Coventry Village Pty Ltd v R-Australia Group Pty Ltd [No 2]
[2016] WADC 99
•30 JUNE 2016
COVENTRY VILLAGE PTY LTD -v- R-AUSTRALIA GROUP PTY LTD [No 2] [2016] WADC 99
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WADC 99 | |
| Case No: | CIV:362/2015 | 15 JUNE 2016 | |
| Coram: | MCCANN DCJ | 30/06/16 | |
| PERTH | |||
| 24 | Judgment Part: | 1 of 1 | |
| Result: | In CIV 362 of 2015: 1. Appeal allowed in part 2. Interim stay of the default judgment granted 3. The default judgment be set aside on compliance by the first defendant with conditions to be imposed 4. Liberty apply In APP 97 of 2015: 1. Appeal allowed in part 2. Default judgment reinstated 3. An interim stay is granted pending compliance by R-Australia with conditions 4. Liberty to apply | ||
| PDF Version |
| Parties: | COVENTRY VILLAGE PTY LTD R-AUSTRALIA GROUP PTY LTD XIAOCHEN SHENG CHEN LING HUANG R-AUSTRALIA GROUP PTY LTD |
Catchwords: | Default judgments Applications to set aside Merits Lease Assigned to plaintiff Whether lessee (defendant) has a defence or counterclaim against the plaintiff in respect of alleged deceptive or misleading conduct and unconscionable conduct of the assignor |
Legislation: | Australian Consumer Law (Cth) s 4, s 18, s 20, s 21, s 232 - 239, s 243 - 245 Property Law Act 1969 s 77, s 78 Trustees Act 1962 s 10 |
Case References: | Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42 Hall v Hall [2007] WASC 198 Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 Re Moore; ex parte Devanjul Pty Ltd [2012] QSC 249 Seduce Pty Ltd v The Trust Company (Australia) Limited [2006] WASAT 24 Seduce Pty Ltd v The Trust Company (Australia) Limited [2015] WASC 441 Strzelecki Holdings Pty Ltd v Clark [2014] WADC 153 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
R-AUSTRALIA GROUP PTY LTD
First Defendant
XIAOCHEN SHENG
Second Defendant
CHEN LING HUANG
Third Defendant
- Appellant (Plaintiff)
AND
R-AUSTRALIA GROUP PTY LTD
Respondent (Defendant)
ON APPEAL FROM:
For File No : APP 97 of 2015
Jurisdiction : MAGISTRATES COURT OF WESTERN AUSTRALIA
Coram : MAGISTRATE BOON
File No : PE GCLM 22453 of 2014
Catchwords:
Default judgments - Applications to set aside - Merits - Lease - Assigned to plaintiff - Whether lessee (defendant) has a defence or counterclaim against the plaintiff in respect of alleged deceptive or misleading conduct and unconscionable conduct of the assignor
Legislation:
Australian Consumer Law (Cth) s 4, s 18, s 20, s 21, s 232 - 239, s 243 - 245
Property Law Act 1969 s 77, s 78
Trustees Act 1962 s 10
Result:
In CIV 362 of 2015:
1. Appeal allowed in part
2. Interim stay of the default judgment granted
- 3. The default judgment be set aside on compliance by the first defendant with conditions to be imposed
In APP 97 of 2015:
1. Appeal allowed in part
2. Default judgment reinstated
- 3. An interim stay is granted pending compliance by R-Australia with conditions
CIV 362 of 2015
Counsel:
Plaintiff : Mr G J Douglas
First Defendant : Mr M Holler
Second Defendant : No appearance
Third Defendant : No appearance
Solicitors:
Plaintiff : Douglas Cheveralls Lawyers
First Defendant : AHL Legal
Second Defendant : No appearance
Third Defendant : No appearance
APP 97 of 2015
Counsel:
Appellant (Plaintiff) : Mr G J Douglas
Respondent (Defendant) : Mr M Holler
Solicitors:
Appellant (Plaintiff) : Douglas Cheveralls Lawyers
Respondent (Defendant) : AHL Legal
Case(s) referred to in judgment(s):
Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Hall v Hall [2007] WASC 198
Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360
Re Moore; ex parte Devanjul Pty Ltd [2012] QSC 249
Seduce Pty Ltd v The Trust Company (Australia) Limited [2006] WASAT 24
Seduce Pty Ltd v The Trust Company (Australia) Limited [2015] WASC 441
Strzelecki Holdings Pty Ltd v Clark [2014] WADC 153
- MCCANN DCJ:
Introduction
1 I have before me two inter-related appeals.
2 In appeal 97 of 2015 the appellant (Coventry) appeals from a decision of the Perth Magistrates Court (Ms M Boon SM) given on 4 December 2015 in matter 22453 of 2014 whereby the court ordered that a default judgment obtained by Coventry against the respondent (R-Australia) on 2 February 2015 be set aside.
3 In District Court action 362 of 2015 R-Australia appeals from a decision of Deputy Registrar Hewitt made on 24 March 2016 whereby R-Australia's application to set aside another default judgment obtained by Coventry on 25 February 2015 was dismissed.
4 The two appeals give rise to the same issues. Orders have been made that they be heard together and that the evidence in each be admissible in the other.
