Gangemi v Osborne & Anor [2008] VSCA 221 (6 November 2008) – Bankruptcy & stay of execution

December 1, 2008 |

It is quite common for an appellant to seek a stay of execution of a judgment pending resolution of an appeal.  It is surprising that many litigants ( and, I suspect, their legal representatives) believe that lodging an appeal constitutes a stay of execution and then the presumption is in favour of such a stay.  The contrary is the case.

The facts in Gangemi are depressingly familiar; a fight between entrepreneurs with the plaintiff suing for return of funds pursuant to a contract while the defendant alleges there was a joint venture which failed and the parties lost the money.

The plaintiff, Osbourne, was successful, obtained judgment and issued a bankruptcy notice in the sum of $387,405. Gangemi lodged an appeal and, not surprisingly, sought to stay the execution pending the resolution of the appeal.

The Court, perWarren and Neave, pithily stated the overriding principle regarding a stay application :

12 An appeal does not operate as a stay of execution, but the Court may order a stay pending an appealThere is a presumption in favour of a stay not being ordered and Gangemi bears the burden of demonstrating the existence of exceptional or special circumstances.

When considering a stay application the court adopts a similar approach as when it considers an application for an injunction.  As with injunctive relief the key issue is whether if a stay is not grated could the parties not return to the status quo ante if the appeal succeeds. To that end their Honours said:

13 In Cellante v G Kallis Industries Pty Ltd, Young CJ stated that special circumstances would exist where:

[F]or whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed.

This is typically expressed as the risk where, if an appellant were successful on appeal, they would be denied the fruits of the appeal if a stay is not ordered.

15 In summary, the factors relevant in considering whether to order a stay of a decision below are the prospect of an appeal being rendered nugatory, the balance of prejudice in depriving a party of the fruits of judgment against the risk that an appeal might be rendered nugatory, and the prospects of success of the appeal.

Applying the principles their Honours said:

Balance of prejudice

In cases where a company appeals and has no assets the court may grant a stay because in being wound up the appellant loses its opportunity to have a judgement set aside( see paragraph 21).

In this case the court found that Gangemi had some assets which a trustee in bankruptcy, if matters proceeded in that direction, could apply to the prosecution of the appeal.  On that reasoning, the court found that Gangemi did not lose his ‘only avenue of legal redress’.

Prospects of success

In this case grounds of appeal relate to challenges to findings of fact made by the trial judge. Their Honours made the important point (at paragraph 37) that appellate courts are reluctant to interfere with findings of fact unless such findings were not open on the evidence and saying:

Appellate courts are even more reluctant to interfere where those findings were based on an assessment of the credibility of witnesses proffering competing or contradictory evidence.

The court made it clear (at paragraph 44) that applicant had to make out the merits of the appeal before a stay is granted (beyond a possible urgent interim stay).  Impending  bankruptcy or a winding up is not of itself sufficient. It was clear from the extracted portions of the judge’s decision at first instance that credit and findings of fact were a determining factor.  That makes for a difficult task for any appellant.

After considering the evidence in light of the application the Court found at paragraph 54 that the applicant:

  • failed to make out sufficient prospects of success.
  • did not provide any satisfactory evidence as to assets or capacity to pay the debt the subject of the bankruptcy proceeding. The purpose of a stay is not to put off the day of reckoning. 

It is a very useful decision because the court set out in detail the approach the Court of Appeal should adopt when hearing an application for  stay.

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