(3) The argument on costs is stood over to a date to be fixed.


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION



ASSOCIATE JUSTICE HARRISON


THURSDAY, 31 AUGUST 2006


11348/2006 - HUDSON INVESTMENT GROUP LIMITED
& ANOR v PACIFIC HOLDING LIMITED


JUDGMENT (Stay of foreign judgment)

1 HER HONOUR: By summons filed 23 March 2006 the plaintiff seeks an order under s 8 of the Foreign Judgments Act 1991 (Cth) (the Act) that enforcement of the judgment dated 21 September 2005 of the High Court of New Zealand, Auckland Registry in suit no CIV-2005-404-531, registered under Part 2 of the Act by order of this Court entered on 7 February 2006 and served on the plaintiffs on 13 March 2006, be stayed pending the final determination of the appeal of the judgment commenced by the plaintiffs in the Court of Appeal of New Zealand by notice of appeal dated 5 October 2005, on condition that the plaintiffs pursue the said appeal in an expeditious manner. At the hearing, the first plaintiff was removed as a party to these proceedings.

2 The second plaintiff is Hudson Investment Group Limited (Hudson Investment Group). The third plaintiff is Hudson Pacific Group Limited (Hudson Pacific Group). For ease of reference, I will refer to the plaintiffs collectively as “Hudson”. The defendant is Pacific Holdings Limited (Pacific Holdings). Hudson relied on two affidavits of Francis Yeung Wai Choy dated 4 May 2006 and 22 June 2006, two affidavits of Jaqueline Shan Langston dated 21 March 2006 and 23 March 2006 and the affidavit of Sally Erin Fitzgerald dated 22 March 2006. Pacific Holdings relied on the affidavit of David Stuart Watt dated 25 May 2006. Pacific Holdings opposed the order sought and submitted that Hudson should pay the moneys to it on the judgment debt owed or alternatively these moneys be paid into Court.

3 On 21 September 2005 Pacific Holdings obtained summary judgment in the New Zealand High Court against Hudson (the judgment). On 5 October 2005 Hudson appealed the judgment. It is due to be heard in two weeks time.

4 Section 8 of the Foreign Judgements Act 1991 (Cth) reads:

“Stay of enforcement of a registered judgment

(1) If the court in which a judgment is registered is satisfied that the judgment debtor has appealed, or is entitled and intends to appeal, against the judgment, the court may order that enforcement of the judgment be stayed pending the final determination of the appeal, until a specified day or for a specified period.

(2) If the court in which a judgment is registered makes an order on the ground that the person is entitled and intends to appeal against the judgment, the court must require the person, as a condition of the order, to bring the appeal by a specified day or within a specified period.

(3) Every order is to be made on the condition that the judgment debtor pursues the appeal in an expeditious manner.

(4) An order may be made or such other conditions, including conditions relating to giving security, as the court in which the judgment is registered thinks fit.”

5 On 7 February 2006 the judgment was registered in New South Wales. On 13 March 2006 a copy of the registered the judgment was served on Hudson. On 23 March 2006 Hudson filed this summons seeking a stay of the execution of the judgment. There has been no delay in Hudson lodging the appeal in the New Zealand High Court and in filing these proceedings.

The decision of Associate Justice Faire

6 In the High Court of New Zealand the plaintiff is Pacific Holdings Limited. The first defendant is Hudson New Zealand Limited. The second defendant is Hudson Investment Group Limited. The third defendant is Hudson Pacific Group Limited. In the High Court of New Zealand Pacific Holdings sought and was granted summary judgment in the sum of $2 million. Pacific Holding’s claim relied upon:

(a) A redeemable convertible preference note facility agreement dated 19 December 2002, which was executed by the plaintiff and the first defendant. Pursuant to the agreement the plaintiff advanced $2 million on 19 December 2002.

(b) A redeemable convertible preference note certification dated 19 December 2002 was executed by HNZ.

(c) A shareholders’ representation and warranties document dated 19 December 2002, addressed to the plaintiff and executed as a deed by the second defendant and the third defendant.

