Farah KAA Investments Pty Ltd v Bullion Wealth International Pty Ltd
[2018] VSC 146
•29 March 2018
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
S CI 2017 01959
BETWEEN:
| FARAH KAA INVESTMENTS PTY LTD | First Plaintiff |
| ALI ABOU-EID and TAIBA ABOU-EID (as trustees for the AKA Super Fund) | Second Plaintiff |
| BILAL ABDULKHALEK | Third Plaintiff |
| MONA KHATTAB and NABIL EL DAOUK (as trustees for the Rayan Super Fund) | Fourth Plaintiff |
| v | |
| BULLION WEALTH INTERNATIONAL PTY LTD | First Defendant |
| SHIRWA MOHAMED | Second Defendant |
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JUDGE: | Mukhtar AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 March 2018 |
DATE OF JUDGMENT: | 29 March 2018 |
CASE MAY BE CITED AS: | Farah KAA Investments Pty Ltd & Ors v Bullion Wealth International Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2018] VSC 146 |
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JUDGMENTS AND ORDERS – Plaintiffs’ case of false and misleading representations preceding making of contract – Failure to file a defence – Default judgment – Damages assessed – Belated application to set aside default judgment – Absence of any opposing evidence concerning the alleged misrepresentations – Real dispute over the resultant contract – Case to be investigated – Default judgment set aside
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Tragardh | Robinson Gill |
| For the First Defendant | No appearance | |
| For the Second Defendant | Mr F Badali | Zeno Family Lawyers |
HIS HONOUR:
On 18 August 2017, the plaintiffs obtained interlocutory judgment against both defendants for damages to be assessed. The judgment was obtained in default of a defence being filed. The judgment was obtained regularly and on the established procedural basis that all allegations in the statement of claim are taken to be admitted by the defaulting defendants. It was an interlocutory judgment because the plaintiffs’ claim was for recovery of damages.[1]
[1]See r 21.02 and r 21.03(b).
On 8 February 2018 the Court assessed the plaintiffs’ damages for a total of $948,400. That was the aggregate amount of money which the plaintiffs had paid over to the defendants to be invested on the US commodities market. On the plaintiffs’ case, the investment arrangement was unwritten. They say they acted on the faith of false representations made by the second defendant (‘Mohamed’) who is the sole director of the first defendant (‘Bullion Wealth’) about his system of limiting the risk. The parties are known to each other, personally. Two of the plaintiffs are accountants. The plaintiffs’ money has been lost in trading on the market. All of it. The assessed damages were restorative of their capital paid over; that is, there was no claim by the plaintiffs for the economic opportunity cost of the lost investment.
The second defendant has now applied to set aside the default judgment, 185 days after it was entered, or, 126 days after Mohamed says he found out about it when the Court made a freezing order over the defendants’ assets.
Applications to set aside judgment are common, and like this one, can become quite intensive. The Court’s general discretion on such applications requires the Court to consider the explanation for the default, but more importantly, as the founding authority in Victoria has it,[2] the Court must weigh the extent to which a defendant is prejudiced by allowing a judgment ― not obtained on the merits but by procedural default ― to stand as against the prejudice to the plaintiff in setting it aside. In that evaluation, regard must be had primarily to the merits of a defence that the defendant wishes to put as evidenced by an affidavit in support of the application.
[2]Kostokanellis v Allen [1974] VR 596 (FC).
The opposition to this application is double barrelled. The plaintiffs challenge the adequacy of the explanation for the default and also contend there is no evidence disclosing a defence to the claim as pleaded. For the purposes of the first challenge they filed a subpoena addressed to the defendants’ ex-solicitor which was returnable before the Prothonotary on the day of hearing. As there was some disorder with the timing of production, and an expectable challenge to the width of the subpoena and issues of waiver of client legal privilege, I made certain orders which had the effect of shrinking the ambit of the subpoena and extending the date for production. To avoid an adjournment, and recognising that an inadequate explanation for default ought not disqualify an application if an arguable defence can be shown, this application has proceeded on the basis that the Court will first determine, in isolation, the question whether an arguable defence has been shown. The question of explanation for default has been put to one side. If the Court finds there is sufficient to show a defence on the merits, the other question will disappear.