5 Coventry sues R-Australia in both matters for breach of the lease of shop 1A Coventry Village, Morley (the Premises).
6 In the Magistrates Court matter, Coventry claimed $75,000 for arrears of rent for the period September to December in 2014. In the District Court, Coventry claimed damages for breach of the lease.
7 R-Australia has raised the same defence in each matter. It contends that it is entitled to pecuniary relief and/or discretionary relief (such as rescission or variation of the lease) which would constitute a complete defence and/or counterclaim on the ground that Coventry is liable for breach of the Australian Consumer Law (Cth) (the ACL).
This court's appellate jurisdiction
8 The appeal to this court in the Magistrates Court matter is made pursuant to s 40 of the Magistrates Court (Civil Proceedings) Act 2004 (MCCP Act).
9 The relevant provisions of s 40 of the MCCP Act are as follows:
(4A) The appeal must be conducted in accordance with Rules of Court made by the District Court
(4) The District Court must decide the appeal on –
(a) the material and evidence that were before the Magistrates Court;
(b) any other evidence that it gives leave to be admitted.
(5) Leave may only be given under subsection (4)(b) in exceptional circumstances.
10 By s 43(7) of the MCCP Act this court, on the hearing of an appeal, may:
(a) confirm, vary or set aside all or part of the lower court's judgment;
(b) give any judgment and make any order that the Magistrates Court could have given or made.
11 An appeal is by way of rehearing. As a consequence it is necessary for the appellant to demonstrate error on the part of the learned magistrate.
12 The appeal in CIV 362 of 2015 is brought pursuant to r 15 of the District Court Rules 2007. The appeal is a new hearing and the matter is to be heard de novo. It is not necessary for R-Australia to demonstrate any error of law or principle in the decision of the learned registrar.
Setting aside default judgment – relevant principles
13 Pursuant to s 19(3) of the MCCP Act the court may set aside a default judgment, and may do so on conditions as to the payment of costs or as to other matters.
14 Pursuant to O 13 r 10 of the Rules of the Supreme Court 1971, the District Court may, on such terms as it thinks just, set aside or vary any default judgment.
15 The appeals proceeded on the basis that the same principles apply to both jurisdictions.
16 The discretionary power to set aside a default judgment is very broad. The purpose is to avoid the injustice which might be caused if judgment followed automatically on default (Hall v Hall [2007] WASC 198 [54], [63]).
17 The primary consideration is whether there may be a defence on the merits, but it is also necessary for the defendant to explain how default judgment came to be entered and any delay in applying to set aside the same. It would be unusual to set aside a default judgment that was regularly entered (as occurred in this case) if the defendant wilfully stood by and allowed that to occur.
18 As to whether there is a defence on the merits, the relevant principles were summarised in Strzelecki Holdings Pty Ltd v Clark [2014] WADC 153 (Scott DCJ):
24 The respondent must present a credible defence demonstrating that, if the default judgment were set aside and the matter were argued on its merits, the respondent would have a real prospect of success: Parker v Transfield Pty Ltd [2000] WASCA 382 re-stating the test enunciated by Malcolm CJ in Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998).
25 The court is not required to form a provisional view as to probable findings of fact at trial. What is required is that it must appear from the affidavit material before the court that the respondent's case is not inherently incredible and that if the respondent's evidence were accepted at trial, the respondent will have a real prospect of success.
26 There must be in the affidavit evidence in support of the application, material of some real substance, more than mere assertion, to show that there is a serious question to be tried as to the existence of a genuine dispute about the debt or a genuine claim which maybe put against the appellant. If such material is available the application will succeed even though there might appear in the affidavits filed on the part of the appellant to be a completely contrary view as to the relevant facts. The court may not and is not required to resolve that kind of factual disputation upon the affidavits. See Capital Bay Investments Pty v Richard Szklarz Architects Pty Ltd (Unreported, WASC, Library No 980503, 8 September 1998) (Murray J).
27 The application to set aside a default judgment is an interlocutory application and as a consequence affidavits may contain statements of information and belief.
28 The statements of information or belief should not include bald allegations unsupported by material facts and must include a statement of the source of the information and the grounds for the belief: Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989).
29 Where there is a provision in an affidavit relying on a statement of information and belief which does not state the source of the information or belief, that provision is irregular and therefore inadmissible as evidence: Re J L Young Manufacturing Co Ltd [1900] 2 Ch 753, 754; Phillips v Mineral Resources Development Pty Ltd [1983] 2 Qd R 138, 145.
19 Mr Holler submitted that difficult, developing or novel questions of law are not suitable for summary determination and should be dealt with at trial. I accept that, but each case must be approached in a way that is appropriate to its circumstances.
Factual background
20 The following facts and circumstances are not in dispute.
21 Coventry Square WA Pty Ltd was the founding trustee for the Coventry Square Unit Trust (the Trust). It changed its name to Burmingham Pty Ltd (Burmingham) on 21 November 2012 and I shall use that name.