(d) A notice given by the plaintiff on 20 May 2004 pursuant to the redeemable convertible preference note facility agreement to the first defendant requiring payment of $2 million together with interest calculated pursuant to clause 2.3 of the conditions of issue of the notes. [J 2]

7 The defences raised were “The knowing receipt defence” (judgment [24]) and “The illegality defence” (judgment [28]). Evidence was relied upon by both parties. In relation to the “illegality defence” (judgment [63]) Associate Justice Faire made a finding that there was no foundation for an arguable defence of illegality and therefore no arguable basis for a claim that a New Zealand Court should not enforce the agreement on public policy grounds. Likewise, it appears that the Associate Judge made a finding that there was no foundation for “The knowing receipt defence” [68]. The Associate Judge also rejected the argument that Hudson should have advantage of obtaining discovery prior to judgment being entered. It is worth noting that judgment was obtained without there being a trial on its merits.

8 The grounds of appeal which Hudson contends that the Associate Judge was in error are as follows:

“(a) The onus was on the Respondent to demonstrate that the Appellants had no arguable defence to the Respondent’s claim and it failed to do so.

(b) The evidence available to the Court demonstrated that the Appellants had an arguable defence.

(c) The Associate Judge was wrong to try to determine, at summary judgment, the outcome of the defences raised by the Appellants. In so doing, the Associate Judge wrongly applied the test for summary judgment.

(d) The Associate Judge was wrong to conclude that there was no loss to the Appellants in the transactions. In particular, the Associate Judge was wrong to conclude that there was no rise in value in the Hudson Timber Limited shares which were the subject of the “unwind transaction” between the time of the Respondent exercising its option over those shares and the “unwind transaction”.

3. The Associate Judge was wrong to conclude that this was not an appropriate case to exercise his discretion to decline summary judgment to enable the Appellants to obtain discovery and the Respondent’s witnesses to be cross-examined.”

9 I am satisfied that Hudson has an arguable case on appeal.

10 The issue is whether, in the exercise the Court’s discretion, the stay of enforcement of the judgment should be granted pending the determination of the appeal. The principles of law which apply to an application for a stay of execution in relation to a judgment under appeal are not in doubt – see Alexander v Cambridge Credit Corporation Ltd (Receiver Appointed) (1985) 2 NSWLR 685 at 693A-695G.

11 In Alexander the Court of Appeal per 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 (at 694 and 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 an 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 can 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.”

12 Hudson’s counsel referred to Rosengrens Ltd v Safe Depost Centres Ltd [1984] 3 All ER 198 where at 199d-e Sir John Donaldson MR stated:

“...Where a court is trying to preserve a position pending a further investigation either of a counterclaim or a possible appeal, it is rightly concerned to make certain that the thus far successful party shall not by the passage of time lose the potential fruits of his judgment. That is what security is all about. The court is not concerned to take steps against the unsuccessful party with a view to punishing him in any way or to disadvantage him to any greater extent than is necessary to do justice to the plaintiff.”

Hudson’s financial position

13 Hudson Investment Group is solvent. However, Pacific Holding submitted that Hudson’s financial position is eroding over time. Hudson Investment Group is the parent company and is publicly listed on the Australian Stock Exchange. Its registered office is in Sydney. Hudson New Zealand Limited is a subsidiary company and is in liquidation. Hudson Pacific Group is also a subsidiary of Hudson Investment Group.

14 Mr Francis Yeung Wai Choy is the Chief Financial Officer of Hudson Investment Group. His evidence is that the consolidated statements for Hudson Investment Group (incorporating the assets and liabilities of all subsidiaries of Hudson Investment Group, including Hudson Pacific Group) indicate that Hudson Investment Group’s consolidated profit for the year ended 31 December 2005 was $7.240 million and its consolidated net asset position was $20.374 million. The 2005 annual report indicated that in the year to 31 December 2005, Hudson Investment Group recorded total revenue of $8.472 million (page 4); and that the Australian property investment and development business segment (which is housed in Hudson Pacific Group) has assets valued at $63,658,000 and liabilities of $38,486,000 (page 47). In these accounts provision has been made for the debt payable to Hudson under the heading contingent liabilities.

