Baycrown Pty Ltd v Hutchinson & Anor [2002] QDC 337

DISTRICT COURT OF QUEENSLAND CITATION: Baycrown Pty Ltd v Hutchinson & Anor [2002] QDC 337 PARTIES: BAYCROWN PTY LTD Plaintiff and KEVIN GEORGE HUTCHINSON First Defendant and WALTER PATTERSON Second Defendant FILE NO/S: 444/2002 DIVISION: Civil Jurisdiction PROCEEDING: Application ORIGINATING COURT: District Court of Queensland, Southport DELIVERED ON: 12 September 2002 DELIVERED AT: Southport HEARING DATE: 16 August 2002 JUDGE: Alan Wilson SC DCJ ORDER: Default judgment entered by the plaintiff against the first defendant on 16 July 2002, set aside CATCHWORDS: DEFAULT JUDGMENT – SETTING ASIDE – whether default judgment irregularly entered – whether applicant to set aside judgment entered irregularly must show a defence on the merits DEFAULT JUDGMENT – SETTING ASIDE – SECURITY FROM APPLICANT DEFENDANT – whether applicant -- 1 of 8 -- 2 who successfully applies to set aside a default judgment entered irregularly, but who has not shown a defence on the merits, should be obliged to provide security as a condition of the setting aside Cases considered: Alliance Acceptance Co Ltd v Makas (1976) 12 ACTR 19 Daly v Silley (1960) VR 353 Bruce v Odhams Press Ltd (1936) 1 KB 697 (CA) Conners v Acheron Pty Ltd (No. 2) [1996] 1 Qd R 243 Dibeek Holdings Pty Ltd v Notaras (1998) 143 FLR 132 Hughes v Justin (1894) 1 QB 667 COUNSEL: Mr S J English for the applicant first defendant Mr Woods for the respondent plaintiff SOLICITORS: Baker Johnson for the applicant first defendant McLaughlins for the respondent plaintiff [1] The first defendant applied to set aside a default judgment entered against him by the plaintiff on 16 July 2002 for $168,318.28 (inclusive of interest, and costs). The issues that arise are, firstly, whether the default judgment can or should be set aside in circumstances where the first defendant has not attempted to establish a defence on the merits; and secondly whether, if the judgment is set aside, the first defendant should be obliged to provide security as a condition for the setting aside. Background [2] As the plaintiff’s statement of claim 1 and an affidavit of the plaintiff’s director, Thomas Van Asperen 2 and an affidavit of the first defendant’s solicitor, Mark Victor Guest 3 show the plaintiff company and Surfshell Pty Ltd entered into an agreement in February 2001 whereby, inter alia, the plaintiff loaned Surfshell the sum of $250,000.00. By a separate deed signed on the same day the first and second defendants guaranteed repayment of that debt on or before 20 May 2002. 1 Filed 4 June 2002 2 Filed by leave 16 August 2002, and read only as to paragraphs 1 & 2 3 Filed 13 August 2002 -- 2 of 8 -- 3 [3] The first defendant was served with the claim and statement of claim on 11 June 2002. On 19 June his solicitors wrote to McLaughlins, who act for the plaintiff, asking that their interest be noted in the matter and that no steps prejudicial to their client be taken without a communication to them. Otherwise the letter simply indicated they expected to have instructions in the foreseeable future and would “respond to you thereafter”. On 11 July the plaintiff’s solicitors replied pointing out that the time for filing a defence had expired on 9 July and in the absence of a “meaningful attempt” by the first defendant to repay the debt, steps would be taken to enter default judgment unless a defence was received by 15 July. On that date the first defendant’s solicitors wrote again asking for copies of an “agreement dated 20th February 2001” so that “the Reply and Answer (could) (sic) be properly pleaded”. Some of the subsequent affidavit material was taken up with the question whether the plaintiff’s solicitor’s letter had in fact reached or been seen by the first defendant’s solicitor and whether, in the circumstances, it was improper for the plaintiff to have proceeded to obtain default judgment, as it did, on the morning of 16 July. In the event, the first defendant did not seek to rely upon this exchange of correspondence, or anything arising from it, in its application before me. Judgment Irregularly Entered [4] As Professor Cairns says 4 : “For a default judgment to be regular it must strictly comply with the rules and be for the relief to which the plaintiff is entitled on the pleading. The record must show the plaintiff to have a right to judgment, and the judgment entered must follow the relief claimed. If these requirements are not met the judgment is irregular and it will be set aside: R T Co Pty Ltd v Minister of