22 At all material times until 8 February 2013, Burmingham was the registered proprietor (as trustee for the Trust) of a large suburban shopping centre located in Walter Road, Morley. The centre was known as 'Coventry Square' or 'Coventry Village' (I shall refer to it as 'the Centre')
23 The Centre was newly built and ready for occupation in late 2011.
24 The Premises are one of nine restaurants and cafes located on the exterior of the Centre and facing Walter Road.
25 On 19 October 2011 Burmingham, R-Australia, Mr Xiaochen Sheng and Mr Chen Ling Huang (the second and third defendants in CIV 362 of 2015) entered into an agreement whereby Burmingham agreed to lease the Premises to R-Australia for the purpose of operating a Chinese restaurant. The period of the proposed lease was 5 years from the date of commencement with an option for a further 5 year term.
26 Messrs Sheng and Huang executed the agreement as guarantors of R-Australia. They also signed a Disclosure Statement.
27 R-Australia commenced the fit-out of the Premises in December 2011 and entered into formal possession on 1 January 2012.
28 The formal lease and guarantees were executed by the parties during 2012.
29 Burmingham retired as trustee of the Trust on 15 October 2012 and Coventry was appointed in its stead.
30 Coventry replaced Burmingham as registered proprietor of the Centre on 8 February 2013.
31 On 21 July 2014, Coventry commenced proceedings against R-Australia in the Magistrates Court (claim 13228/2014) for arrears of rent in the sum of $74,457.54. The notice of claim was posted to R-Australia at its registered office at 14 Russell Street, Morley. The correspondence was not returned (ie, it is to be inferred that it was received).
32 A notice of intention to defend was not filed. Judgment in default was obtained on 21 August 2014.
33 On 5 September 2014, Coventry obtained an order under the Restraint of Debtors Act 1984 restraining R-Australia and the Registrar of Titles from dealing with a commercial property owned by R-Australia in Adelaide Terrace, Perth.
34 During September 2014, Coventry's lawyer, Mr Andrew Thorpe, sent various correspondence about the judgment debt to R-Australia at 14 Russell Street, Morley. The correspondence was not returned.
35 In October 2014, the bailiff wrote to Mr Thorpe advising him that he had been unsuccessful in executing against R-Australia's assets.
36 Meanwhile, Mr Sheng entered into negotiations with Mr Thorpe with a view to compromising R-Australia's debt and making arrangements for the future. Nothing was settled.
37 R-Australia closed the restaurant and vacated the Premises in or about October 2014. Mr Thorpe did not see Mr Sheng again after 27 October 2014.
38 On 16 December 2014 Coventry retook possession of the Premises and terminated R-Australia's lease. A copy of the notice of termination was posted on the door of the Premises and also sent to R-Australia at 14 Russell Street, Morley. The correspondence was not returned.
39 Coventry commenced Magistrates Court proceedings 22453 of 2014 against R-Australia on 16 December 2014. Service was effected by posting a copy of the notice of claim to 14 Russell Street, Morley on 16 December 2014. The correspondence was not returned.
40 R-Australia failed to file a notice of its intention to defend the proceedings.
41 Coventry obtained default judgment in the sum of $79,035.03 including interest on 2 February 2015.
42 The judgment was registered in the Magistrates Court of Victoria at Frankston on 17 April 2015 and (together with costs of $169.60) became a judgment of that court.
43 On 14 July 2015 Coventry obtained a warrant of seizure and sale from the Supreme Court of Victoria for the sum of $79,204.63, plus interest in the sum of $1,932.38, $763.30 in costs, plus the sheriff's fees and expenses.
44 On or about 28 September 2015 Mr Sheng received a telephone call from the sheriff's office of Victoria. He was informed that the sheriff intended to auction a farm owned by R-Australia located at 985 Robinsons Road, Pearcedale in Victoria.
45 Mr Sheng made enquires and appointed lawyers. On 24 November 2015 R-Australia applied in the Magistrates Court to have the default judgment set aside in matter 22453. Affidavit evidence was filed by both parties and the matter was heard and decided by Magistrate Boon on 4 December 2015.
46 Coventry commenced action 362 of 2015 in this court on 5 February 2015. The writ of summons was sent by post to R-Australia at 14 Russell Street, on 5 February 2015. The correspondence was not returned.
47 An appearance was not filed by the defendant. On 26 February 2015 Coventry obtained default judgment for damages to be assessed, together with interest at the rate of 16% per annum pursuant to the lease.
48 The assessment of damages was set down for hearing on 31 August 2015. Coventry's lawyer, Mr Bruce Duckham, posted notice of the hearing to R-Australia at 14A Russell Street, Morley on 14 August 2015. (R-Australia's registered office had now changed.) The correspondence was not returned.
49 The assessment of damages took place before Deputy Registrar Harman on 31 August 2015. There was no appearance for R-Australia. Damages were assessed in the sum of $375,997.12 and judgment was entered for Coventry against R-Australia in that sum.
50 Mr Sheng testified that he first learnt of the District Court proceedings from R-Australia's Melbourne lawyers after they made enquiries in relation to the Magistrates Court matter.
51 An application to set aside the default judgment was filed on 13 January 2016. The parties filed affidavit evidence and the matter came on for hearing before Deputy Registrar Hewitt on 9 March 2016.
