Conners v Acheron Pty Ltd (No 2) [1994] QCA 359 [1996] 1 Qd R 243

IN THE COURT OF APPEAL [1994] QCA 359 SUPREME COURT OF QUEENSLAND Appeal No. 247 of 1993. Brisbane [Acheron v. Conners & Anor] BETWEEN: ACHERON PTY LTD (Defendant) Appellant AND: WILLIAM RICHARD KINGSLEY CONNERS and ROSEMARY ANNE KENT (Plaintiffs) Respondents ____________________________________________________________ _____ McPherson J.A. Pincus J.A. Ambrose J. ____________________________________________________________ _____ Judgment delivered 16/09/1994 Judgment of the Court ____________________________________________________________ _____ 1. Appeal allowed. 2. Order Nos. 3 and 6 made on 17 December 1993 set aside. 3. Judgment entered on 24 January 1994 in the sum of $228,269.71 set aside. 4. Appellant given unconditional leave to defend the respondents' claim in respect of the plant and equipment located at the Metropolitan Hotel at Mackay. 5. Appellant's costs of this appeal to be appellant's costs in the cause. 6. Above orders not to be entered for seven days. ____________________________________________________________ _____ CATCHWORDS: PRACTICE - payment into court - security - payment into court as condition for grant of leave to defend - principles to be taken into account when deciding whether to order that security should be provided - appellant given unconditional leave to defend. Counsel: Mr P R Dutney Q.C. with him Mr M R O'Donnell for the appellant. Mr D Fraser Q.C. with him Mr M J Burns for the respondent. Solicitors: Short Punch & Greatorix for the appellant. -- 1 of 14 -- Nicol Robinson & Kidd for the respondent. Date of hearing: 18 August 1994. -- 2 of 14 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 247 of 1993. Brisbane [Acheron v. Conners & Anor] Before McPherson J.A. Pincus J.A. Ambrose J. BETWEEN: ACHERON PTY LTD (Defendant) Appellant AND: WILLIAM RICHARD KINGSLEY CONNERS and ROSEMARY ANNE KENT (Plaintiffs) Respondents REASONS FOR JUDGMENT - THE COURT Judgment delivered 16/09/1994 This appeal is brought against an order identified in the notice of appeal as having been made on 29 October 1993. On that date the primary judge orally ordered that, as a condition of leave to defend a certain action, the appellant should within 30 days give security to the satisfaction of the registrar. On 17 December 1993 that order, having been drawn up in due form, was entered. The appellant contends that it should not have been required to provide any security and that it should have had unconditional leave to defend. The action was begun by the issue of a specially endorsed writ claiming $276,534.41 in respect of two agreements, both oral. Under the first agreement, according to the pleading, trading stock at the Metropolitan Hotel in -- 3 of 14 -- 4 Mackay was agreed to be purchased by the appellant from the respondents at a reasonable price; the stock was said to be worth $31,394.41. The second agreement set up was one for the sale by the respondents to the appellant of plant and equipment at the Metropolitan Hotel in Mackay "for fair market value in accordance with a valuation to be carried out by an independent valuer retained by the Defendant". It was alleged that no valuation had been made, but that the goods the subject of the sale had been delivered to and appropriated by the defendant, i.e. the appellant. According to the pleading the appellant was obliged to pay a reasonable price, under s. 14 of the Sale of Goods Act of 1896; that appears to have been a slip, for it is common ground that s. 12 of that Act was relied on. The appellant was served with the writ, but entered no appearance. A judgment was obtained on 2 August 1993 for the amount claimed, interest to the date of judgment and costs. In addition, an injunction was granted restraining dealings with the assets the subject of the agreements pleaded. According to a finding made by the primary judge on 25 August 1993, the obtaining of judgment "is explicable in terms of a series of errors and misunderstanding on the part of the [appellant's] then solicitors, and the town agents of those solicitors, for which the [appellant] cannot be held responsible". Having obtained judgment, the respondents proceeded to execution and the steps taken by the sheriff, and in -- 4 of 14 -- 5 particular the seizure of goods, brought the fact that judgment had been obtained to the attention of the appellant. The primary judge was satisfied that there was a satisfactory explanation for the failure to enter an appearance and that the appellant had moved expeditiously to have the judgment set aside once it became aware that it had been obtained. In the reasons just mentioned, those of 25 August 1993, it is explained that a mortgagee had at the time of the agreements set up entered into possession of the