On the question of an arguable defence, there are peculiarities about the case and the evidence, and the conduct of the application that has made the exercise of the Court’s discretion quite difficult. There is no dispute that the plaintiffs paid the money over. There is no dispute that all the plaintiffs’ money has been lost at the defendants’ hand. The assessment of damages, as a quantification exercise, was not controversial because the amounts paid by the plaintiffs are documented and not disputed. Thus, forensically, it will be said the focus is on the defendants to show why the judgment should be set aside. Even for present purposes where I am not determining the merits, the problem has been trying to understand the legal relationship between the parties and the rights and obligations in a situation where the defendants have been unconcerned yet to say anything about the alleged pre-investment representations because they point cardinally to purpose-made and signed written agreements prepared by one of the plaintiffs according to which they say the commodities trading was conducted, but those agreements have not been pleaded by the plaintiffs at all. The defendants say those written agreements define or govern the legal relationship, and any judgment on the merits ought be made on a trial of the matter according to the effect and operation of those written agreements. As I remarked in argument, to an extent, the apparent dispute is like two ships passing each other in the night.
The writ including a statement of claim was filed on 24 May 2017 and served on 29 May 2017. The claims by each of the four plaintiffs are of the same form and content, and I shall confine myself to the claim made by the first plaintiff Farah KAA Investments Pty Ltd, which was for the highest amount and is representative by type to the claim made by the other plaintiffs. It is necessary to expose the plaintiffs’ case because ultimately much turns on how the case is pleaded.
The first part of the claim is against Bullion Wealth only. Paragraph 7 of the statement of claim states:
By an agreement made on about 9 May 2016, between Farah KAA Investments and Bullion Wealth, Bullion Wealth agreed to invest $60,000 of Farah KAA Investments’ funds on the US commodities markets (‘the first agreement’).
PARTICULARS OF AGREEMENT
The first agreement was oral and consisted of a conversation between Mohamed on behalf of Bullion Wealth and Ali Abou-Eid on behalf of the Farah KAA Investments in or about 9 May 2016.
It is curious that the alleged agreements say nothing about the quid pro quo for Bullion Wealth under the agreement.
Thereafter, the first plaintiff pleads that by a subsequent second, third, and fourth agreement, it paid Bullion Wealth additional amounts of money to be invested on the US commodities markets. In each case, those subsequent agreements are also particularised as having been unwritten and made in conversations between Mohamed as director acting on behalf of Bullion Wealth, and Ali Abou‑Eid one of second named plaintiffs who is an accountant.
The allegation in paragraph 16 is critical to the actionability of the plaintiffs’ claim as pleaded. It is repeated in paragraphs 34, 51 and 67 in the case made by the other plaintiffs. Paragraph 16 alleges this:
Prior to Bullion Wealth and Farah KAA Investments making the first agreement Bullion Wealth warranted or alternatively represented to Farah KAA Investments that:
(a) Bullion Wealth used a “stop loss” trading system that guaranteed investors would not risk more than 10% of their capital (the stop loss trading system);
(b) The stop loss trading system was Halal, and therefore complied with Islamic Sharia law;
(c) By reason of the stop loss trading system any and all investments made by Farah KAA Investments (the first plaintiff) with Bullion Wealth would not be exposed to a loss of more than 10%.
PARTICULARS
The warranties and representations were oral, and consisted of numerous repeated statements made by Mohamed on behalf of Bullion Wealth to the effect alleged.
From that allegation, these allegations follow:
17.The representations and warranties were, and each of them was, false and untrue.
PARTICULARS
Bullion Wealth lost all of the capital invested by Farah KAA Investments pursuant to the first agreement, the second agreement, the third agreement and the fourth agreement.
18.At the time of making the representations and warranties, Bullion Wealth knew them to be false and untrue, or made them recklessly indifferent to whether they were true or false.
PARTICULARS
The falsity and untruthfulness can be reasonably inferred by the fact that at about the time of making the representations Bullion Wealth had already lost all of the capital invested by Ibrahim Soliman (the sum of USD 42,000) using the stop loss trading system but did not disclose that fact to Farah KAA Investments. The falsity and untruthfulness can also be reasonably inferred by the fact that Bullion Wealth lost all of the capital invested by Farah KAA Investments and others.
19.Acting on the faith of the representations and warranties Farah KAA Investments entered the first agreement, the second agreement, the third agreement and the fourth agreement and paid the monies to Bullion Wealth …
20.By reason of the matters alleged Farah KAA Investments suffered loss and damage.
PARTICULARS
The sum of $565,950.
Those allegations are couched in the language of a claim in the tort of deceit as against Bullion Wealth. Deceit may be defined as a false representation made by the defendant with knowledge of its falsity, or reckless as to its truth or falsity, with the intention that the plaintiff should act in reliance on the representation, which causes damage to the plaintiff in consequence of the latter’s reliance upon it.[3] Damages for deceit are the consequential losses from the fraud. In this case the damages sought by all plaintiffs against Bullion Wealth was the amount laid out and lost.