State for the Interior (1957) 98 CLR 168. Apart from this, the Court record must show that all the necessary interlocutory steps were properly followed in entering the judgment.” [5] These proceedings name only two defendants, and the plaintiff has advanced the action to judgment against the first, alone. The agreement mentioned above, and the guarantees from the first and second defendant, are set out in paragraphs 2 and 4 Australian Civil Procedure, 5 th edition, p 383 -- 3 of 8 -- 4 3 of the statement of claim. Paragraph 4 then asserts that under the agreement the plaintiff advanced to the first defendant, and to the second and third defendants (when there is no third defendant in the action) at the request and direction of the first defendant, the sum of $251,992.14. A schedule then appears showing various disbursements of portions of that total sum, over dates between 20 February and 6 November 2001 to Surfshell Pty Ltd, but also to, individually, the first defendant and the second defendant at various times. This contradicts what is pleaded in paragraph 2, and the documents provided by the plaintiff’s solicitors to the first defendant’s solicitors in the course of correspondence between them. On the face of the agreement produced then, no monies were ever to be advanced to the first, or second defendants personally. There is no third defendant and that part of the pleading is factually incorrect, and embarrassing. The paragraph is also uncomfortable in the face of UCPR r 154 which provides that a party can only make inconsistent allegations, if they are pleaded as alternatives. [6] Paragraph 5 of the statement of claim alleges the first defendant executed a deed of charge in favour of the plaintiff on 20 February 2001 to secure the sum of $250,000.00. That appears to be wrong, as the deed exhibited to Mr Guest’s affidavit shows. The charge is, in fact, a floating charge given by Surfshell Pty Ltd over its assets to secure a loan facility of $250,000.00. [7] Paragraph 7 asserts it was a term and condition of the charge that the first defendant would, without demand, repay the loan, or so much of it as remained outstanding, to the plaintiff on or before 20 May 2002. That is incorrect. The first defendant was not a party to the charge, and the only parties are the plaintiff, and Surfshell Pty Ltd. [8] Paragraph 8 alleges that under the deed of guarantee the second and third defendants jointly and severally guaranteed the first defendant’s observance of the charge. Again, this is incorrect, and embarrassing. There are only two defendants, who in fact guaranteed Surfshell Pty Ltd’s performance under the charge. -- 4 of 8 -- 5 [9] Paragraph 11 alleges that in breach of their obligations under the agreement and guarantee and despite demand the first and second defendants have failed to pay the balance of the outstanding debt to the plaintiff. The guarantee required, in paragraph 1, that a demand be served on the guarantors before any obligations under the deed of guarantee were triggered: “AND FURTHER will upon demand pay to the Creditor the amount of any loss or damage which the Creditor may suffer by reason of the non-performance or non- observance by the Mortgagor of any such covenants, conditions or stipulations.” (Surfshell Pty Ltd is described, in the deed of guarantee, as “the Mortgagor”). [10] The plaintiff has not pleaded and did not, before obtaining default judgment, prove to the Registrar whether, or when, a demand had ever been made of the first defendant or, if so, in what amount. By an affidavit filed by leave on 16 August 2002 the plaintiff’s director Mr Van Asperen swore that on 3 May he sent the first defendant a letter of demand by registered post. At that time, however, Surfshell Pty Ltd was not in default. Clause 2 of the guarantee provides: “2. If default is made by the Mortgagor in the observance or performance of any of the terms, covenants, conditions and stipulations expressed or implied in the said Mortgage and on the part of the Mortgagor to be observed and performed the Guarantor will upon demand observe and perform such terms, covenants, conditions and stipulations to the satisfaction of the Creditor and if default is made by the Mortgagor in the payment of any instalment of principal or interest or any payment of any charges, expenses or other monies under or and by virtue of the said Mortgage then the Guarantor will pay the amount thereof to the Creditor upon demand.” [11] Further, Clause 12 provided: “12. All monies payable by the Guarantor to the Creditor