52 The learned deputy registrar reserved his decision which was delivered on 24 March 2016.
53 I turn now to consider the merits of each appeal. The parties conducted the hearing on the basis that I should conduct a de novo review of each matter and they did not address specific grounds of appeal. That is convenient.
54 I was informed during submissions that the Victorian sheriff intends to auction the Pearcedale property on 14 July 2016. I have therefore expedited this decision and omitted citations where they are not essential.
R-Australia's explanations for the default judgments being entered
55 Mr Sheng deposed in each matter that, as far as he was aware, he never received any of the documents relating to each proceeding, including the notice of claim or writ of summons, at 14 Russell Street, Morley. He contended that the documents may have been misdirected upon delivery because 14 Russell Street comprises a triplex residential development with separate mailboxes for each unit (A, B & C). He resided with two other people in Unit 14A which is owned by his parents. Mr Sheng deposed that 'on many occasions mail addressed to me or my parents has been found in other mail boxes or has been wrongly collected by owners of the other units'.
56 Mr Sheng also deposed in both matters that he was overseas on business between 16 January 2015 and 26 February 2015 which, it is submitted, may have also contributed to him being left in ignorance of the documents. (I am unable to perceive the relevance of his absence in 2015 to his failure to receive documents in July 2014.)
57 Mr Sheng's evidence about this issue has not been directly contradicted by other evidence, and it has not been subjected to cross-examination. Given that all but one document was simply addressed to 'no 14 Russell Street', I accept that it is not inconceivable that the envelopes containing the court documents were delivered into the wrong letter box and not passed on by the user of the box.
58 Nevertheless, Mr Douglas submitted that there are strong grounds to infer from the evidence that the relevant court documents were delivered to the correct address and were received in due course by Mr Sheng and, further, that he made an informed decision to ignore them and allowed default judgment to be entered on both occasions.
59 In my opinion, there is much to be said for that submission. Leaving aside a number of concerns that I have about the credibility of Mr Sheng's evidence on the merits (see below), the evidence is as follows.
60 It is to be inferred from the evidence as a whole that a large and diverse number of documents were successfully sent by Coventry (or its lawyers) to Mr Sheng at 14 Russell Street, Morley including the notice of claim in Magistrates Court matter 13228 of 2014. As far as the evidence is concerned (ie, to the extent that Mr Sheng has condescended to particulars) the only documents that he did not receive were three court documents in relation to the two matters before me. And one of them was actually addressed to number '14A' (see [48]).
61 Next the fact that R-Australia (ie, Mr Sheng) allowed default judgment to be entered (or remain) in matter 13228 and entered into negotiations supports the following inferences. First, he made an informed decision on that occasion not to defend the proceedings and/or he was content for the judgment against R-Australia to stand with all the consequences thereof. Second, he did not apprise Coventry of the defence and counterclaim now relied upon, even though R-Australia had suffered heavy trading losses in addition to its liability to Coventry. This speaks to his perception of the degree of wrong done by Coventry (or Burmingham) and the bargaining power that he perceived R-Australia enjoyed (very little apparently). It would appear that Mr Sheng only took an interest when it became apparent that execution could be levied against a property in another jurisdiction. The entry of default judgment in the two matters before me appears to be part of a pattern rather than an unfortunate coincidence.
62 Next, on 13 February 2015 R-Australia attempted to file a Change to Company Details form with the Australian Securities and Investment Commission which sought to change the address of the registered office from 14 to 14A Russell Street with effect from 5 February 2015, ie, retrospectively to a day or so before the writ would have arrived in the post. Mr Douglas submitted that this appeared to be suspicious and consistent with an attempt to set up an argument for later use about Coventry's failure to serve the writ of summons at the correct address. That argument is open, but I doubt it. The scheme was never implemented when the time came and, even if it was, it would have been rapidly exposed. In my view a less contentious inference which serves Coventry just as well, and which is open, is that Mr Sheng received the writ, noticed the address on it and decided that it should be changed (to 14A). But even then, one would query why he attempted to do so retrospectively and chose 5 February.
63 In his evidence Mr Sheng deposed that the change of registered office was arranged by R-Australia's accountant, Acedek Pty Ltd without his knowledge and whilst he was in China. He deposed that:
He [the accountant] arranged the change of address at the request of the third defendant [Mr Huang, and] … the notice of change of address was prepared whilst he [the accountant] was preparing other documents relating to a transfer of shares in R-Australia.
64 Mr Sheng testified that he:
Signed [a] bundle of documents prepared by the accountant relating to the share transfer and … did not notice that bundle included a change of company address.
65 That explanation is plausible but important particulars are lacking and questions remain. First, as Mr Douglas pointed out, Mr Sheng was overseas at the time and the bare assertion that he signed a bundle of documents at the behest of the company accountant needs explaining. Second, and more relevantly, Mr Sheng did not explain why the accountant or Mr Huang believed that it was necessary for the change to be made and/or why it had to be retrospective. Third, the best evidence could have been given by Mr Huang or the accountant. Neither did so, for which no explanation was provided. Fourth, in his evidence Mr Sheng did not name the person at Azedek Pty Ltd who did the work or furnished him with the information for the purpose of giving evidence.