[3]See Balkin and Davis, Law of Torts (4th ed) at [23.17].
The plaintiffs’ second case is made under the Australian Consumer Law. It is made against Bullion Wealth as principal and brings in Mohamed for personal liability as accessory. The second case is based on the same representations made by him on behalf of Bullion Wealth as pleaded on the first case. Unlike a common law claim in deceit, the statutory claim does not require proof of intent. The representations are alleged to have been made in trade and commerce. The plaintiffs allege they acted on the truth of the representations, were induced by them, and acted in reliance on them to pay money over to Bullion Wealth. They allege the representations were false and untrue ‘… in that the stop loss trading system risked all of investors’ capital’ and were, according to the same particulars as in the first case, misleading and deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law. The representations are also alleged to be representations of a future matter for the purposes of s 4 of the Australian Consumer Law. The case against Mohamed personally is that as the actual maker of the representations, he was involved in the statutory contravention by Bullion Wealth in that he aided and abetted the contravention, was directly or knowingly concerned or was a party to the contravention.
What matters in the plaintiffs’ case against Mohamed for accessorial liability is that the representations allegedly induced the making of, and the payment under the unwritten agreements to invest, as the plaintiffs have alleged them to be.
Subsequent procedural events
After the writ was filed, on 13 June 2017, the Family Court at Melbourne, in proceedings between Mohamed and his wife Hania Noor, made a consent order for the sale of property at 5 Edgar Street in Reservoir by public auction and the division of net proceeds 80/20 in favour of the wife. I gather that on 18 March 2018 the plaintiffs filed an application in the Family Court to set aside those orders because the plaintiffs challenge the genuineness of the Family Court proceedings. Elsewhere in the materials filed, the plaintiffs seek to portray Mohamed as dishonest and avoiding responsibilities.
On 14 June 2017 an appearance was filed in this proceeding on behalf of the defendants by Messrs Merhi and Associates. Not long afterwards they filed a notice on 4 July 2017 that they had ceased to act. No defence was filed, but I shall put aside the explanations given. The interlocutory judgment was obtained on 18 August 2017. Before then, on 24 July 2017 the second, third and fourth plaintiffs each lodged a caveat on the matrimonial property in Reservoir on the express ground of an ‘agreement’ with Mohamed dated 24 May 2017. That date was the date of the writ. The only agreement alleged in the writ is an unwritten agreement to invest.
The default judgment then became the basis upon which the plaintiffs sought and obtained ex parte from Judd J on 16 October 2017 a freezing order over the assets of both defendants under Order 37A.[4] The freezing order prohibited Mohamed and Bullion Wealth from removing from Australia Australian assets up to the unencumbered value of $1,000,000. If Mohamed did not know it already, the affidavit in support of the freezing order sworn by the plaintiffs’ solicitor Fatoum Souki stated that a default judgment had been obtained and was awaiting an assessment of damages. The supporting material for the freezing order also stated that Mohamed owned no property other than a matrimonial property at 5 Edgar Street in Reservoir over which the plaintiffs had each lodged a caveat.
[4]Judd J extended the freezing order on 18 October 2017 until the assessment of damages. It was later extended until further order.
An affidavit filed by Mohamed on the return of the freezing order stated that the Reservoir property had been sold by public auction on 3 June 2017 for $1.266 million. A deposit was paid, but completion could not occur because of multiple caveats on the property. Mohamed said he applied to the Registrar of Tiles to remove the caveats under the statutory out of court procedure. The caveats were removed by the Registrar on 11 October 2017. The sale of land was completed on 13 October 2017. The mortgagee was paid $692,887. I do not know the precise figures of residue, but the materials refer to a figure of $500,000 which Mohamed’s solicitor undertook to deposit into her trust account pending the application of the freezing order. An affidavit was subsequently sworn by Mr Mohamed on 20 October 2017 to state his asset position as was required under the freezing order. He states he was currently employed as a contractor with Uber. He said he averaged $1,000 gross per week. He swore that he held no legal or equitable interest in property within Australia or in any bank accounts in Australia or overseas. He says that the property in Edgar Street was registered in his own name on 5 December 2014 but was subject to the Family Court orders.