hereunder shall be payable forthwith upon demand made by the Creditor by notice in writing to the Guarantor and upon the service of any such notice such monies shall become immediately due and payable to the Creditor by the Guarantor.” -- 5 of 8 -- 6 The plaintiff did not attempt to prove, to the Registrar, that a notice under the deed had been served upon (or posted to) the first defendant before default judgment was entered 5 . [12] UCPR 149(1)(b) requires that a pleading contain a statement of all the material facts upon which a party relies – i.e. all those matters necessary for the purpose of formulating a complete cause of action which, if omitted, may make the pleading bad6 . As Professor Cairns goes on to point out 7 almost any failure to comply with the rules renders the judgment irregular. In the present instance I am satisfied the pleading was confusing, and unclear. The material filed in support of the application for default judgment from the Registrar was extremely terse, and simply asserted that, inclusive of costs and interest, $168,318.28 was “now due in respect of the cause of action alleged in the claim and statement of claim”. The claim contains a prayer for $164,992.14 “for money due and owing by the first and second defendants to the plaintiff” but the Registrar was not shown how that debt might have arisen under the guarantee referred to in the statement of claim; or, how the advances alleged in paragraph 4 of the pleading were consistent with the facts and matters alleged in paragraphs 2 and 3; or, that despite the allegation in paragraph 7 that the debt was repayable “without demand” the agreements did, actually, require a demand, consequent upon default, upon the defendants before their obligations under the guarantee crystallized. Further, there was no proof a demand of that kind had ever been made. [13] I am persuaded the judgment was irregularly entered. 5 Service could be effected personally or by post under the deed of guarantee, para 13 (affidavit Mark Victor Guest filed 13 August 2002, Exhibit MVG-3) 6 Bruce v Odhams Press Ltd (1936) 1 KB 697 (CA) per Scott LJ at 712 7 supra, at pp 383-4 -- 6 of 8 -- 7 [14] In light of these findings it was not necessary for the defendant to file an affidavit on the merits, or establish a good defence, before the default judgment could be set aside8 . Security for Claim [15] The plaintiff submitted that, should the default judgment be set aside, it should be done on terms that the first defendant provide adequate security. I was referred to Conners v Acheron Pty Ltd (No. 2) [1996] 1 Qd R 243 in which the Court of Appeal 9 mentioned this kind of security, at 246: “It was argued by Mr Dutney QC for the appellant, that the Court should follow and apply the law as laid down in judgments in the South Australian Supreme Court in Edwards v Wallace (1986) 42 SASR 308, especially at 315 per O’Loughlin J. The essence of that statement is that the Court should not require payment into Court if there is a reasonable defence, but may do so if the proposed defence seems to have no real substance. We are of the opinion that it is unnecessary to determine, in this appeal, whether those principles should be applied; it is possible that instances will occur in which it is appropriate to provide for security for a judgment, as a condition for leave to defend, when such an order would not be justified under the Edwards v Wallace principles.” [16] In the absence of a pleading or any affidavit material in which the first defendant has given information about his proposed defence it is impossible, at this stage, to determine whether or not he has the capacity to raise substantial grounds. In circumstances where the irregularity in the default judgment arises because of serious deficits in the plaintiff’s pleading, a failure to remedy those deficits before seeking judgment, and a failure (in the face of those deficits) to establish proper grounds upon which a default judgment could have been granted, I do not think it appropriate to consider burdening the defendant in the manner proposed. 8 Hughes v Justin (1894) 1 QB 667; Alliance Acceptance Co Ltd v Makas (1976) 12 ACTR 19; Daly v Silley (1960) VR 353; and, Dibeek Holdings Pty Ltd v Notaras (1998) 143 FLR 132 9 McPherson and Pincus JJA, Ambrose J -- 7 of 8 -- 8 Order [17] I order that the default judgment entered against the first defendant on 16 July 2002 be set aside. [18] I will hear further submissions about costs, or directions about the future conduct of the action. ----- -- 8 of 8 --