hotel, on account of the default of the mortgagor, Jalwick Pty Ltd, a company associated with the respondents. The appellant, a company controlled by one O'Donnell, claimed to have bought the hotel from the mortgagee. Those reasons dealt separately with the judgment insofar as it was attributable to the sale of stock. It was held that the judgment should stand as to that sum; the primary judge's decision to leave the respondents with the benefit of the judgment for $31,394.41 was challenged on appeal to this Court, but that appeal was dismissed (Appeal 190 of 1993, delivered 28 July 1994). It does not appear to us to be necessary to discuss the ground on which this Court decided that appeal, except to say that the majority took the view that since the appellant had taken possession of the stock and sold some of it, there was an obligation to make restitution. -- 5 of 14 -- 6 With respect to the plant and equipment, the primary judge took a different view. His Honour referred to an affidavit of O'Donnell saying that he told the female respondent (Ms Kent) that he would arrange a valuation of the plant and equipment on the basis of auction price and if that was acceptable to Jalwick Pty Ltd the plant and equipment would be bought at that valuation; O'Donnell said that Ms Kent agreed. O'Donnell swore further that he told Ms Kent the appellant would deal only with Jalwick Pty Ltd. One Buggy also gave evidence on these questions, for the appellant. The judge took the view that if O'Donnell's version of the agreement was accepted then the Sale of Goods Act would not operate to oblige the appellant to pay a reasonable price for the goods. His Honour also made some remarks about credit, more conveniently dealt with below. With respect to the point now in issue, the provision of security, his Honour said: "The issue of prejudice to the respondents and of conditions upon which the judgment might be set aside now arises. The respondents seek an order that the applicant bring the judgment sum into court, a requirement which I imagine would be satisfied by an order for the provision of an appropriate security. They also seek other conditions which I will deal with later. If the judgment is set aside, then obviously the respondents lose the benefit of the judgment. I say potentially at least, because I am not dealing with any such application. In the present case they are, however, additionally prejudiced in that potentially at least they will lose the benefit of the execution founded on the judgment. This is in circumstances where apparently the applicants' only assets are the rights it may have acquired pursuant to the contract with Silverstein as -- 6 of 14 -- 7 mortgagee in possession of the Metropolitan Hotel. For reasons which I canvassed earlier, there is no evidence as to the terms of that contract. There is evidence of further potential prejudice to the respondents in that they have dealt with creditors on the basis of the judgment leading to funds becoming available in a relatively short time to meet their obligations to creditors. In the whole of the circumstances it seems to me that, if the respondents have the benefit of the execution founded on the judgment, it is not appropriate to order that the judgment sum be paid into court or otherwise secured. On the other hand, if the respondents are to lose the benefit of the execution, they should have security either in terms of the judgment sum being paid into court or otherwise secured to the satisfaction of the Registrar." He ordered that the judgment in the amount of $276,534.41 with interest be set aside and gave the respondents instead judgment for $31,341.41 together with interest; the latter figure is that discussed above, the price of the stock. His Honour gave the appellant leave to defend in respect of the plant and equipment and added: "I give liberty to apply in respect of security for $245,140.00 the goods taken in execution and generally". When entered, the relevant part of the judge's order was expressed as follows: "Liberty to apply in respect of security in the amount of $245,140.00 the goods taken in execution and generally". It should be mentioned that some complaint was made, on behalf of the respondents, that the appellant did not, when it appealed as we have mentioned in relation to the judgment for the stock, also raise the question of security, with -- 7 of 14 -- 8 respect to the balance of the claim. It might perhaps have been convenient to do so, but it is by no means obvious that the course taken - to await events, with respect to the question of security - was a mere delaying tactic. What the judge had said in effect was that there should be security provided with respect to the claim for the price of plant and equipment if, and only if, the respondents were