The rest of his affidavit is irrelevant for present purposes except for one very important matter. Mohamed stated that the second plaintiff Ali Abou–Eid (also a director of the first plaintiff) was his accountant. He exhibited three documents each called ‘Unsecured Loan Agreement’. These must have been the agreements that Mohamed submitted to the Registrar of Tiles to obtain a removal of the plaintiffs’ caveats on the ground that they show manifestly the plaintiffs had no security interest in the Reservoir property. These same agreements are the basis on which Mohamed seeks to set aside the default judgment.
The first agreement was between the first plaintiff Farah KAA Investments Pty Ltd (identified as the ‘the Lender’) and Bullion Wealth (identified as ‘the Borrower’).[5] It is dated 9 May 2016. That happens to be the same date that the statement of claim alleges was the date of the first unwritten ‘agreement to invest’. The second agreement was between Rayan Super Fund (of which the fourth plaintiff Mona Khattab and Nabil El Daouk are trustees) as ‘the Lender’ and Bullion Wealth as ‘the Borrower’.[6] It is dated 13 August 2016. That happens to be the same date that the statement of claim alleges was the date of another unwritten ‘agreement to invest’. The third agreement was between the third plaintiff Bilal Abdulkhalek as ‘the Lender’ and Bullion Wealth as ‘the Borrower’.[7] It is dated 22 September 2016 but elsewhere dated as having been executed on 15 September 2016. In the statement of claim the date for the unwritten agreement is alleged to be 21 September 2016.
[5]Exhibit SM-3.
[6]Exhibit SM-4.
[7]Exhibit SM-5.
Clause 1.4 of these loan agreements states:
The Borrower has represented to the Lender that the purpose of the Loan is to enable the Borrower to Trade on any of the United States and/or European Futures Exchanges. The Borrower undertakes to the Lender that the Borrower will not use the Loan for any other purpose without the Lender’s prior written approval.
The other relevant clauses are these:
1.3The Borrower acknowledges that the Lender may at any time hereafter lend further moneys to the Borrower. These further advances form part of the Loan and the terms of this Loan Agreement apply.
2.1All moneys lent to the Borrower by the Lender including the Loan must be repaid by the Borrower to the Lender as follows:
(a)immediately upon receipt by the Borrower of a written demand from the Lender requiring the Borrower to repay the Loan; or
(b)upon any default by the Borrower;
…
4.1The Borrower will pay Profit to the Lender on the Loan on so much of the Loan as is outstanding from time to time at the rate of 24% per annum.
4.2The Borrower will pay Profit on the Loan or any balance of the Loan on completion of the Loan term. This will be a Profit Period. The Profit must be paid by the Borrower within 7 days of the expiry of each Profit Period.
…
6.1This Loan Agreement represents the whole agreement between the Lender and the Borrower concerning the lending to the Borrower of the Loan. All representations understandings or prior agreements concerning the Loan are acknowledged as having been waived and of no force or effect whatsoever.
I have exposed these facts as the three loan agreement were furnished to the Court by Mohamed at the hearing of the assessment of damages on 8 February 2018. On that day, Mohamed appeared in person. There is a transcript of the conduct of the case that day. He had nothing to say about the computational exercise of the damages as claimed. As I say, the plaintiffs were seeking return of the moneys as deposited, so the assessment exercise did not involve anything more than proof of the amounts of money as deposited. Those amounts were not disputed by Mohamed. Nor did he dispute that the plaintiffs’ money had all been lost. He said ‘I ran into big loss … I’m not liable because the company [i.e. Bullion Wealth] lost everything that I had at that particular moment … I can’t pay it … I’m not denying that I don’t want to pay, but I don’t have the money to pay … I don’t deny I have received the money on that purpose … Well the money was lost in trading and I don’t have the money to pay’.[8] He also said ‘No, I told them I need more time – more time, hopefully to get funds to trade to recoup, to recover.’[9] Mohamed’s complaint, which underlies the question on this application to set aside was: ‘…the allegation and the facts don’t match up … they alleged that I have misrepresented … Why did they not disclose that we have this agreement?’[10] Mohamed said the loan agreements were prepared by Ali Abou-Eid a second plaintiff. They must have been known to the plaintiffs because they formed part of an affidavit he had filed on the freezing order application to show that the plaintiffs, being unsecured, had no right to lodge caveats on his land.[11] He then said this:[12]
If I had opportunity to come on that day I will have brought my documents to the court and proved that relationship was based on mutual interest backed by this commercial unsecured loan agreement. Initially things were good, we were making money, no problem. When is the company run into trouble, that is where the problem was.
[8]See transcript 23-27 passim.
[9]Transcript 24.
[10]Transcript 29.
