Emmaland Pty Ltd v Sunstate Refrigeration Pty Ltd [2004] QDC 363

DISTRICT COURT OF QUEENSLAND CITATION: Emmaland Pty Ltd v Sunstate Refrigeration Pty Ltd [2004] QDC 363 PARTIES: EMMALAND PTY LTD Appellant And SUNSTATE REFRIGERATION PTY LTD Respondent FILE NO/S: Appeal No 1518/04 DIVISION: PROCEEDING: ORIGINATING COURT: Magistrates Court, Brisbane DELIVERED ON: 24 September 2004 DELIVERED AT: Brisbane HEARING DATE: 27 August 2004 JUDGE: Skoien SJDC ORDER: Appeal dismissed. CATCHWORDS: Summary judgment; whether liquidated damages or penalty. COUNSEL: Mr PW Hackett for the appellant Ms SD Anderson for the respondent SOLICITORS: Colwell Wright for the appellant Jeff Thomas & Assoc for the respondent [1] This is an appeal by Emmaland Pty Ltd against that part of the decision of the Magistrates Court of Queensland dated 1 April 2004 dismissing Emmaland’s application for summary judgment. [2] The appeal is on the grounds that: (a) the learned magistrate erred in law in failing to give adequate reasons for his decision; -- 1 of 10 -- 2 (b) the learned magistrate erred in law in granting leave for the respondent to file and serve a reply and answer; (c) the learned magistrate erred in law, and the exercise of his discretion miscarried, because there was no prospect, or alternatively no real prospect, of the respondent resisting the appellant’s counterclaim. [3] Emmaland seeks orders that: (a) the appeal be allowed with costs; (b) the decision of the Magistrates Court dated 1 April 2004 be set aside; and in lieu thereof: (c) (i) that the claim be dismissed pursuant to rule 293; (ii) that pursuant to rule 292, the plaintiff pay to the defendant the sum of $18,633.00; and (iii) that the plaintiff pay the defendant’s costs of the application, and of the claim and counterclaim. Litigation in Magistrates Court [4] On 14 November 2003 Sunstate sued Emmaland for $21,337 being balance money owing for the supply and installation of a cold room at Maroochydore pursuant to a contract between them entered into about September 2002. [5] In its defence filed on 16 December 2003, and served on 18 December 2003 Emmaland did not dispute the debt (and has consistently accepted liability for it) but maintained that it was entitled to set off liquidated damages of $40,000 owing to it under the contract, leaving $18,633 owing to it by Sunstate. -- 2 of 10 -- 3 [6] A reply and answer was due by 2 January 2004 (UCPR rule 164) but none was filed although one was exhibited to an affidavit filed on behalf of Sunstate on the hearing before the learned magistrate. Emmaland did not seek to sign judgment by default under rule 283. Instead, on 12 February 2004 it applied for summary judgment. On the hearing of that application the learned magistrate ordered that the reply and answer be filed. Before me both parties referred to his having “given leave” to file the document. Leave to file reply and answer [7] Pursuant to rule 181 the rules apply to counterclaims as if they were original claims. So rule 292, adapted for these circumstances, reads: “[r 292] Summary judgment for counterclaiming defendant 292 (1) A counterclaiming defendant may, at any time after a plaintiff files an answer, apply to the court under this part for judgment against the plaintiff. (2) If the court is satisfied that – (a) the plaintiff has no real prospect of successfully defending all or a part of the defendant’s counterclaim; and (b) there is no need for a trial of the counterclaim or the part of the counterclaim, the court may give judgment for the defendant against the plaintiff for all or the part of the defendant’s counterclaim and may make any other order the court considers appropriate.” [8] It is obvious from the wording of subsection (1) that the rule is not intended to apply when no answer has been filed. Thus Emmaland had no right to apply for summary judgment under the rule. In such a case, where the counterclaim is for a liquidated sum, the obvious path is to apply under rule 283 for judgment by default. That was not done. Instead, counsel for the plaintiff applied (orally under rule 32) -- 3 of 10 -- 4 for leave to file the answer which had been informally served on Emmaland on 24 March 2004. [9] There is no transcript of the argument before the learned magistrate and Ms Anderson, counsel for Sunstate, is unable to remember whether she formally applied for leave before or after he gave his decision. That decision, on this point, is simply (if I read the handwriting correctly): “I am of the view that the plaintiff should not be precluded from prosecuting its claim because no reply and answer was filed”. and, at the end of his brief handwritten decision: “I further order that the plaintiff file and serve a reply and answer within seven (7) days.” [10] I read that as the giving of the leave which Sunstate’s counsel had sought. The reply and answer was actually before the learned magistrate, having been exhibited to an affidavit. It