Allen v CGI Holdings Pty Ltd (No 2) [2022] QDC 68

DISTRICT COURT OF QUEENSLAND CITATION: Allen v CGI Holdings Pty Ltd (No.2) [2022] QDC 68 PARTIES: REECE JUSTIN ALLEN (Plaintiff) v CGI HOLDINGS PTY LTD ACN 156 152 359 (Defendant) FILE NO: 1465/21 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: Brisbane District Court DELIVERED ON: 2 March 2022 DELIVERED AT: Brisbane (ex tempore) HEARING DATE: 2 March 2022 JUDGE: Porter QC DCJ ORDERS: 1. The default judgment (CFI-5) entered against the defendant dated 27 July 2021 be amended such that the defendant pay to the plaintiff $312,667.02 plus interest to 27 July 2021 of $90,934.06. 2. The default judgment (as amended) be set aside on the condition that the defendant pay into Court security of $250,000 in a form acceptable by the Registrar by 2 April 2022. 3. Subject to satisfaction of the condition in (2): (a) the enforcement warrant - redirection of debt (CFI-8) issued on 18 August 2021 be set aside. (b) The enforcement warrant - seizure and sale (CFI-9) issued on 18 August 2021 be set aside. 4. The defendant pay the plaintiff’s costs: (a) of the defendant’s application; and (b) thrown away by reason of Orders 2 and 3. 5. Paragraph 4 of the defendant’s application is dismissed. 6. There be no order as to costs of the plaintiff’s application. -- 1 of 25 -- 2 CATCHWORDS: PROCEDURE – JUDGMENT AND ORDERS – AMENDING, VARYING AND SETTING ASIDE DEFAULT JUDGMENTS – Where the defendant applies to set aside the default judgment – Whether the Uniform Civil Procedure Rules 1999 provide the Court power to amend a default judgment in respect of the calculation of interest – Whether the default judgment was irregularly entered – Whether the defendant has an adequate explanation for the failure to defend – Whether the defendant has demonstrated a prima facie defence on the merits– Whether the defendant has a bona fide intention to defend. LEGAL PROFESSION ACT 2007 – BILL OF COSTS – LIABILITY TO PAY – Whether the defendant was considered a “third party payer” under s 301 of the Legal Profession Act 2007 – Whether there has been non-disclosure under that Act – Where the defendant leads no evidence to support an inference that assessment would result in a lower amount than the judgment – Whether, even if there has been a failure to disclose to a third party payer, a costs assessment would result in an entitlement in the solicitor to an amount less than the amount of the default judgment. PROCEDURE - JUDGMENT AND ORDERS – COURT’S POWER TO IMPOSE SECURITY AS A CONDITION OF SETTING ASIDE A DEFAULT JUDGMENT – Whether the discretion conferred in Rule 209 of the Uniform Civil Procedure Rules 1999 extends to the Court’s power to impose security as a condition to setting aside a judgment where there is a proposed arguable defence. CASES: Allen v CGI Pty Ltd [2021] QDC 238 Legal Services Commissioner v Wright [2010] QCA 321 Cusack v De Angelis [2007] QCA 313 Connors v Acheron Pty Ltd (No 2) [1996] 1 QR 246 Hazart Pty Ltd v Rademaker (1993) 11 WAR 26 Embrey v Smart [2014] QCA 075 LEGISATION: Uniform Civil Procedure Rules 1999 (Qld), r. 108, 290, 807, 828, 840 Legal Profession Act 2007 ss 301, 308(1)(a)(d), 310, 316(1)- (2), 318(1)(2), 329, 334, 335(1)(6) COUNSEL: R. Allen, solicitor, for the Plaintiff/Applicant M. Downes counsel for the Defendant/Respondent -- 2 of 25 -- 3 SOLICITORS: Project Legal for the Plaintiff/Applicant Moore Lawyers for the Defendant/Respondent SUMMARY ............................................................................................................................ 3 BACKGROUND FACTS ...................................................................................................... 5 The parties .......................................................................................................................... 5 Negotiation of the Assumption of Debt Agreement ........................................................ 6 The TCS Administration and DOCA............................................................................. 10 These proceedings ............................................................................................................ 11 CGI’S CONTENTIONS ...................................................................................................... 13 Irregularly entered?......................................................................................................... 13 Explanation for failure to defend ................................................................................... 13 Prima facie defences advanced ....................................................................................... 14 MR ALLEN’S CONTENTIONS ........................................................................................ 17 ANALYSIS ........................................................................................................................... 19 Default judgment should be corrected ........................................................................... 19 Inadequate explanation for entry of judgment ............................................................. 19 LPA defence ...................................................................................................................... 21 The argument on the Agreement .................................................................................... 22 Lack of bona fide intention to defend ............................................................................ 22 SECURITY AS A CONDITION OF SETTING ASIDE THE JUDGMENT ................ 23 SUMMARY [1] This is an application by the defendant company, CGI Holdings Pty Ltd (CGI), to set aside a default judgment and enforcement warrants issued in respect of that judgment, and for a stay of the proceedings pending a delivery of a bill under the Legal Profession Act 2007 s. 329(1) (LPA). The last element of that relief was not pressed at the hearing. [2] The plaintiff cross-applies for the variation of the default judgment to correct an error in the interest calculation. For reasons given below, I grant the application to vary the default judgment. In short, the error has no material impact on the fairness or validity of the default judgment. [3] I also order the default judgment and enforcement warrants be conditionally set aside, on the conditions that CGI by 2 April 2022: (a) Provide security in a form satisfactory to the Registrar in the amount of $250,000; and -- 3 of 25 -- 4 (b) By its sole director, Mr Michael Eddie, provide a statement of financial position in respect of the defendant as required by r. 807 Uniform Civil Procedure Rules (UCPR). [4] I summarise the reasons for those orders as follows. [5] First, CGI relies primarily on the evidence of its director, Mr Eddie. That evidence is given on information and belief by his solicitor. The evidence was evasive, incomplete, and improbable. That was so in respect of at least: (a) His explanation for not responding to the default judgment; (b) His evidence (or rather lack of it) relating to the background to the claim by the plaintiff; and (c) His evidence about his brother’s position in relation to the business, the subject of the enforcement warrant. [6] Also relevant was Mr Eddie’s failure to respond to the detailed evidence of the plaintiff, Mr Allen, in relation to those matters and others, including the events surrounding the voluntary administration and deed of company arrangement of the subsidiary of CGI which was Mr Allen’s client. [7] Second, I do not accept that any credible or reliable