[11]Sworn 20 October 2017. See exhibits SM-3, 4 and 5.
[12]Transcript 30.
These loan agreements were not conceded by the plaintiffs’ counsel at the hearing. Counsel said that the provenance of the loan agreements has not been tested, and he was in no position to say what they meant, or what they were, or whether they were admitted. He re-asserted the plaintiffs case was based on oral agreements and representations.[13]
[13]Transcript 33.
On the face of each agreement, it was signed by the parties. If authentic, the agreement would show objectively a number of things. First, that the relationship was between a plaintiff as ‘lender’ and Bullion Wealth as ‘borrower’. Secondly, it appears a loan agreement was the means by which the plaintiffs would pay over money to Bullion Wealth to be invested by the latter on the commodities market with a return of 24 per cent of money so lent, described as ‘profit’. The ‘profit’ on the loan at the rate of 24 per cent per annum is a high rate of return indeed which, according to theory at least, is suggestive of speculative dealings and high risk. Thirdly, Mohamed is not a party to the loan agreement, although he is the sole director of Bullion Wealth. Fourthly, the moneys ‘lent’ to the borrower would be repayable on demand, not on the happening or fruition of some other investment type event. Fifthly, nothing in the agreement refers to the alleged representations concerning a risk limit of 10 per cent or the use of a ‘stop loss’ trading system. The plaintiffs’ case was based on unwritten representations. Clause 6.1 of the agreement contains a typical ‘whole agreement’ clause which states:
This Loan Agreement represents the whole agreement between the Lender and the Borrower concerning the lending to the Borrower of the Loan. All representations, understandings or prior agreements concerning the Loan are acknowledged as having been waived and of no force or effect whatsoever.
To my mind it was questionable why the plaintiffs’ case as pleaded made no reference to these agreements, but it is not for the Court to be concerned with the conception of a litigant’s case. If the object was to make a case against Mohamed personally for pre-contractual misrepresentations, the apparent fact is that the loan agreement was not made with him. As came to be remarked by Mohamed’s counsel at the hearing of the setting aside application, it may be supposed that lawyers’ thoughts turned to conceiving a cause of action outside the loan agreement so as to enable the imposition of personal liability against Mohamed by means of a case in accessorial liability for contraventions under the Australian Consumer Law. As things stand, the plaintiffs are not making a case that the alleged representations made personally by Mohamed induced them to make the loan agreement.
In those circumstances, on the hearing of the assessment of damages, the Court took the view that Mohamed should not be deprived of an opportunity to apply to set aside the default judgment, but in a proper manner and on proper materials. But, as this was happening belatedly, and things had come so far, I proceeded to make an assessment of the damages on the basis that execution on the judgment would be stayed pending the hearing and determination of any application to set aside the judgment. The assessment of damages was a straightforward exercise of treating as admitted all the allegations concerning the deposit of moneys by the plaintiff with the defendants for investing, the actual amount, and the complete loss. This was safe as none of this was disputed by Mohamed; not the figures or the application of the money to commodities trading; and the complete loss of the money. The assessment therefore was referrable to the amounts identified in the statement of claim, which were also verified by affidavits. The assessment and the judgment on that assessment stands or falls according to the outcome of the application to set aside.
On 12 February Mohamed applied to set aside the freezing order and soon appointed lawyers to act for him. For the purposes of that application, Mohamed swore a second affidavit on 12 February 2018 parts of which are relevant for this application. In it, he states that Ali Abou‑Eid and he had been friends for more than 20 years. Ali Abou‑Eid was his accountant and the principal of an accounting practice known as Taxline in Sydney Road, Coburg. Taxline had given Bullion Wealth a sub-lease of part of its premises. He says that Bilal Abdulkhalek is a friend of Ali Abou‑Eid and someone he, Mohamed, has known for more than five years. The fourth plaintiff, Nabil El Daouk, is an accountant working at Taxline. He says two other things of importance. First, the unsecured loan agreement made with Farah KAA Investments was prepared by Ali Abou‑Eid. The two other agreements appear to be in the same form. Secondly, he says that after Ali Abou‑Eid made his advance under the loan agreements, Ali Abou‑Eid continued to review the bank and trading accounts for Bullion Wealth on a monthly basis.
I turn now to the application to set aside the judgment.
The application to set aside the judgment.