66 In my opinion there are real grounds to believe that R-Australia attempted to cause the registered address to be changed when the directors became aware of the issuance and service of the writ of summons in this court.
The merits
67 R-Australia contends that it has an equitable set-off and counterclaim based on causes of action against Burmingham for deceptive and misleading conduct and unconscionable conduct in contravention of the ACL which are enforceable in law and/or procedurally against Coventry. Mr Holler's submissions focused primarily on the alleged deceptive and misleading conduct.
68 There are two fundamental issues in relation to the merits. First, whether R-Australia has triable causes of action for deceptive and misleading conduct or unconscionable conduct. Second, whether the causes of action are enforceable against Coventry as well as Burmingham.
Causes of action
69 Pursuant to s 18(1) of the ACL a person shall not, in trade or commerce, engage in conduct that is deceptive or misleading.
70 Pursuant to ACL s 4 when a person makes a representation as to any 'future matter' (including the doing of, or the refusing to do, any act), and does not have reasonable grounds for doing so, then the representation is taken to be misleading unless evidence to the contrary is adduced. 'Evidence to the contrary' does not of itself establish that reasonable grounds existed or have the effect of placing an onus on anyone to prove that reasonable grounds existed.
71 Pursuant to ACL s 20, a person shall not, in trade or commence, engage in conduct that is unconscionable within the meaning of the unwritten law. Pursuant to ACL s 21, a person shall not engage in unconscionable conduct within the scope of that provision in connection with the supply of goods or services to another.
72 Pursuant to s 232 – s 239 and s 243 – s 245 of the ACL, a court has a very wide range of remedies available to it in respect of conduct done in contravention of the Act, including injunctive relief and orders for the rescission or variation of contracts (ab initio if necessary) and ancillary orders, or damages.
73 Based on Mr Sheng's affidavit evidence, R-Australia contends that it was induced into entering into the lease because it relied upon a number of misrepresentations made by Burmingham's leasing manager, Mr James Sheridan. R-Australia contends that it suffered loss and damage including its fit-out costs ($151,855.90) and any liabilities it may have to Coventry. It contends that it has a counterclaim and/or equitable set-off and/or is entitled to rescission or variation of the lease, or an adjustment of the parties' rights in a way which entirely meets the judgments.
74 Mr Douglas submitted that the affidavit evidence relied upon by R-Australia is vague and conclusionary and fails to condescend to particulars, and thus fails to meet the evidentiary standard required of an application to set aside a default judgment. There is some force in that submission, but in my view the application is not unsupported. In my view the evidentiary deficiencies go to the problematic credibility of the alleged causes of action.
75 In accordance with principle, I propose to take Mr Sheng's evidence at its highest and best (prima facie) value.
76 Mr Sheng deposed that Mr Sheridan made various representations to him during their pre-contractual discussions.
77 Reading all of his affidavits together, his evidence is that Mr Sheridan told him:
(i) The Premises had a 'quite good position' in the Centre (the location representation);
(ii) Burmingham would open a door to provide access between the inside of the Centre and the Premises so that customers could access the Premises from inside (the access representation). Mr Sheng deposed that this conversation occurred on-site during construction at a time when it was still possible to enter the Premises from the inside. He deposed as follows:
I asked Mr Sheridan whether customers would be able to access the premises. Mr Sheridan said no but then said that 'we' [Burmingham] would find a solution and open a door for customers to enter the restaurant premises from inside the centre. Mr Sheridan did not say that he needed to obtain authority from anyone else to agree to provide internal access. (emphasis added)
(iii) The common areas of the Centre would be finished to a high standard which included tiling on the floors (the finishes representation). In particular, he was told that the Centre would be similar to a shopping centre that was depicted in some photographs on Mr Sheridan's office wall. Mr Sheridan also said that the finishes 'would be similar to the Galleria Shopping Centre Morley' (which is tiled) and showed him a drawing of what he 'said would be the finished shopping centre including its interiors'. The centre 'was shown to be finished to a standard similar to or as good as the Westfield shopping centre' and 'showed the floors of the centre laid with tiles';
(iv) Mr Sheridan told Mr Sheng that the Centre would become a 'tourist centre' and would attract 'hundreds of thousands of customers' (the customer representation).
78 Mr Sheng deposed that Mr Sheridan also informed him that another well-known Chinese restaurant group was looking at renting the Premises, so he (Mr Sheng) believed that R-Australia needed to make a decision quickly and did so.
79 Coventry filed evidence disputing the making of the representations. Whilst more cogently expressed than R-Australia's evidence there is a triable issue on that aspect.
80 Having said that, even at a prima facie level, there are credibility problems with Mr Sheng's evidence about the making of the alleged representations.
81 First, in the Magistrates Court he deposed that the negotiations and representations were made 'in or about December 2011'. By 11 January 2016 this had become 'in or about late 2011' and by 4 March 2016 it was 'in October 2011' or 'about a week before signing the agreement for lease'. With all of the documents available to him one would think that Mr Sheng could have got this important detail correct at his first or second attempt. He did not.