to lose the benefit of the execution; the appellant's advisers might have thought it inappropriate to challenge the order giving liberty to apply, until a definite order for security emerged. The matter came before the primary judge again on 29 October 1993 when, in the course of a recitation of the history of the case, his Honour remarked of the provision giving liberty to apply: "That particular provision reflected that the matter was dealt with as a matter of some urgency because the Sheriff had or was in the course of seizing goods pursuant to a writ of execution founded on the judgment which was set aside. The terms of the liberty to apply sought to give effect to a view that the judgment ought be set aside on terms of security being given by the defendant in the amount referred to, but that the plaintiffs could not have the benefit both of the security and of the execution. Nothing that I have heard since deters me from or causes me to alter that view. The liberty to apply reflected, as I recollect it, the contemplation that the parties may have been able to come to some arrangement which would accommodate the security and the execution. The situation was, I think at that time, still evolving. The execution related to goods used in the conduct of a hotel". -- 8 of 14 -- 9 His Honour then mentioned that certain of the goods which were of a perishable nature had been disposed of by the sheriff under a order of Thomas J. and the proceeds of that disposition brought into court or directed to be brought in. He expressed the view that, the appellant not seeking the return of any of the goods taken in execution, they should be sold by the sheriff and the proceeds brought into court. The judge imposed, as a condition of leave to defend, the giving of security within 30 days to the satisfaction of the registrar for the difference between the moneys brought into court and the amount of $245,140.00. It was ordered that in the event that the appellant did not give security as ordered, the respondent should be at liberty to enter judgment for the difference between the amount of $245,140.00 and any moneys brought into court. Formal orders to the effect we have mentioned were taken out on 17 December 1993. It was argued by Mr Dutney Q.C. 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 S.A.S.R. 308, especially at p. 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 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 -- 9 of 14 -- 10 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. Here, the point taken on behalf of the appellant is a narrow one capable of being shortly expressed: it is that the reasons the primary judge gave for requiring the provision of security cannot support such an order. It appears from the passage quoted above, in the reasons his Honour gave on 25 August 1993, that there were three grounds. The first was that "potentially at least" the respondents would, if the judgment were set aside, lose the benefit of the execution. The second was that the appellant's only assets were certain rights under a contract - those rights being, his Honour plainly intended to imply, of dubious value. The third reason was that the respondents had dealt with creditors on the basis that they had a judgment which would soon bring them money. As to the first reason, we cannot agree that, in general or in this particular case, the circumstance that if the judgment obtained by default is set aside then the benefit of an execution may be lost can be held to be a reason for requiring the defendant to pay into court. It is a necessary consequence of setting a judgment aside that execution cannot be instituted or, if already instituted, proceeded with. Here the evidence shows that the execution was rather unsuccessful in terms of the amount it produced. Mr D Fraser Q.C., for the respondents, argued that the -- 10 of 14 -- 11 property sold must have realised a great deal less because it was not sold as part of a going concern but at a sheriff's sale. The answer to that contention is that this handicap, under which the respondents laboured, would have been the same had there been no execution, but they themselves attempted to resell as separate items the plant and equipment, installed at the hotel. As to the second reason, it cannot ordinarily be a good ground for ordering payment in that the defendant is impecunious. If, as was the primary judge's view, there was an arguable defence, then there was a prima facie right to defend; to require that the impecunious defendant pay the full amount claimed into court as a condition of being allowed to defend is likely, in many cases, to render pointless the order giving leave to defend. The third reason, that the respondents were potentially prejudiced in that they had dealt with creditors