This application was filed on 19 February 2018. Although the summons was filed on behalf of both defendants, order were made on the day of hearing to amend the summons to make it an application by Mohamed, the second defendant. The supporting material was an affidavit of Mohamed sworn 19 February 2018. His affidavit asserts he believes he has a complete defence in the matter. He states:
The plaintiffs’ claims, as drafted, do not resemble the written agreements entered into by the parties in any respect. The plaintiffs each claim the existence of oral agreements and representations which are not reflected in the documents. For example, each of the agreements are unsecured loan agreements by which each of the plaintiffs lent money to the first defendant BWI. Their pleading makes no reference to these agreements, instead building misrepresentation and misleading and deceptive conduct claims to enforce their claims against me personally when the proper defendant is BWI alone.
He exhibits a draft defence prepared by counsel who appeared on the application, Mr Badali. In substance, the draft defence counter-pleads the three loan agreements, as well as an addendum to a loan agreement dated 24 December 2016 signed by Ali Abou-Eid to make further loans. The defence admits the paying over of moneys by the plaintiffs but says they were loans under the loan agreements. On the allegation of the fraudulent representations in paragraph 16 of the statement of claim, they are denied, with the added exception taken that the allegation is vague and embarrassing as not enabling the defendants to properly plead to the allegation made. The particulars of the plaintiffs’ allegation state ‘The warranties and representations were oral, and consisted of numerous repeated statements made by Mohamed on behalf of Bullion Wealth to the effect alleged’.
Pausing there, first, I can accept the plaintiffs’ submission that on these applications the Court acts on sworn evidence of a proposed defence. But I will say that in a misrepresentation case (indeed a fraudulent misrepresentation case) based wholly on conversations, the particulars are manifestly inadequate. One does not plead to particulars, but I think elaborate particulars were called for in a case of this nature to attract meaningful engagement on the pleadings in aid of eventual trial. Secondly, and more importantly the allegations of the representations have been made in a way that is inextricable from the allegation of the unwritten agreement to invest, as the plaintiffs would have it. But, Mohamed disputes unequivocally such an agreement. He puts up, in black and white, the signed written agreements. And there is the problem, which is something more than technical or a pleading point. The question is: What was the agreement, prior to which representations were made, on the faith of which the plaintiffs entered into those contractual relations? Identifying the agreement also goes to remedy.
In the draft defence the only engagement on the allegation of representations is to raise the ‘whole agreement’ term in clause 6.1 of each loan agreement. That clause is expressed to nullify any prior representations. Therefore, I take it what is being said is that, without Mohamed having to give the Court on this application at least his response concerning the alleged representations that were made before the making of an agreement which Mohamed disputes, the representations as alleged are in any case of no legal force.
There are authorities establishing that such a clause cannot defeat liability for misleading and deceptive conduct.[14] It is not operative to defeat an action in deceit as it exacerbates the deception. As was stated by the High Court of Australia stated in Campbell v Back Office Investments[15] —
[14]See Heydon, Trade Practices Law, Competition and Consumer Law (2017 Thomson Reuters, Loose Leaf Service) [160.1170].
[15](2009) 238 CLR 304, 348 (Gummow, Hayne, Heydon and Kiefel JJ).
…neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance upon pre-contractual representations will necessarily prevent the provision of misleading information before a contract was made constituting a contravention of the prohibition against misleading or deceptive conduct by which loss or damage was sustained.
But such a clause can go the question of reliance and causation as a Court goes about looking at conduct as a whole not divorced from disclaimers. In Campbell v Back Office Investments French CJ said:[16]
Where the impugned conduct comprises allegedly misleading pre contractual representations, a contractual disclaimer of reliance will ordinarily be considered in relation to the question of causation. For if a person expressly declares in a contractual document that he or she did not rely upon pre-contractual representations, that declaration may, according to the circumstances, be evidence of non-reliance and of the want of a causal link between the impugned conduct and the loss or damage flowing from entry into the contract. In many cases, such a provision will not be taken to evidence a break in the causal link between misleading or deceptive conduct and loss. The person making the declaration may nevertheless be found to have been actuated by the misrepresentations into entering the contract. The question is not one of law, but of fact.
[16](2009) 238 CLR 304, 321[31] (French CJ).
Thirdly, the defence challenges the allegation that the plaintiffs relied upon the alleged representations made by him. He says:
However, they make no reference to having had complete access to all of my transaction and trading accounts through my accountants and tax agents, Tax Line Group Pty Ltd (Tax Line) nor having relied upon their own skill and judgment when making decisions about the making of unsecured loans to BWI.