82 Second, the Disclosure Statement afforded Mr Sheng and Mr Huang a clear and unambiguous opportunity to itemise any representations or commitments that they had relied upon. The above representations were not included.
83 Third, Mr Sheng's evidence about the access representation stretches credibility (see [87] – [90]).
84 Fourth, Mr Sheng deposed that the average daily turnover whilst the restaurant was open was $200 - $300 after the first week of operating. That statement appears to be contradicted by R-Australia's accounts (exhibit XS3; AB37 – 38) which show that sales for the financial year ended 30 June 2013 were $393,867.32 or $1,079.08 per day.
85 I turn now to consider the evidence as to whether the alleged representations were deceptive or misleading and as to their causal relevance.
86 The location representation was an opinion about a matter which Mr Sheng was capable of judging for himself. There is no evidence that the location of the Premises facing Walter Road does not enjoy a 'quite good position' apart from the issue of access from the inside. Perhaps it is a good location, perhaps not, but any evidence to the latter tendency is a bare, unparticularised assertion and not probative. It is necessary to consider the location representation as being linked to the access representation.
87 None of the external tenancies that face Walter Road (including the Premises) has access for patrons from inside the Centre (see affidavit Mr Jay Poland, AB 87). They are separated from inside the Centre by their service corridor. So, the access representation (if made) was patently false and Coventry do not contend otherwise. Rather they rely on its patent falsity to explain why Mr Sheridan could not have made the representation and, further, to demonstrate that Mr Sheng and R-Australia could see for themselves that the representation was false and could not possibly have formed any belief or expectation in its truth.
88 Further, Coventry contend that R-Australia knowingly put it beyond Coventry's power to make the access representation good, which brings me to reliance.
89 Mr Sheng deposed (emphasis added):
After operating the defendant's business on the premises, I found that there was no direct access from the Coventry Village shopping centre to the premises and the flow of customers was extremely low.
90 The evidence omitted vital facts. It is not disputed that R-Australia prepared fit-out plans, and had them approved by Burmingham (exhibit JDP1; AB 90). These showed (and the Premises were fitted out accordingly) that the whole of the internal rear wall of the restaurant (which is contiguous with the service corridor) is occupied by the toilets and the kitchen, save for a small door opening from the kitchen into the service corridor. So, if the access representation was to be made good by Coventry, restaurant customers would need to walk along the service corridor and then through the kitchen. Mr Sheng deposed that he raised the access issue with Burmingham's management in mid-2012 but nothing was done about it. Given the circumstances, that is hardly surprising.
91 It could be very strongly argued on undisputed facts that the defendants committed to the restaurant venture and incurred up-front expenses irrespective of the access representation because (it is to be inferred) they relied on the location (in the sense of the exterior position on the Walter Road frontage) to justify their own informed assessment of the venture.
92 At best, the most that could be said for the merits of a cause of action based on the location and access representations is that it is extremely weak, but not unarguable.
93 As to the alleged finishes representation, on Mr Sheng's evidence it was an important consideration.
94 As to its falsity, Mr Sheng deposed that the actual finishes are substantially different. The floor of the internal 'Market Area' is bare polished concrete and is not tiled. Mr Sheng deposed:
… the finish of the Coventry Village shopping centre was substantially different from what was shown to me in the drawings.
95 It is common ground that the finishes representation was deceptive or misleading (if it was made) because Coventry admits that Burmingham never had plans to tile the floors of the Centre and/or finish it to a standard similar to the other shopping centres that were mentioned. Again, Coventry says this shows that Mr Sheridan could not have made the representation.
96 Further, again, the difficulty with a cause of action based on the finishes representation are the facts that R-Australia, carried out an expensive fit-out, went into possession and began trading in the knowledge that the finishes were not as represented and, so far as the evidence is concerned, no protest or complaint was ever made about it.
97 I turn now to the customer representation and comment immediately that (if it was made) it was open-ended as to time. Given the size of the Centre and the number of tenancies (approximately 100), I apprehend that Coventry will have no difficulty justifying a predication that hundreds of thousands of customers would visit the Centre over any reasonable period of time.
98 Mr Sheridan has not sworn an affidavit (for reasons which are not entirely convincing), but Mr Thorpe deposed as to his instructions, namely that he (Mr Sheridan) did speak to potential tenants about the expected high customer numbers, but he based what he said on market research which had been carried out for Burmingham.
99 Mr Thorpe deposed that the customer representation is true as a fact.
100 Mr Sheng deposed that the representation proved to be wrong in fact. He said:
… after entering into the lease of the premises and operating the … business on the premises, I observed there were almost no customers in the Coventry Village shopping centre except the Market Area.
101 This evidence is very vague because 'the Market Area' is not explained, nor its proximity to the Premises, and no evidence was given as to the number of people he observed having recourse to that area. Mr Sheng did not refer to any other evidence. For instance, he said nothing about the occupancy rate of the Centre or the nature or trading hours of the businesses operating in it.
102 Coventry adduced evidence that the Centre is closed on most evenings but the Walter Road restaurants are open after hours. This point was apparent in the Agreement for Lease which stated that R-Australia's trading hours would be 'flexible' whilst the standard trading hours of the Centre would be 8.00 am to 6.00 pm on Monday, Tuesday, Wednesday and Friday; 8.00 am to 9.00 pm on Thursday; and 8.00 am to 5.00 pm on Saturday.