on the basis that the judgment would soon bring them money, would not, in general, give any support to an order requiring the giving of security as a condition of leave to defend. If a defendant has a properly arguable defence it would seem to be unjust to perhaps shut the defendant out by imposing a condition of security to prevent disappointment to the plaintiff, who has banked on getting the money claimed. Further, here, there appears to have been no evidence to justify an assumption on the part of the respondents that the judgment would be promptly paid. -- 11 of 14 -- 12 We would add, with reference to the passage from the reasons of 25 August 1993 which we have quoted above, that his Honour seemed at that stage to be of the view that there should be no condition as to security unless the respondents "lost the benefit of the execution". But the execution has proceeded and the money has been paid into court. It does not appear to us that in these circumstances the order which was ultimately made was consistent with the views expressed in August. On 29 October 1993, as we have explained, the judge reviewed the history of the matter and referred to his view, earlier expressed, that the respondent should not have the benefit both of the security and of the execution. The judge gave no further reason to explain his decision to require security - i.e., his Honour added nothing to what had been said in August. This is a matter of some importance, for we were invited by Mr Fraser to uphold the order made on the basis that there might well have been operating on the judge's mind important factors other than those which were expressed by his Honour as reasons for requiring security. It has to be said that Mr Fraser but faintly suggested that the expressed reasons could in themselves support the order; his principal argument was that for a number of reasons the judge must have taken an unfavourable view of the appellant or, more particularly, of O'Donnell. The effect of the -- 12 of 14 -- 13 argument appeared to us to be that, since the matter was interlocutory, the judge hesitated to say what he thought of O'Donnell, but that he must in reality have thought him to be an unreliable and perhaps dishonest person. We find it unnecessary to examine this contention in all the detail with which it was advanced, for the difficulty it faces at the outset is that the primary judge did not in truth, fail to deal with the question of O'Donnell's credit. What he said which was relevant to it was as follows: "It is, I think, fair to say that virtually every factual issue which arises on the material in relation to the arrangements involving the applicant, Silverstein or O'Donnell and Buggy and relating to the applicant successfully resisting summary judgment is in contention. ... I do not propose canvassing the issues which arose in the context of the cross-examination of O'Donnell and Buggy. To deal with those issues seems to me essentially to involve forming a view as to their credibility. It is inappropriate and indeed impossible to form any conclusion as to that, given the limited extent to which the issues were canvassed. It is particularly impossible to form any conclusion as to the credibility of O'Donnell and the female respondent in respect of the crucial conversations. There is then a triable issue as to whether there was an agreement of the kind necessary to sustain the plaintiff's judgment in so far as it relates to plant and equipment. I am not persuaded that I should take a view of the evidence of O'Donnell and Buggy such as would render setting the judgment aside 'devoid of useful purpose'. This is essentially on account of the creditability and evidentary issues mentioned." In our opinion the terms his Honour has used make it -- 13 of 14 -- 14 difficult to approach the case on the basis that the primary judge might have harboured, but failed to express, an adverse view of O'Donnell's credit or to go further and say that such a view must have been an important consideration taken into account by the judge in favour of an order for security. What his Honour has said is that "It is inappropriate and indeed impossible" to form a view as to the credibility of O'Donnell and the related question of Buggy's credibility. The orders will be as follows, unless within seven days any party makes a written submission with respect to the form of the orders: 1. Appeal allowed. 2. Order Nos. 3 and 6 made on 17 December 1993 set aside. 3. Judgment entered on 24 January 1994 in the sum of $228,269.71 set aside. 4. Appellant given unconditional leave to defend the respondents' claim in respect of the plant and equipment located at the Metropolitan Hotel at Mackay. 5. Appellant's costs of this appeal to be appellant's costs in the cause. -- 14 of 14 --