explanation has been given for the failure to defend the proceedings. As stated, Mr Eddie’s hearsay evidence, through his solicitor, on the issue of whether the proceedings came to his intention is evasive, incomplete, and improbable. [8] Third, the defendant’s defence based on alleged noncompliance with the LPA is extremely weak. While its primary legal contentions are not hopeless, the LPA arguments ultimately depend, for their efficacy in answering the default judgment, on establishing that the amount of the fees and disbursements claimed by Mr Allen would, on assessment under Division 7 LPA, be less than the amount of the default judgment. There is no direct evidence that that is so, nor is there any evidence from which that could be inferred. Indeed, the evidence before me indicates the situation is quite the contrary. [9] Fourth, the defendant’s defence based on the deficiencies in the contract whereby it undertook to pay the debt of its subsidiary TSC Civil and Building Pty Ltd (TCS), arising from TCS’s retainer with Mr Allen, is not more than arguable. While it can be accepted there is a reasonable argument the contract itself might be ineffective to create liability in CGI for the debt identified in the contract on one or more of the grounds articulated by CGI, that is answered by the existence of a credible estoppel argument advanced by Mr Allen. [10] Fifth, I have serious doubts about the defendant’s bona fides in seeking to defend this case. There is a strong prospect that the application to set aside -- 4 of 25 -- 5 the default judgment is a tactical ploy to delay Mr Allen’s pursuit of the defendant, inter alia because of: (a) Mr Eddie’s failure to complete the statement of financial position on behalf of CGI required by Mr Allen under Rule 807 UCPR, despite it being properly served in August 2021 and despite CGI’s solicitors having notice of that requirement since November 2021; and (b) Because of the circumstances in which Mr Eddie appeared (on the evidence before me, still unanswered) to accept liability to pay the TCS fees in 2015, to pay amounts to Mr Allen in respect of that liability, and then to ignore that responsibility for the ensuing seven years. BACKGROUND FACTS The parties [11] Mr Eddie is the sole director of CGI which is the ultimate holding company of TCS. TCS was a company involved in the building industry. Mr Allen, through his firm Project Legal Pty Ltd, provides construction and commercial advice and representation. He had some knowledge of Mr Eddie in a period leading up to 2014. In about September 2014, he met Mr Eddie through Mr Quick (a former partner at Gadens Lawyers) and commenced providing legal advice to, and representation for, TCS. The retainer [12] One matter that he advised on concerned the Northern Stevedoring Services (NSS) project. That involved a large bulk storage facility built for NSS in Townsville. Mr Kim Dawes was known by Mr Allen to provide direct instructions in respect of that retainer, and he did so. Mr Allen says a retainer agreement was negotiated with Mr Quick and a colleague of his (although the retainer agreement is not in evidence). I do not say that critically. This involved events that happened over seven years ago. I have no reason to doubt a retainer agreement was reached. [13] After September 2014 and up to April 2015, Mr Allen’s firm worked very hard in representing, inter alia, TCS in respect of the NSS project and the legal issues and disputes arising out of it. Those disputes were brought to a successful conclusion, as is explained in Mr Allen’s affidavit.1 It is unnecessary to get into those details. They were not disputed by CGI. [14] During the NSS retainer, Mr Allen incurred fees and outgoings of some $341,672.34.2 Those fees included disbursements of some $157,000 for 1 Affidavit of Mr Allen (Court document 14) [137] to [142]. 2 Ibid pp. 12-14 -- 5 of 25 -- 6 senior and commercial junior counsel. None of those fees and disbursements were paid, although TCS took the benefit of the recoveries from the successful conclusion of the disputes about the NSS project. [15] On 28 April 2015, Mr Allen, having seemingly completed the NSS matters, sent to Mr Dawes by email, a draft of the invoices he intended to issue. The draft invoices are not in the material, but Mr Allen’s covering email contains a table summarising the fees for each of the matters related to the NSS retainer, with comments. Mr Allen’s email provides, by way of summary, an effective explanation of what was involved in broad terms in respect of each of the invoices. [16] I have no doubt that the draft invoices if read by someone like Mr Dawes, familiar with the litigation or the disputes to which the invoices refer, it would have been clear what work had been done and why and the proportionality between the work and the fees. It seems to me, in my experience, that given the magnitude and nature of the issues in the NSS dispute described in the affidavit, counsel’s fees are unremarkable and Mr Allen’s fees modest. [17] Mr Dawes raised no objection to the invoices proposed on 28 April 2015, and on 11 May 2015, Mr Allen delivered his final invoices to CGI’s office at Spring Hill. He left them at reception for “Susie’s attention”. He left the invoices at Level 1A 32 Little Edward Street. “Susie” seems likely to be Ms Milicevic, a chartered accountant of Aspire Accounting, who was the accountant, it seems, for the group. [18] There is no doubt that at that time TCS was Mr Allen’s client and was liable for the fees and disbursements. [19] Further, although the costs disclosure is not before me, I think it reasonable to infer that disclosure, as required, was provided simply because it was negotiated with Mr Quick (who publishes in the area of costs). Mr Eddie does not challenge the assertion a costs agreement was entered into. TCS had a right to have the costs assessed, but it did not do that at that time, nor at any time after that. [20] At the same time, it appears that TCS was in financial trouble. Mr Allen swears that he had largely carried both his fees and the disbursements in the NSS litigation for some months, which is consistent with that situation. Negotiation of the Assumption of Debt Agreement [21] In about May 2015, it must have been evident to Mr Eddie, who was also a director of TCS, that TCS was in financial difficulty. So much can be inferred from the fact that, at the least by 16 June 2015, administrators were appointed to its affairs by Mr Eddie. It also is reasonable to infer that as of May 2015, Mr Eddie knew that TCS had financial difficulties because he -- 6 of 25 -- 7 seemed to have been dealing with insolvency practitioners for a period before that occurred. [22] As noted already, Mr Allen delivered the invoices on 11 May 1015 and at around that time he had gone overseas on a holiday. While he was away, he remained in email contact with Mr Dawes and there may have been phone calls in respect of how the fees were to be paid, including discussion of QuickFee (an online payment platform). On 2 June 2015, Mr Dawes made clear that he, on behalf of TCS, was seeking to talk about a payment plan with $100,000 paid upfront via QuickFee and for the balance to be paid by a “side arrangement”. Mr Allen says that, as of 2 June 2015, he understood that to be payment by someone other than TCS. He may have had that understanding and there may have been good reasons for it, but I could not see in his affidavit where that state of mind was drawn from things said or done by Mr Dawes or Mr Eddie as of 2 June 2015. [23] Any ambiguity