Fourthly, he says that the loans which attracted an interest rate of 24 per cent reflects the risks associated with making an unsecured loan. But, for the purposes of this application, no-one is saying the loans were secured. The insinuation seems to be that with such a spectacularly high rate of return the plaintiffs must have realised this was a very risky venture in which to place so much money.
Counsel for the plaintiffs submitted that nothing in Mohamed’s affidavit addresses at all what his defence is to the case put against him personally that he made representations that:
(a) he used a stop loss trading system that guaranteed a risk of no more than 10 per cent;
(b) the stop loss trading system was Halal and therefore complied with Islamic Shariah law; and
(c) the stop loss trading system meant that investments would not be exposed to a loss of more than 10 per cent.
Nor, it was submitted, has he responded to the allegations of the fact that he knew the representations were false because another client, Ibrahim Soliman, had already lost an investment of USD42,000 when using the stop loss trading system.
I agree that Mohamed’s affidavit, if it was to cogently show the Court that he had an arguable defence to the misrepresentation case should have stated a response even though he would be responding to alleged misrepresentations made prior to an oral agreement which he says was an agreement that was not made. Despite the absence of adequate particulars, he could have dealt with the allegation by swearing, proportionately to the undetailed allegation, what he says by way of defence to that part of the case. He might, as part of the cogency, have given some evidence about what representations he says he did make if he wishes to say they were true or were based on reasonable grounds. But I am not hearing a trial.
When the Court pressed Mohamed’s counsel about the absence of such evidence, an application was eventually made for an adjournment in order to consider adducing such evidence. After I adjourned the Court to consider briefly the opposed adjournment application, counsel for Mohamed stated that the adjournment application was withdrawn. The absence of any evidence about the representations, alongside the countervailing evidence of the loan agreements has to be considered according to the principles governing these applications.
The Court’s approach to applications to set aside judgments is well known. I take leave to repeat the applicable principles as stated in JRC Enterprises Pty Ltd v Zoom Lion Australia-New Zealand Pty Ltd:[17]
… Assuming the judgment was regularly entered (as this one was) the appellate authorities have endorsed the principle that if merits are shown it is undesirable to let a judgment pass on which there has been no proper adjudication: see Lubura.[18] The language of the test varies but if a ‘defence on the merits’ or a ‘prima facie defence’ or ‘some defence’ or ‘adequate defence’ is shown, the courts say the strength or weakness of the case does not matter, for it is not the function of the judge on the application to decide whether the defence would succeed. There will usually be matters of facts to be investigated, and it will be a miscarriage of discretion to make decisions about the credibility of factual assertions made by the defendant: see Lou v Citic Australia Commodity Trading Pty Ltd.[19]
A contiguous principle in forming the exercise of the discretionary judgment is whether the defendant has given an adequate explanation for the failure to file an appearance. The cogency of the explanation can reflect on the merits of the defence. A procedural default attributable to a mistake has been accepted as an adequate reason, but it depends on the particular facts, or the true nature of the mistake. In Lubura[20] the Court of Appeal accepted that ‘a plasterer from Noble Park with a non-English speaking background’ might not have understood the difference between a criminal proceeding and a civil proceeding, especially when, as in that case, both proceedings were based on the same facts. Absent a testing by cross‑examination, a disbelief of an explanation given from which a conclusion is then reached that a defendant deliberately disregarded a legal obligation under court process, could miscarry unless it could be said that there was no other conclusion open on the evidence.
But the absence of a sufficient reason for the procedural default does not necessarily mean that the application to set aside the judgment must fail.[21] What dominates, in the end, is whether the defendant is able to show a prima facie defence on the merits. If so, the law’s attitude is not to inflict the serious prejudice of preventing a defendant from defending the claim especially if there is no actual prejudice to the plaintiff. The only compensatory measure available to the courts is an order for costs in the plaintiff’s favour. In more recent times, that not only includes the awarding of costs on an indemnity basis for costs thrown away but also a requirement that the defendant provide security for the costs payable, and a stay on the order to set aside judgment until the security for costs is lodged: see Lubura.[22]
[17][2013] VSC 646, [6].
[18][2013] VSCA 215 at [4], quoting Kostakanellis v Allen [1974] VR 596.
[19][1999] VSCA 34.
[20][2013] VSCA 215 at [75].
[21]Kostokanellis v Allen [1974] VR 596 at [605].
[22]At [118]-[122].
The Chief Justice in Lubura stated that the test is not all that different from the test for summary judgment.[23]
[23][2013] VSCA 215, [3].