must be the fact that he intended to give leave (even though he expressed it as an order). Otherwise he would have had before him an unanswered counterclaim on which no summary judgment application could be brought (rule 292). It seems to me that he attempted, in his discretion, to regularise the situation (albeit rather untidily) by getting the reply and answer before him formally. Anyway, he could have done all that according to Hoyle by making use of rule 371. [11] The order which His Worship made to file the reply and answer was an interlocutory order in which he exercised his discretion on a manner of practice and procedure. That is a wide discretion and is not lightly interfered with. In Adam P Brown Male Fashions v Philip Morris [1981] 148 CLR 170 the High Court considered the question of how the court should approach an appeal from an -- 4 of 10 -- 5 application for an interlocutory injunction, an exercise of discretion. The Court adopted the statement of Sir Frederick Jordan in In re the Will of FB Gilbert (dec) (1946) SR (NSW) 318 at 323 where he said: “… I am of the opinion that, … there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.” [12] Mr Hackett of counsel, for Emmaland, challenged before me that exercise of discretion by the learned magistrate but I am not prepared to find that it was incorrectly applied because: (a) it complied with the broad philosophy of the UCPR as expressed in rule 5; (b) it also overcame some procedural difficulties faced by Emmaland, (its non-compliance with rule 292); and (c) the draft reply and answer had been served on Emmaland about a week earlier. Summary judgment [13] Mr Hackett’s most trenchant criticism of the learned magistrate was his failure to give reasons for his decision. On the summary judgment application he simply wrote: “I am further of the view that the philosophy of the rules must prevail and whenever possible a party should be given the opportunity of presenting its case provided there is a real prospect of defending a counterclaim or presenting a claim. After reading the material I am of the view that the plaintiff does have a prospect of defending the counterclaim.” -- 5 of 10 -- 6 [14] It is highly regrettable that the learned magistrate did not express a single reason for reaching the decision he did. It has been said (in Beale v GIO (NSW) [1997] 48 NSWLR 430) that a statement of reasons has three fundamental elements: “First, a judge should refer to relevant evidence. There is no need to refer to relevant evidence in detail … However, where certain evidence is important or critical to the proper determination of the matter and it is not referred to by the trial judge, an appellate Court may infer that the trial judge overlooked the evidence or failed to give consideration to it (North Sydney Council v Ligon 302 Pty Ltd (1995) 87 LGERA 435). … Secondly, a judge should set out any material findings of fact and any conclusions or ultimate findings of fact reached. … Thirdly, a judge should provide reasons for making relevant findings of fact (and conclusions) and reasons in applying the law to the facts found. Those reasons or the process of reasoning should be understandable and preferably logical as well.” [15] And in Cypressvale Pty Ltd and anor v Retail Shop Leases Tribunal [1996] 2 Qd R 42 it was said: “The nature and extent of the obligations to give reasons varies according to the circumstances; the obligation is, after all, an aspect of the duty to act fairly in the particular circumstances. The broad principle deducible from the cases is that the decision-maker is required to give reasons which disclose what was taken into account and in what manner, and thus whether an error has been made: cf. the reference by McHugh J in Soulemezis at p.279 to a statement of reasons which “enables the parties to see the extent to which their arguments have been understood and accepted as well as the basis of the … decision”. See also, ibid, at p.269 per Mahoney J.A.; Sun Alliance p.19. There have been many attempts to elaborate; indicating for example, the need for findings of fact, usually related at least in broad terms to the evidence on which each finding is based, and an explanation of the reasoning process; vague general statements, or unexplained conclusions are not sufficient … “ per Fitzgerald P at 476-7. [16] Had the decision been in favour of the appellant, that is, giving judgment on the counterclaim, there is no doubt that it could not be allowed to stand because of the -- 6 of 10 -- 7 total absence of reasons. However, the position is not so straightforward where, as here, the result was not to give a final judgment but to send the parties to trial. [17] I have been referred to a number of authorities on the point including, helpfully, Apps v Pilet (1980) 11 NSWLR 350. The basic principles are well enunciated in Halsbury’s Laws of Australia, para [325-11350] thus: “In determining whether in a particular