103 In summary, in my opinion, R-Australia's case based upon the customer representations is extremely weak.
104 The test for me to apply is whether R-Australia's evidence is not so inherently incredible that it could not be accepted as true, and whether it has a real prospect of success. In my opinion the alleged cause of action based on deceptive or misleading conduct is very weak, but not unarguable.
105 I turn now to whether R-Australia has an enforceable counterclaim and equitable set-off against Coventry (the privity issue).
Privity
106 Coventry contends that any cause of action enjoyed by R-Australia (and the other defendants) lies solely against Burmingham. It contends that upon becoming trustee and registered proprietor it acquired Burmingham's legal rights and liabilities under the lease, including the reversion, but not any liabilities of Burmingham which are entirely in personam.
107 This argument was not relied upon in the Magistrates Court. Accordingly, having found that there was a triable counterclaim and/or set-off on the merits, the learned magistrate granted unconditional leave to defend and set aside the default judgment.
108 The learned deputy registrar accepted the privity objection in this court. R-Australia contends that he fell into error and that its counterclaim and/or set-off is directly enforceable against Coventry as successor in title to Coventry Square.
109 I commence with some principles of law and equity.
110 Pursuant to s 10 of the Trustees Act 1962 (read with cl 5.27 of the lease), Burmingham assigned the lease to Coventry.
111 The rights and obligations of Coventry as assignee of the reversion are dealt with under s 77 and s 78 of the Property Law Act 1969. Neither section provides that the interest of the assignee is subject to any rights in personam that the lessee could have exercised against the original lessor (the assignor of the reversion).
112 A trustee who enters into business transactions in discharge of his trust is personally liable for liabilities that are incurred in the course of the transactions. However, the trustee is entitled to be indemnified from the assets of the trust again liabilities incurred in carrying on business under the trust, and is entitled to retain possession of the assets against the trust beneficiaries, so that the trust property is no longer held solely for them. That right is akin to a lien and is proprietary in nature and will be held for the trustee's creditors in the event of bankruptcy. (Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360, 369 – 370); Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42, (52 – 53).
113 The trustee is entitled to charge its lien in favour of a creditor (Ravi, 53), but that did not occur in this case. Otherwise, the property cannot be taken in execution by a creditor, but the creditor is entitled to be subrogated under certain circumstances to the trustee's right of indemnity in respect of the creditor's debt or judgment (Octavo, 370).
114 Mr Holler submitted that the creditor's debt or judgment is thus enforceable against the trust assets and, as such, the creditor enjoys a proprietary remedy against the trust.
115 As such, he submitted that a substitute trustee (such as Coventry) would acquire its legal rights as trustee subject to the creditor's equity of enforcement – ie the substitute trustee would be liable to a counterclaim and an equitable set-off in respect of rights acquired by it as successor of the original trustee.
116 I accept the second of Mr Holler's submissions, but it does not avail R-Australia because I reject the first.
117 The creditor's might be subrogated to the first trustee's rights against the trust assets arises in equity and/or at law, but it is a different legal right from the trustee's right of indemnity. The latter is an equitable right supported by security (the lien) over the trust assets. A right of subrogation is a right to stand in another's (the trustee's) place, but it gives no direct right in respect of the trust assets. At an appropriate time (if ever) R-Australia would be limited to exercising a right vested in the former trustee and in the name of the former trustee.
118 Further, a creditor's entitlement to subrogation is not at large. It is conditional, and thus inchoate, and only comes into being in the event of the creditor's right being declared and/or crystallizing and in the event of the trustee's bankruptcy (as occurred in Octavo).
119 Mr Holler submitted that it is not necessary for a trust creditor to pursue its rights to judgment against the original trustee before it can claim to be subrogated to the trustee's indemnity against the trust assets. He cited Re Moore; ex parte Devanjul Pty Ltd [2012] QSC 249. However, that case should be confined to its own facts and does not assist R-Australia. The Queensland Supreme Court dealt with an application for the re-registration of the original trustee. McMeekin J held that it was pointless to do so and that the applicant could join the substitute trustee and pursue it directly. The important point to make is that the remedy simply short-circuited the subrogation process, it did not predicate that the applicant had any interest in the trust assets or that the applicant enjoyed a cause of action against the substitute trustee. The applicant was effectively given procedural leave to pursue the original trustee's rights.
120 So, assuming for present purposes that Burmingham contravened the ACL, any liability to R-Australia is inchoate and personal to Burmingham, and any right which R-Australia might enjoy in future to exercise Burmingham's rights against the Trust pursuant to the doctrine of subrogation do not, and would not, confer a present interest in the Trust assets.
121 It follows in my opinion that R-Australia has no equitable interest in the Trust or security interest of any kind, and Coventry did not acquire its legal title and rights in personam against R-Australia subject to any equity in the latter's favour.