about Mr Allen’s understanding that it was proposed his fees be paid by a third party was removed on 12 June 2015, when Mr Dawes told Mr Allen that Mr Eddie wanted to meet him rather promptly. The obvious purpose of that meeting was to discuss the accounts due to Mr Allen. It appears that certainly by that time, Mr Allen was aware, or suspected that, administrators were to be appointed. It is fair to infer, at least for the purpose of this application, that from that time, commercially minded people like Mr Eddie, Mr Allen and Mr Dawes would have been aware that a payment arrangement would not be likely to be with TCS. [24] TCS was placed into administration on 16 June 2015 by Mr Eddie. On 18 June 2015, Mr Allen swears he had a meeting with Mr Eddie, at which Mr Eddie told him his intention was to propose a deed of company Arrangement for TCS and used words to the effect that he wanted to” get the company back”. Based on the material before me, it seems clear that the purpose of the meeting was to deal with the debt that TCS owed for legal fees to Mr Allen. It is a reasonable inference that Mr Eddie was well aware of the debt and its magnitude at least, and if he had not reviewed the tax invoices and descriptions of the work, he would have relied on Mr Dawes about that. Certainly, there is no evidence (even at the 18 June 2015 meeting) of any objection to the reasonableness or amount of the invoices which had been delivered over a month before. As of today, there still is no such objection. [25] Whether at this meeting or at another time, Mr Allen had made clear that the QuickFee proposal was unacceptable, and if it is accurately described in Mr Allen’s affidavit, then not only can I understand why it was not acceptable, but it is difficult to see how a person bona fide interested in paying a debt could have thought it would be.3 On 18 June 2015, Mr Allen 3 Affidavit of Mr Allen (Court document 14) [73] to [75]. -- 7 of 25 -- 8 did tell Mr Eddie that the QuickFee proposal was not an option. Mr Allen then swears at paragraph 75 that: …we agreed that the defendant, in the meeting that was organised by Michael Eddie as director of the defendant, would pay the debt. [26] For someone to swear, “we agreed” something is not technically admissible evidence of the facts that give rise to the legal conclusion of an agreement. However, there is not much doubt that something of the kind occurred at the meeting because of what subsequently happened. [27] Importantly, the first thing that happened about a week later, on 26 June 2015, is that Mr Dawes contacted Mr Allen for his bank account details so that money could be paid to Mr Allen in payment of his fees. [28] It is not clear, on the exhibits, that the money was coming from the defendant, but it could not possibly have been coming from TCS because that company was in administration. There is a good basis to infer that the money was coming from CGI (the holding company of TCS) because just some days after that, Mr Eddie proposed an agreement, central to this case, in which CGI undertook, in broad terms, to pay the debt of TCS in respect of the fees. The Assumption of Debt Agreement [29] On 26 June 2015, a part payment was made of $30,000, seemingly pursuant to the agreement reached on the 18 June 2015 that CGI would pay the TCS fees. On 27 June, Mr Allen went overseas again. On 30 June (12 days after the meeting, 14 days after the appointment of the voluntary administrator and about two months after the provision of the final fee notes and invoices) Mr Dawes emailed Mr Allen an “Assumption of Debt Agreement” (the Agreement). The Agreement is not an example of skilful commercial drafting. It provides: THIS AGREEMENT is made the 12th day of June 2015, BETWEEN: Project Legal ABN 82 505 213 604 (the “Creditor”). CGI Holdings P/L ABN 83 156 152 359 (the “Debtor”); and TCS Civil and Building P/L ABN 41 114 109 045 (the “Customer”); and NOW IT IS HEREBY AGREED as follows: 1. The Customer acknowledges that the Customer presently owed the Creditor the sum of $341,672.34 including GST (the “Debt”) and that the Customer is currently in the possession of the benefit of certain services which were provided by the Creditor (the “Services”). 2. The Debtor unconditionally and irrevocably agrees to assume and pay the Debt, and otherwise guarantees to the Creditor payment of the Debt and to indemnify and hold harmless the Creditor from any loss thereto in return for the transfer of the Services from the Customer to the Debtor. 3. This agreement shall constitute a release and discharge of the obligations of the Customer to the Creditor for the payment of the Debt, provided that so long as the -- 8 of 25 -- 9 Debtor shall continue to pay the Debt, the Creditor shall forebear in commencing any action against the Customer or the Debtor. In the event of any default, the Creditor shall have full rights, jointly and severally, against both the Customer and/or the Debtor for any balance then owing. 4. This agreement shall be binding upon and inure to the benefit of both parties, their successors, and assigns. [30] It can be seen that the document, which was not materially altered thereafter, provides that: (a) It is dated the 12th of June 2015; (b) Identifies Project Legal, CGI and TCS as parties; (c) It contains an acknowledgement (by paragraph 1) by TCS that it owes Project Legal the sum of $341,672.34 (defined as “the Debt”) and; (d) It identifies the customer (CGI) is in possession of the benefit of certain services provided by Project Legal and calls them “the Services” though does not describe them as legal advice or services. (e) Next, it contains an agreement by CGI to assume the obligation to pay “the Debt” and a guarantee to Project Legal of payment of the Debt and an indemnity of Project Legal in respect of loss from “…the transfer of the Services from the Customer to the Debtor”. I do not understand what the words in quotes mean. They seem to contemplate that in consideration of undertaking the obligation to pay the Debt, the benefit of the legal services was being transferred from TCS to CGI. (f) Next, the Agreement is said to constitute a release of the obligations of TCS for the Debt but only on the condition that CGI pays the Debt. It also contains a forbearance from suing either party and preserves the rights against either party in the event of any default. (g) Finally, the last paragraph seems to preserve rights against TCS in the event of default, though it is unclear what kind of default could exist other than CGI not paying the debt. The Agreement does not identify when or how the debt was to be paid by CGI. [31] I think it is fair to say that if Mr Allen had drafted this document from the beginning, it would not have been in this obscure form. It is important to bear in mind, however, that this was a proposal by commercial people (it came from CGI), the gravamen of which was clear, in my respectful view. That was that CGI would undertake liability in place of TCS for the amount claimed for the legal costs which had been incurred to the benefit of TCS. That is its objective and purpose. -- 9 of 25 -- 10 [32] Mr Allen accepted the terms of the Agreement with a couple of minor changes and signed it and returned it on about 7 July 2015. Upon the signing of the Agreement, he delivered two signed copies to the defendant’s registered office which, at that time, was at Shop 1A 32 Little Edward Street. It was subsequently signed on behalf of CGI by Mr Eddie, and that is the document which was sued on by Mr Allen to obtain default judgment. The