Although there is no evidence from Mohamed about the representations (just as there was no responding evidence from the plaintiffs about the loan agreements), it is impossible to disregard the conspicuous evidence of the loan agreements. They concern the application of borrowed moneys to be applied by Bullion Wealth for commodities trading. The suggestion is that the arrangement involved risk sharing. As things stand, a judgment has been entered against Mohamed based on presumed admissions about some other unwritten agreement, pleaded without adequate particularisation. I have evidence of a written agreement that is certainly distinguishable from the one on which the judgment is based and if Mohamed is correct, it was a written agreement prepared by or for the plaintiffs. If that loan agreement was in truth the agreement by which these parties bound themselves to allow trading in commodities to occur, and a Court so finds, then the plaintiffs’ case that says there were representations inducing a contract that by hypothesis was never made, is a case that cannot be sustained. There is no case put that representations were made by Mohamed preceding the making of the loan agreements.
Counsel for the plaintiffs urges that it is improper for the court to question how the plaintiffs’ lawyers have seen fit to formulate the plaintiffs’ case, and the defendants must on this application show an arguable defence on the case as put against them. That is, if the plaintiffs choose to put a case that is not referable to the loan agreement, then they may do so. They may. But the question for the Court now is whether it is just that Mohamed be allowed to defend such a case on the basis that no such agreement was made and that the contractual relationship was with Bullion Wealth according to written agreements.
Whatever one may care to think about the apparently terrible loss of money the plaintiffs have suffered, and whatever the plaintiffs may say they think of him, Mohamed has the right to say by way of defence that the parties’ legal relationship by which any judgment or relief or remedy should be referable was defined and governed by another agreement altogether. In the way the case has been pleaded (about which I can pass comment), and therefore default judgment given, he could deny the allegation because as an anterior matter he denies the agreement which was allegedly the result of the misrepresentation.
My judgment is that, despite the absence of evidence now about the representations, there is, to adopt an expression that is used in applications for summary judgment, a case to be investigated. Or, to use the language of s 64(b) of the Civil Procedure Act, the dispute is of such a nature that only a full hearing on the merits is appropriate. The plaintiffs cannot point to any actual prejudice in having the judgment set aside and having it determined on its merits, certainly none that outweighs the prejudice in allowing the judgment to stand. Accordingly, I would allow the application to set aside the default judgment. As the application is, in a sense, part heard on the other question of the explanation of the delay, I would propose the following provisional orders:
1. The second defendant’s application is allowed.
2. The default interlocutory judgment for damages to be assessed dated 18 August 2017, is set aside as against the second defendant.
3. The orders made in paragraphs 1, 2, 3 and 4 of the Court’s final judgment for damages and ancillary orders dated 8 February 2018 are set aside as against the second defendant.
4. The second defendant shall file and serve a defence and counterclaim, if any, by [insert date].
5. Any reply be filed and served by [insert date]
In the light of this decision, if the plaintiffs now desist in opposing the application on the ground of an unsatisfactory application then the orders can be made absolute, subject to the following matter.
The plaintiff’s outline of submissions on this application seek, in the event of the judgment being set aside, an order requiring Mohamed to pay the plaintiff’s costs thrown away in the sum of $25,158.81 which I assume includes the costs for the assessment of damages. They also seek an order that the order to set aside judgment be conditional upon Mohamed paying the whole amount of the plaintiff’s claim in court, or alternatively, giving security for the amount claimed.
I would be unwilling to entertain an application requiring Mohamed to pay the whole amount of the claim into Court. The evidence before me is that he would be in no position to do so. Authorities on this question state that such an order should not be made where it is inevitable that it would not be met, meaning that such a conditional order in effect is an order not setting aside the judgment.
However, I would entertain an application that Mohamed give security for the payment of the plaintiffs’ costs that have been incurred in entering judgment; the plaintiffs’ costs of having the damages assessed; and the plaintiffs’ costs of this application. Such an order was made by the Court of Appeal in Lubura v Nezirevic.[24] That case also involved the setting aside of a judgment after an assessment of damages had occurred. In looking to cover the prejudice to a party in having a regularly entered judgment set aside, the Court of Appeal not only ordered the costs to be taxed on the indemnity basis but also ordered the provision of security for such costs, which in that case was for $20,000. Moreover, the Court ordered there be a stay on the order to set aside judgment until the security for costs is posted, and in the event that the security is not given within 30 days, then the order for setting aside judgment will be vacated.
[24][2013] VSCA 215.
I will abstain from making any orders without giving the parties an opportunity to be heard. To that end, my Associate will be in contact with the parties to arrange for a suitable date to hear submissions on final orders.
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