case there is a duty to give reasons and the extent of that duty, regard should be had to the function to be served by the giving of reasons. Where the decision constitutes a final order, the case must be exceptional for a judge not to be required to state reasons. If there is a right of appeal, unless the basis of decision is properly articulated, the right of appeal of the losing party may be effectively lost. [18] As I have said, the learned magistrate’s decision shuts no one out from the chance of obtaining a final judgment. While it is true that it undoubtedly gives rise to, as Chesterman J said in Mirage Resort Holdings Pty Ltd v Brellen Pty Ltd [2003] QCA 579 at para [57]: “a real sense of grievance in the losing party who does not know or understand why the decision was made and why it lost”, and it makes the task on appeal even more difficult than usual, I think I can glean sufficient from the material before me and the submissions made to me to discern grounds to justify the proper exercise of the learned magistrate’s discretion in favour of the plaintiff. If that is so, then the presumption is that he exercised his discretion on those grounds. [19] The nub of the dispute between the parties is the set-off of $40,000 which Emmaland claims to be entitled to do under a written term of the contract with -- 7 of 10 -- 8 Sunstate. If Emmaland is so entitled it owes Sunstate nothing and Sunstate owes it $18,633. But if Emmaland is not entitled to set off the $40,000, then it owes Sunstate the full amount claimed ($21,337). There is an alternative claim by Emmaland for damages for breach of contract ($60,000) or in the further alternative damages under the Trade Practices Act ($40,000 or alternatively “to the monetary jurisdiction of the Court”). Whether, for the purpose of making its claim for summary judgment Emmaland waived these alternative claims for damages does not appear. [20] I note that whereas Emmaland counterclaims for “liquidated damages’ of $40,000, the written terms of the contract which are set out in its letter to Sunstate call it a “penalty”. The same expression is also used by Sunstate in its letter of reply. Not surprisingly the answer to the counterclaim alleges that the sum of $2000 a day is a penalty and is therefore void and unenforceable. [21] Cases such as Esanda Finance Corporation v Plessins (1988) 166 CLR 131 and O’Dea v Allstates Leasing System (W.A.) Pty Ltd (1982-3) 152 CLR 359 establish clearly that whether a clause such as this establishes the right to liquidated damages or is a penalty, while a matter of construction of the contract, involves questions of fact. At p.368 of O’Dea Gibbs CJ says the question: “Must be judged as at the time of the making of the contract.” And at p.369 he refers to the necessity of showing that the sum, in order to be liquidated damages is a genuine pre-estimate of the loss which would be caused by a breach of the contract. In Esanda at p.139 Wilson & Toohey JJ adopted the statement from an earlier High Court case that the question whether a term is penal or a genuine pre-estimate of damages: -- 8 of 10 -- 9 “is one of degree and will depend on a number of circumstances including the degree of disproportion between the stipulated sum and the loss to be suffered by the plaintiff.” [22] In O’Dea at 399 Deane J accepted the principles laid down by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79, at 86-88. At 86-7 Lord Dunedin says that the question, although one of construction, is to be decided “upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract” and at p.88, in considering the question, discusses the facts of the case. That it involves questions of fact is demonstrated by the circumstance that in support of the application for summary judgment the affidavit of Mr Coco (for Emmaland) swears to facts on which he says the sum of $2,000 was estimated. Sunstate clearly does not accept that. It is unlikely that anyone on behalf of Sunstate could swear to contrary facts because they are facts which probably would not be known to them. Furthermore in this case both parties, in the letters said to contain the relevant term, actually call the sum of $2,000 per day a penalty. [23] I therefore consider that His Worship had before him more than “a general allegation” by Emmaland that the term amounted to a penalty. (see Gemeinwirtschalt v City of London Garages [1971] All ER 541 at 549). Sunstate should have the right to have Mr Coco’s evidence tested at trial and by such investigations as disclosure. It should not simply be accepted summarily. And in the available time before trial Sunstate may itself be able to obtain evidence on the point. -- 9 of 10 -- 10 [24] That is a clear example of a disputed question of fact which goes to the very heart of the counterclaim. It is unnecessary to consider the others which Sunstate has argued. There is a triable issue. Conclusion [25] The appeal is dismissed. -- 10 of 10 --