document conveniently identifies 32 Little Edward Street as an address of CGI. The TCS Administration and DOCA [33] The first meeting of creditors in the administration of TCS was on 25 June 2015. A report as to the affairs had been provided, which did not identify Mr Allen as a creditor of TCS, and there is no suggestion that Mr Allen played any part as a creditor in the administration of TCS. [34] It is also sworn to that CGI and other CGI group companies, had related party debts of $3.3 million due by TCS. However, if Mr Allen’s claim was the subject of proof, they would have been the largest external creditor. The report as to the affairs amounts can be seen in the meeting attendance register for the first meeting.4 It shows ANZ as a creditor for $129,000, the related party debts I have just described, the Deputy Commissioner of Taxation as a creditor admitted to proof for voting for $256,000, and the usual array of unsecured subcontractors and suppliers. Those figures were from the second creditors’ meeting on 8 July 2015, which considered a proposed deed of company arrangement which gave priority creditors 34 cents on the dollar and unsecured creditors nil. The Deputy Commissioner voted against the DOCA. Nonetheless, it passed. Mr Allen took no part in the DOCA process either. [35] Thereafter, Mr Allen pressed CGI, through Mr Eddie, for payment. [36] The next material step occurred about eight months later, on 10 March 2016, when Mr Allen wrote to CGI, “Attention Mr Eddie”, referring to the Agreement and the net amount due and demanding the payment of the amount due plus interest and threatening to take steps otherwise to obtain payment of the debt. On 29 March 2016, CGI paid Mr Allen about $10,000 on account of interest on the debt and since then has paid nothing. I note that at that time, some nine months had passed since the invoices had been delivered and there was no suggestion of any challenge to the amount due, the properness of the work done, a wish to have a costs assessment done or anything of the like. So matters lay until quite recently. 4 Affidavit of Mr Allen (Court document 14) Exhibit RJA17 pp. 56-62. -- 10 of 25 -- 11 These proceedings [37] On 11 June 2021, Mr Allen filed a claim and statement of claim seeking judgment for the net amount due under the Agreement from CGI. On the same day he caused it to be served by posting it to the registered office of CGI. That office was, at the time, recorded in its ASIC search as (and had been so recorded since 2013) Shop 1A 32 Little Edward Street. It will be recalled that was the address on the Agreement and the address where Mr Allen had delivered his tax invoices six years before. No defence was filed. On 27 July 2021, Mr Allen obtained default judgment. [38] On 12 August 2021, Mr Allen obtained an enforcement warrant for the seizure and sale of property under r. 828 UCPR and an enforcement warrant for the redirection of a debt under r. 840 UCPR. [39] The second enforcement warrant was directed to the ANZ Bank. Mr Allen says, and it was not disputed, that he served the enforcement warrant on the ANZ Bank. He received a telegraphic transfer of some $786 which he believed was a response from the ANZ Bank to the enforcement warrant. [40] The first enforcement warrant was in relation to a number of pieces of identified property; 155 ordinary shares in CGI Kingaroy Pty Ltd, 100 shares in another CGI company and a 2009 Porsche 911 Carrera coupé. The registry issued the enforcement warrant but when Mr Allen sought to have the sheriff seize and sell the shares in the two companies, the registrar and the sheriff encountered difficulty about how to carry out that process given that CGI Kingaroy was a proprietary limited company. [41] On 6 September 2021, the registry received a letter from Mr Allen instructing the enforcement officer to execute the warrant. The registry sought legal advice on whether shares in a company could be seized and then sold under an enforcement warrant and that matter came before me on 20 September 2021. In Allen v CGI Pty Ltd [2021] QDC 238, for the reasons I articulated in that judgment, I answered the registrar’s question as yes; that the shares could be seized and sold but, in broad terms, recognised the practical difficulties that might arise and stayed the enforcement warrant for seizure and sale only in respect of the shares in the two companies (not the Porsche) until further order. [42] On 25 August 2021, pursuant to r. 807 UCPR, Mr Allen provided written notice requiring CGI to complete and return a statement of financial position. He provided the written notice by serving it on the registered office. That would be valid service for the purposes of the UCPR. There was no response to that. [43] I now move to the emergence of Mr Eddie and CGI as participants in this proceeding. Mr Eddie’s evidence on the application to set aside the default judgment, is sworn to by Mr Moore, a solicitor of Moore Lawyers, on -- 11 of 25 -- 12 information and belief. Mr Moore swears that he was informed by Mr Eddie and believes that Mr Eddie was not aware of the proceedings against CGI until on or about 19 October 2019 when another unnamed creditor mentioned to Mr Eddie that there were proceedings on foot against CGI by the plaintiff. [44] On 26 October 2021, Mr Eddie engaged Mr Moore’s firm on behalf of CGI to file an application to set aside the default judgment and, on that date, Mr Moore sent an email to the plaintiff requesting copies of the court documents (which of course are available from the registry, in any event). [45] On 4 November 2021, Mr Allen provided copies of the court documents. They included a short affidavit of Mr Allen of just 32 pages which stated that the statement of financial position had been sent to the defendant’s registered office and not returned or completed. 5 [46] On 14 December 2021, the plaintiff filed this application seeking to have the default judgment and the two warrants set aside and the proceedings to be stayed pursuant to s. 329(3) LPA. The application stated that Mr Eddie would file an affidavit. The application was made returnable on 25 February 2022 at 9.00 am. Even allowing for Christmas, that is ample time to get evidence in sworn form from Mr Eddie. No explanation for the principal affidavit being sworn by CGI’s solicitor was given. (No criticism of the solicitor is intended by these reasons). [47] Despite the filing of the application on 14 December, nothing was filed until the affidavits of Ms Carr and Mr Moore were filed two months later. On 21 February 2022, Mr Allen filed his long and detailed affidavit in response which contained most of the history of the dealings set out above. [48] The matter came on for hearing on 25 February 2022. No adjournment was sought to address the matters in Mr Allen’s affidavit. Mr Downes identified correctly that some considerable parts of it were technically inadmissible, but he relied on them as having little weight rather than burden the court with endless objections which I think was the correct course in this case. I should say that I was careful to avoid placing any real weight on statements that were irrelevant, speculative or involved assertions about other people’s state of mind without an objective basis for that inference to be drawn and so on. [49] The matter was adjourned to today because, as I observed at the time, it was not a two-hour matter. The matter proceeded today, and I do not mean any criticism of CGI’s representatives, but I observed that, again, no application was made to adjourn the