122 Coventry's position is supported by authority, namely Seduce Pty Ltd v The Trust Company (Australia) Limited [2015] WASC 441, and Seduce Pty Ltd v The Trust Company (Australia) Limited [2006] WASAT 24. However, it must be noted that in those cases the original lessor was not a trustee. It transferred both the legal and beneficial ownership of the leased property to the second lessor by arm's length sale. In the present case the equitable ownership of the Premises did not change.
123 Mr Holler submitted that the distinction is a material one because of R-Australia's subrogated rights in the Trust which, he submitted, were not affected by the change of legal ownership. But that is a distinction without a difference for the reasons given at [121] above. R-Australia's conditional or inchoate access to the Trust assets by subrogation confers no interest in the assets. At present its rights (if any) are purely in personam and lie against Burmingham.
124 Further, the remedies for breach of the ACL are only available against a person who contravened the Act or was 'involved in' the contravention. So the remedy for deceptive or misleading conduct can only lie against Burmingham.
125 However, there is another matter to consider. I apprehend that discretionary relief such as orders for rescission or variation against Burmingham, would not, or could not, be granted whilst Coventry enjoys judgments in its favour.
126 I do not have the benefit of detailed submissions, but I have considered whether Coventry could be held to be involved in Burmingham's contravention of the ACL by reason of unconscionable conduct since becoming trustee. It might be arguable that by seeking to continue to enforce the lease and retain and enforce judgments thereunder which are inconsistent with, or stand in the way of an order against Burmingham for rescission or variation of the lease, Coventry is engaging in unconscionable conduct in its own right, or would be, and that setting aside the default judgment would be appropriate to give effect to that remedy or, at least to preserve it. As Mr Holler submitted, the power to set aside a default judgment is broad and must be used for the purpose of doing justice.
127 He submitted that the right to of an 'equitable set-off' is very wide and drew my attention to the commentary in Kendall and Curthoys, Civil Procedure Western Australia, [20.17.3] as follows:
To establish an equitable set-off, it is necessary to establish that the claim of the defendant has been brought about by, or has been contributed to by, or as otherwise so bound up with, the rights relied upon by the plaintiff that it would be unconscionable that he or she should proceed without allowing a set-off (Casella v Costin Pty Ltd[WASC, Full Court, Library No 5416, 22 June 1984). But this has been explained as meaning that the defendant must show an equitable right to be protected from the plaintiff's claim (Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40).
128 He pointed to the fact that (with one exception) the directorships of Burmingham and Coventry have been the same at all material times and, of course, they were or are trustees for the same trust. He referred to Coventry taking advantage of the 'corporate veil' and submitted that Coventry and Burmingham are in substance the same entity and are privies of each other.
129 Assuming for present purposes that such is the case, it might be arguable that Coventry would be liable for unconscionable conduct by continuing to rely on the lease or the judgments and by seeking to uphold the privity principle.
130 On the evidence I cannot decide if the differences in the boards (and control) of the two companies are purely formal and not substantive. The changes may well imply that a substantive change took place in the beneficial ownership and/or legal control of the Trust. Otherwise, why bother changing the trustee? On the evidence there is no ground to suggest that the change of trustee was effected for the purpose of shielding the Trust from any liability, demand or claim.
131 Nevertheless, I am satisfied that it is at least prima facie arguable that in substance there was no change in the beneficial ownership or control and that the two companies should be considered as privies of each other for the purposes of the ACL provisions relating to unconscionable conduct.
Summary and conclusions
132 I am satisfied that from a legal standpoint R-Australia has a sufficiently arguable claim against Burmingham to justify having leave to set aside default judgment were it not for the privity issue.
133 It has no cause of action against Coventry for deceptive or misleading conduct and, as such, could not bring a counterclaim or rely on an equitable set-off to justify the granting of unconditional leave to defend on that basis.
134 The possibility that R-Australia would have an arguable cause of action against Coventry to the extent that it unconscionably stood in the way of orders for rescission or variation against Burmingham cannot be ruled out.
135 I have concluded that the default judgments should be set aside, and R-Australia have leave to defend claiming relief under the ACL, but subject to stringent conditions.
136 In arriving at these conclusions I have taken into account my misgivings about the bona fides of R-Australia's explanations for failing to defend the proceedings and other credibility issues which, together with my views on the merits, has informed my views as to the bona fides of the proposed counterclaim.
137 If R-Australia is proceeding bona fide it will commence and prosecute any proceedings expeditiously and will comply with the conditions which I regard as necessary and warranted to protect Coventry. In particular I contemplate the making of orders or conditions requiring the Magistrates Court matter to be remitted to this court and for R-Australia to promptly commence and prosecute any proceedings against Burmingham and Coventry in this court. I also have in mind an order requiring R-Australia to pay a sum into court as security for reserved costs and Coventry's costs thrown away (including the sheriff's costs in Western Australia and Victoria).
138 The consequence in the case of non-compliance with the conditions would be the enlivenment of default judgment in each matter.
139 To achieve these objects I have in mind allowing the appeal in part in each matter and making orders in each matter whereby default judgment is entered but stayed on an interim basis, with liberty to apply (see page 2 above). If R-Australia meets the conditions the default judgments will be set aside. If not, the stays would be lifted.
140 I will hear the parties as to the appropriate orders in each matter.
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