15 Mr David Stuart Watt, a Chartered Accountant (on behalf of Pacific Holding) expressed the following opinion, in relation to the Hudson Investment Group.

“Based on the most recent balance sheet with which I have been provided, Hudson Investment Group Limited, as the parent company and as a consolidated group, does not have sufficient cash as at 31 December 2005 to pay the full debt of over $2.258 million. Hudson Investment Group Limited, as the parent company, had, as at 31 December 2005 cash and cash equivalent of $567,000, and its controlled entities had cash as at 31 December of approximately $533,000 (bringing the total cash for the consolidated group to $1.1 million).

It is possible, although I do not known, that Hudson Investment Group Limited may have been able to convert other assets into cash or use those assets as security against which further borrowings can be obtained to pay the debt.

Hudson Investment Group Limited, as the parent company and as a consolidated group, has significant net assets as at 31 December 2005. However, the majority of these assets are classified on the balance sheet as ‘non-current’ which means that they are not expected to be converted into cash within 12 months from 31 December 2005.” (Aff 25/05/2006 [34-36])

16 Mr Choy stated that the current estimated value of the Hudson Group’s investment in the Auckland investment properties is in excess of approximately NZ$2 million. These investment units comprise the real property interest of the Hudson Group which could most readily be realised or converted into cash. Because each investment unit is on a separate title, Mr Choy believes the units could be progressively sold without affecting their sale price. Each investment unit is presently valued at approximately NZ$350,000. (Para 8(e) Aff 22/06/2006). Hudson Group owns property at Rouse Hill and Warnervale in the State of New South Wales.

17 From this evidence, it appears that Hudson does not have access to cash assets of about $2.5 million. As at 31 December 2005 Hudson Investment Group had cash in the $533,000 and its controlled entities had cash and cash equivalent of $567,000 (a total of over $1 million). If Hudson has to pay the amount of the judgment debt prior to the outcome of the appeal being known it will need to borrow money or sell assets.

18 Hudson is prepared (pursuant to Rule 25.8 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)) to proffer an undertaking to the Court in the following form:

“PROPOSED UNDERTAKING

The second plaintiff undertakes to the Court that until further order it will not, by itself, its servants or agents, remove or cause or permit to be removed from the State of New South Wales or sell, charge, mortgage or otherwise deal with or dispose of, or cause or permit to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets (whether held beneficially or otherwise) within the State of New South Wales, otherwise than in the ordinary course of its business, pending the final determination of the appeal commenced by the plaintiffs in the Court of Appeal of New Zealand by Notice of Appeal dated 5 October 2005 against the judgment dated 21 September 2005 of the High Court of New Zealand, Auckland Registrar (in suit no CIV-2005-404-531.)”

19 The appeal is two weeks away. It may be that the High Court of New Zealand reserves its decision and judgment on appeal may take a little longer to be handed down. Hudson is solvent. The grounds of appeal are arguable. I accept that Pacific Holdings obtained judgment in this Court on 7 February 2006 and that has not been paid. However, it is my view that Hudson should not be required to take action to sell assets in order to pay the judgment moneys, when the appeal will be heard very shortly. Pacific Holdings position will be protected in that it will not lose the potential fruits of its judgment if the undertaking is given. It is my view that a stay of enforcement of the judgment registered in this Court pending the outcome of the appeal should be granted upon Hudson Investment Group Limited giving the proposed written undertaking outlined above.

20 Costs are reserved. I stand the argument on costs over to a date to be fixed.

The Court orders:

(1) A stay of enforcement of the judgment registered in this Court pending the outcome of the appeal is granted on the basis that Hudson Investment Group Limited provide the proposed written undertaking by 5.00pm on 1 September 2006.

(2) Costs are reserved.

(3) The argument on costs is stood over to a date to be fixed.
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LAST UPDATED: 04/09/2006