matter to lead further evidence or to object to Mr Allen’s affidavit on the basis that insufficient time had existed to address 5 see Affidavit of Mr Allen (Court document 10) -- 12 of 25 -- 13 the very substantial matters put against Mr Eddie that are contained in it. Those matters remain, for the most part, unanswered. [50] Mr Allen submits that the pleading exhibited to Mr Moore’s affidavit is not sworn to, directly or through Mr Moore, as adopting all the facts as true and correct. On my reading of the affidavit, in particular paragraph 3(u), Mr Moore swears that Mr Eddie has reviewed the claim and statement of claim and instructed Moore Lawyers to prepare a draft defence and that is all that is said about it. Mr Allen rightly submits that that does not involve a shorthand adoption, even on information and belief, of the truth of all the matters in that pleading. [51] I have therefore acted on the matters sworn to on information and belief by Mr Moore in substance only. I have already made my observations about Mr Allen’s detailed account in his affidavit. That remains largely uncontradicted despite opportunities CGI had to contradict it, or to seek an adjournment to do so. CGI’S CONTENTIONS [52] The application to set aside the default judgment is based on the following matters. Irregularly entered? [53] It is contended by Mr Downes, for the defendant, that the default judgment is irregular because of the way it claims interest. That is explained in in Mr Downes’ outline.6 He also submits that an arguable irregularity arose on the basis that Mr Allen knew, or ought to have known, that he was not entitled to the judgment because statutory disclosure had not been given to CGI as an associated third-party payer. I will come back to that point. To be fair to Mr Downes’ submission, he submitted that if the irregularities were merely in respect of the calculation of interest, it might be appropriate to amend the default judgment. Explanation for failure to defend [54] Next, Mr Downes contended that the defendant has a proper and adequate explanation for the failure to file a notice of intention to defend. The evidence about that is conveniently summarised in paragraph 14 of Mr Downes’ outline. It is also submitted that once the claim came into the hands of CGI’s solicitors, it had acted promptly in filing its application to set aside. That is true, although the application was given a return date of more than two months in the future. 6 see Defendant’s Outline of Argument (Court document 19) [6] to [11]. -- 13 of 25 -- 14 Prima facie defences advanced [55] We then come to the prima facie defences on the merits. There are two advanced. [56] CGI contends that the Agreement is unenforceable or should be rescinded. I am not quite sure on what basis it could be rescinded, whether in equity or otherwise, but the grounds that it is said to be unenforceable are three: (a) First, that the Agreement was a tripartite one involving TCS. TCS never signed it, never could have signed it, never could have made the promises involved because it was subject to insolvency administration at the relevant time, which neutralised the powers of Mr Eddie as director to promise anything on its behalf. (b) Second, that TCS was released from the debt by the operation of the DOCA and the continued liability of TCS was, in broad terms, essential to the enforceability of the agreement. (c) Third, there was a lack of consideration for the promise by CGI to pay the debt. [57] The second arguable defence relates to obligations said to arise from the Agreement under the Legal Profession Act. That argument requires the identification of some provisions of the LPA, which relevantly provides: (a) By s. 301: (1) A person is a third party payer, in relation to a client of a law practice, if the person is not the client and— (a) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or (b) being under that obligation, has already paid all or a part of those legal costs. (2) A third party payer is an associated third party payer if the legal obligation mentioned in subsection (1)(a) is owed to the law practice, whether it is also owed to the client or another person. (b) By s. 308(1)(a)-(d) (1) A law practice must disclose to a client under this division— (a) the basis on which legal costs will be calculated, including whether a scale of costs applies to any of the legal costs; and (b) the client’s right to— (i) negotiate a costs agreement with the law practice; and (ii) receive a bill from the law practice; and (iii) request an itemised bill after receipt of a lump sum bill; and -- 14 of 25 -- 15 (iv) be notified under section 315 of any substantial change to the matters disclosed under this section; and (c) an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs; and (d) details of the intervals, if any, at which the client will be billed; (c) By s. 310: (1) Disclosure under section 308 must be made in writing before, or as soon as practicable after, the law practice is retained in the matter. (2) Disclosure under section 309(1) must be made in writing before, or as soon as practicable after, the other law practice is retained. (3) Disclosure made to a person before the law practice is retained in a matter is taken to be disclosure to the client for sections 308 and 309. (d) By s. 316(1)-(2) (1) If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer, as the case may be, need not pay the legal costs unless they have been assessed under division 7. Note— Under section 341, the costs of an assessment in these circumstances are generally payable by the law practice. (2) A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not maintain proceedings against the client or associated third party payer, as the case may be, for the recovery of legal costs unless the costs have been assessed under division 7. (e) By s. 318(1)-(2) (1) If a law practice is required to make a disclosure to a client of the practice under this division, the law practice must, under subsections (2) and (3), also make the same disclosure to any associated third party payer for the client, but only to the extent that the details or matters disclosed are relevant to the associated third party payer and relate to costs that are payable by the associated third party payer in relation to legal services provided to the client. (2) A disclosure under subsection (1) must be made in writing— (a) at the time the disclosure to the client is required under this division; or (b) if the law practice only afterwards becomes aware of the legal obligation of the associated third party payer to pay legal costs of the client—as soon as practicable after the law practice became aware of the obligation -- 15 of 25 -- 16 (f) By s. 329; and (1) A law practice must not start legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person under sections 330 and 331 or under provisions of a corresponding law that correspond to sections 330 and 331. (2) A court of competent jurisdiction may make an order authorising a law practice to start legal proceedings against a person sooner if satisfied the person is about to leave this jurisdiction. (3) A court of competent jurisdiction before which any proceedings are brought in contravention of subsection (1) must stay those proceedings on the application of a party or on its own initiative. (4) This section applies whether or not the legal costs are the subject of a costs agreement. (g) By Division 7 costs assessment relevantly: (i) By s. 334 : In this division— client means a person to whom or for whom legal services are or have been provided. (ii) By s. 335(1)-(6): (1) A client may apply for an assessment of the whole or any part of legal costs. (2) A third party payer may apply for an assessment of the whole or any part of legal costs payable by the third party payer. (3) The costs application may be made even if the legal costs have been wholly or partly paid. (4) If any legal costs have been paid without a bill, the client or third party payer may nevertheless make the costs application (5) A costs application by a client or a third party payer must be made within 12 months after— (a) the bill was given, or the request for payment was made, to the client or third party payer; or (b) the costs were paid if neither a bill was given, nor a request was made. (6) However, a costs application made out of time, otherwise than by any of the following, may be dealt with by a costs assessor or a court if, under the Uniform Civil Procedure Rules, the assessor or the court decides to deal with it after considering the reasons for delay— (a) a sophisticated client; (b) a third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned. -- 16 of 25 -- 17 [58] The argument articulated by CGI based on those provisions is: (a) First, on the proper construction of the Agreement, CGI was a third party payer and indeed an associated third party payer under s. 301 LPA; (b) Second, the consequence is that disclosure had to be made under s. 318(1) to the associated third party payer of the same disclosure that the law practices required, under the statute, to make to the client; (c) Third, that there was no evidence of disclosure to CGI as an associated third party payer of the matters required to be disclosed under s. 308; and (d) Fourth, the effect of ss 316(1) and (2) in that situation is that CGI does not need to pay the legal costs unless they have been assessed under division 7, and Mr Allen cannot maintain proceedings against CGI for the recovery of the costs unless the costs have been assessed under division 7. Accordingly, the argument is that if the Agreement is relevantly an agreement that places CGI under a legal obligation to pay TCI’s legal costs, there has been no disclosure, ergo no rights until assessment under division 7 and that has not happened and therefore there is a good defence to the claim, at least until there is assessment under division 7. MR ALLEN’S CONTENTIONS [59] Mr Allen’s affidavit material and submissions are extensive. Distilling out his points, he opposes the setting aside of the default judgment for these reasons. [60] First, he says, the defendant’s explanation for allowing judgment to pass by default is unreliable and incomplete and should be treated by the court as no explanation at all. [61] Second, he responds to Mr Allen’s arguments about the proper construction and effect of the Agreement at paragraphs 37 to 47 of his submissions. It is not necessary to set out the details for reasons I will come to. But importantly, he also contends, that even if the Agreement is ineffective or unenforceable, an estoppel arises which prohibits the defendant from acting inconsistent with the assumption the Agreement is said to have induced, being that CGI would pay the legal cost amount identified in the Agreement. [62] Third, on the third party payer issue, Mr Allen makes various contentions. His first, and perhaps best, argument is that on the proper construction of the Agreement, CGI is not a third party payer because it provides for the -- 17 of 25 -- 18 payment of a liquidated sum (the Debt as defined in the agreement), not an obligation to pay the legal costs as such. [63] Legal Services Commissioner v Wright [2010] QCA 321 suggests that that is not a strong argument. That case emphasises the requirement to be a third party payer that a person be under an enforceable legal obligation to a solicitor to pay the legal costs and that moral, voluntary, or indirect obligations do not count.7 The focus is on legal obligation. [64] Here, the effect of the Agreement is to impose a legal obligation to pay the amount due from TCS to Mr Allen, as a solicitor, which makes it look very much like a legal obligation and it seems doubtful to me that rolling up the amount as a single sum robs it of its character as being a legal obligation to pay legal costs. [65] Mr Allen also contends that disclosure was made to TCS and that, as a matter of factual reality in this case, that was disclosure to CGI. He makes a number of other points in his outline which, again for reasons that will become obvious, it is unnecessary to set out. [66] Fourth, he argues that I should conclude that there is a strong suggestion that the application to set aside the default judgment is not brought bona fide for the intention of defending the case but to delay the pursuit of the claim. He makes that points on the basis of the inadequate explanations for not entering a defence. He also relies on the fact that there has been a legal obligation to complete the statement of financial position and notice of that obligation has been with Mr Eddie, as the only director of the company, through his solicitor since 4 November 2021 and today the obligation still has not been met. [67] He also points to the circumstances in which the Agreement was negotiated. He relies on the final accounts being provided which I will come to. He also relies on the circumstances of the voluntary administration and the deed of company arrangement. I want to make quite clear that I have black boxed all of that. I do not accept, and do not think I can find that the voluntary administration and the DOCA involved any kind of inappropriate conduct by the insolvency practitioners involved, nor that I am in a position to make an assessment about the outcome of the DOCA beyond the matters I have already identified (which was that the effect of the Agreement was to ‘rub out’ Mr Allen as the only large creditor from the voluntary administration and DOCA process and that the outcome of that process seemed very much to be that which was aspired to by Mr Eddie). [68] Fifth, on the question of the interest, Mr Allen concedes that there was an error. I am not sure he concedes that it made the judgment irregular, but he 7 Legal Services Commissioner v Wright [2010] QCA 321 [27] -- 18 of 25 -- 19 has, in any event, cross-applied to have the judgment varied to correct the error. ANALYSIS Default judgment should be corrected [69] Cusack v De Angelis [2007] QCA 313 is the key case. It is plain in the judgment of Muir JA, with whom McMurdo P and Lyons J agreed, that whether a judgment is regularly or irregularly entered, the courts’ broad discretion in UCPR r. 290 should not be read down to exclude the power to amend a judgment by default in terms the court considers appropriate.8 The key point of Justice Muir’s judgment is at [34] where his Honour says: But no exhaustive review of authority is necessary in order to demonstrate the unsustainability of the appellant’s argument. The meaning of r 290 is best ascertained by a consideration of its words in the context in which they occur. Neither the words nor anything in the context, for reasons already given, support the qualification urged on behalf of the appellant. [70] Here, the error is in respect of the calculation of an amount of interest. I can see no good reason at all why that error could not and should not be corrected, regardless of whether the judgment is regularly or irregularly entered. For that reason, I intend to make orders for the amendment of the default judgment so that the correct amount of interest is claimed. [71] I noted when finalising my oral reasons that I had overlooked expressly addressing the point made by CGI in paragraph [53] above. However, as must be evident from my orders, I do not consider that Mr Allen behaved in an improper manner in seeking default judgment despite the LPA issues raised by CGI. I do not think that the position of CGI as a third party payer is so clear that Mr Allen’s conduct was such as to justify refusing to vary the judgment. Inadequate explanation for entry of judgment [72] The defendant’s explanation for failing to file a defence is that the document was served on an address which was not intended to remain the registered office of the company and was not corrected due to human error. There are problems with the evidence given by Mr Moore on information and belief from Mr Eddie about this: (a) First, Mr Eddie refers to an email which he relies on but, on its face, that email does not tell the accountant to change the registered office. (b) Second, the overwhelming inference is that a revised ASIC return, and perhaps two, by the end of 2021 would have been sent for Mr 8 Cusack v De Angelis [2007] QCA 313 [22] to [43] -- 19 of 25 -- 20 Eddie to check. There is no evidence about what it said or whether it showed, as it almost certainly would have, the registered office remaining as it is and what Mr Eddie did to correct it. (c) Third, the email to CGI’s accountant talks about changing the address to Aspire Accounting. I have no reason to doubt that Ms Milicevic was a competent and careful accountant, yet the registered office was not changed to an office of Aspire Accounting. No explanation is given as to why that did not happen, although it is a question begging to be answered. (d) Fourth, there is no explanation as to why a document delivered on what was the registered office of the company would not have come to the company’s attention. It appears that Mr Eddie certainly was considering not using that address as the registered office after March 2020 when the email was sent to Ms Milicevic, but there is no explanation of when the company did leave the premises and whether arrangements were made for mail to be forwarded. The premises had been the long-standing premises of the company, so it is hard to believe that some arrangement was not made for at least a year for the forwarding of mail, if not longer. (e) Fifth, there is also an oddity that there was a form 484 changing the principal place of business address that had already been filed on 16 March 2020 which makes the email on 22 March 2020 even more obscure. [73] As a result of all these matters, the court is left with questions about the explanation. Mr Downes was given an opportunity to respond to this list of considerations. No adequate response was given. [74] The defendant did not directly swear anything so he cannot be cross- examined about it these matters. In my respectful view the evidence about the reason that a document served did not come to CGI’s attention has been carefully tailored to avoid giving a full explanation and there is only one obvious reason why that would be so. It might be going too far to conclude that the defects in the explanation are such that I should infer the document was received and I do not go that far. I am just left with a position where I feel there is no credible explanation for what has happened. [75] The next difficulty I have is the defendant’s evidence that he found out about the proceedings on 19 October 2021 when “told by a creditor”. Again, nothing is said about who and in what circumstances that happened. But I note that Mr Allen obtained the enforcement warrant for redirection of debt directed to ANZ in August 2021 and served it. It is difficult to believe that in those circumstances, particularly where it appears that ANZ may in -- 20 of 25 -- 21 fact have paid a small amount under that warrant, but even without that, that ANZ would not have informed CGI about that difficulty. [76] There is another difficulty. The enforcement warrant was served on CGI Kingaroy in August 2021. CGI Kingaroy is a company of which Mr Eddie is a director with his brother. Again, it just seems hard to believe that that did not come to Mr Eddie’s attention. None of these things are explained by Mr Eddie, even though they arose on Mr Allen’s affidavit which remains unanswered. So not only am I left with no explanation that I find credible or reliable as to why a defence was not filed, nor as to when the defendant found out about the proceedings, though I think it is highly unlikely it was as late as 19 October 2021. LPA defence [77] It is convenient to start with the LPA defence. It is enough for me to say, on this kind of application, that there are credible arguments that, if the debt agreement is enforceable, CGI is an associated third party payer. There are various counter-arguments from Mr Allen, but I think, on the balance, not only is CGI’s position arguable but it is probably, on my current understanding of the facts, the better view. However, as a defence on the merits to this case, it remains, in my view, one which has very little prospect of succeeding. The reason is this: even if Mr Allen cannot sue for his fees until they have been assessed under Division 7, subject to that assessment, he can recover for those fees. [78] A default judgment is a judgment for an amount of money, so the LPA defence is only relevant if it gives rise to a credible argument that Mr Allen will ultimately be entitled to a judgment less than the default judgment which has been entered. [79] There is no evidence from CGI, despite the fact this happened seven years ago, that impugns in any way either the disbursements or the professional fees that TCS was liable for under the bills delivered in May 2015. I have already said that I have had regard to the nature of the proceedings, and their apparent magnitude, to the kinds of issues that were dealt with and the costs that were incurred and my view is that the costs seem reasonably modest. There is also the remarkable consideration that, as I explained, Mr Dawes, on behalf of TCS, was provided with detailed particulars of what was proposed and then final bills were issued and neither Mr Dawes nor Mr Eddie, raised any complaint. [80] In those circumstances, I do not think there is a realistic prospect, at least on the evidence before me, that assessment under Division 7 is likely to lead to a materially lesser judgment than the amount of the default judgment. It does not justify setting aside the default judgment. -- 21 of 25 -- 22 The argument on the Agreement [81] The Agreement is a poor attempt at commercial drafting. The challenges that CGI makes to its validity have merit. [82] However, that does not lead me to conclude that the defendant has a strong case for setting aside the judgment because it is confronted with an estoppel which arises from the conduct of CGI and Mr Eddie in the period leading up to and after entry into the Agreement. There is evidence that the objective of Mr Eddie at the time of the administration was to get control of the company back. At the same time, there was a large legal fees liability. In those circumstances it was in the interests of Mr Eddie to exclude the Debt from the administration by entering into the Agreement, valid or invalid. [83] Mr Eddie’s conduct in relation to the Agreement arguably involved a representation that CGI would take over the legal fees liability with a view to ensuring that Mr Allen did not participate in the administration and DOCA process to facilitate its success (and the recovery of TCS from administration). That representation could be argued to have induced (in fact it almost certainly did induce) an assumption in Mr Allen that CGI would pay the fees and, in reliance on that, Mr Allen did not participate in the administration and DOCA process. If CGI is permitted to act inconsistently with that assumption, Mr Allen will suffer the detriment of not having asserted rights in the administration and DOCA. [84] The consequence of that is that although the Agreement might look questionable, at the least, that does not mean that the liability, which lies at its heart, would not nonetheless be made good at a trial. The best I can say is that the defendant has some prospect (perhaps good prospect) of making out that it is not liable on Agreement, but it could easily be the case that it fails to avoid liability on the Agreement because of the estoppel that arguably arises. Lack of bona fide intention to defend [85] There are good grounds to believe that Mr Eddie and CGI do not bona fide intend to pursue a defence if the default judgment is set aside. The reasons I have reached the view include: (a) The lack of a proper explanation for not defending and for the delay in applying to set aside the judgment (already covered); and (b) The failure to comply with the obligation to provide the statement of financial position even though that obligation came to the notice of CGI’s solicitors some months ago. [86] Another matter that troubles me is in Mr Moore’s affidavit, where he swears he was told by Mr Eddie (in respect of the business of CGI Kingaroy -- 22 of 25 -- 23 in which CGI is a shareholder) that “This business is Mr Eddie’s brother’s livelihood, and his brother would also suffer significant prejudice if the default judgment is not set aside”.9 The difficulty with that assertion made by Mr Eddie through his solicitor is that it seems quite plain Mr Eddie’s brother knows about the enforcement warrant direction to CGI’s shares in CGI Kingaroy and knows about what is happening in this proceeding but has not taken any step in the proceeding.10 [87] Further, the uncontested evidence is that the business owned by CGI Kingaroy is for sale, which does not sound like Mr Eddie’s brother’s livelihood is in play. It rather sounds like that business is going to be sold and Mr Eddie’s brother’s interest is in the capital to which he is entitled, as a shareholder of CGI Kingaroy. In respect of that, nothing in the enforcement warrant is going to affect his brother’s interest. The instructions from Mr Eddie set out in paragraph 9(c) of Mr Moore’s affidavit are highly questionable. [88] There is another difficulty affecting my assessment of CGI’s bona fides in seeking to defend which arises from the overall circumstances of this case. Final accounts were provided by Mr Allen in May 2015. In early June 2015, Mr Eddie knew Mr Allen was seeking payment and he offered a payment plan. At around that time, Mr Eddie knew he was going to place TCS into voluntary administration which did occur on 16 June 2015. On 18 June 2015, with the company in administration, Mr Eddie negotiated the payment of the debt through CGI. A couple of weeks later, on 26 June 2015, Mr Edie pays $30,000 towards the fees consistent with that oral agreement the payment plan, and a few days later he produces a drafto the Agreement. Therefore, Mr Eddie, on behalf of CGI, understood the liability, knowing of the voluntary administration, knowing of the May 2015 bills and never raised any suggestion in the seven years since that there was anything unjustified or excessive about the amount. [89] There is nothing wrong with a defendant raising bona fide defences when they are finally confronted with a judgment obtained by default. But for all those reasons I have good reason to doubt the bona fides of Mr Eddie in seeking to set aside the default judgment. SECURITY AS A CONDITION OF SETTING ASIDE THE JUDGMENT [90] I recognise that there is an arguable defence in respect of the Agreement, albeit one that is far from certain to succeed, but it seems to me that, bearing in mind all the other deficiencies in CGI’s response to this application, that this is a case where I should conditionally set aside the default judgment on the payment of substantial security. Doing the best I 9 Affidavit of Mr Moore (Court document 13) [9(c)] 10 see Affidavit of Mr Allen, sworn 20 September 2021 (Court document 10) [20] – [24], [199] – [201] -- 23 of 25 -- 24 can, and the balancing up the interest of a defendant in bona fide pursuing a defence to a claim and, on the other hand, the very serious reservations I have about CGI’s bona fide intention to defend, its explanations for default judgment being entered and the quality of its defences, I have set that amount at $250,000. [91] I should review the specific points Mr Downes put against adopting that approach. [92] The first was that because the default judgment is irregular, I should be slower to impose security. I think that it is correct that the default judgment was irregular but, for the reasons I have given, I do not think that stops me correcting the irregularity. I accept that there would be circumstances where the reason for the irregularity would be something that told against imposing security, especially if there had been some sort of sharp practice by the plaintiff. I do not accept that this is a case of that kind; the irregularity is just an error in respect of the calculation interest. [93] The second argument advanced against security was that where there is an arguable defence, security should not be ordered. Connors v Acheron Pty Ltd (No 2) [1996] 1 QR 246 is a decision where the Court of Appeal specifically refused to confine the power to impose security as a condition to the situation where there is a proposed defence which is not hopeless but appears to have no real substance. Further I do not accept that the broad discretion conferred by r. 290 (as confirmed in Cusack v De Angelis [2007] QCA 313) can be confined by any inflexible rule that security cannot be ordered where there is an arguable defence. [94] Mr Allen pointed me to a decision of the Full Court of the Western Australian Supreme Court of Hazart Pty Ltd v Rademaker (1993) 11 WAR 26 at 31 to 32 where Justice Anderson, with whom the other Judges agreed said, in effect, where the court concludes the bona fides of a defence are in doubt, the court will usually require the appellant to provide some security. [95] I do not think it can be said, as a matter of law, that just because a party has an arguable defence, that is not self-evidently extremely weak, that the Court does not have power to impose security. The provision, for example, of an explanation for failing to enter the defence is, albeit not the most important, but an important consideration as made clear by the Court of Appeal in Embrey v Smart [2014] QCA 075. I have explained the problems with the story about discovering the proceedings being on foot and all the other problems with the evidence that has been put before this court. [96] And, in those circumstances, as a whole, I consider I can exercise the discretion to require the amount of security I have identified which I calculated, as I explained, to try and strike a balance, taking into account all the matters in the application. -- 24 of 25 -- 25 [97] For those reasons, I intend to make orders in terms of the draft which the legal representatives for the parties have very helpfully finalised while I was delivering these reasons. -- 25 of 25 --