Fusia Limited v Neoside Pty Ltd - [2005] WASC 228

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: FUSIA LIMITED -v- NEOSIDE PTY LTD & ORS [2005] WASC 228

CORAM: MASTER NEWNES

HEARD: 15 AUGUST 2005

DELIVERED : 2 NOVEMBER 2005

FILE NO/S: CIV 1720 of 2004

BETWEEN: FUSIA LIMITED (ACN 009 805 298)
Plaintiff
AND
NEOSIDE PTY LTD (ACN 007 442 579)
First Defendant
JOHN WESLEY FLETCHER
Second Defendant
GEOFFREY JOHN RUBYTHON
Third Defendant

Catchwords:

Practice and procedure - Application to set aside judgments - Contract for purchase of shares - Purchaser failed to complete - Whether vendor entitled to judgment against purchaser for purchase price as liquidated sum - Whether vendor entitled to judgment against guarantors for amount of purchase price - Whether judgments regularly entered - Factors relevant to exercise of discretion to set aside regularly entered default judgment - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 439A, s 611, Pt 5.3A

Result:

Judgments set aside

Category: B

Representation:

Counsel:

Plaintiff:     Mr S Penglis
First Defendant             :     Mr J Eastoe
Second Defendant         :     Mr J Eastoe
Third Defendant           :     Mr J Eastoe

Solicitors:

Plaintiff:     Freehills
First Defendant             :     Jonathan Eastoe
Second Defendant         :     Jonathan Eastoe
Third Defendant           :     Jonathan Eastoe

Case(s) referred to in judgment(s):

Australia & New Zealand Banking Group Ltd v Luck (1995) 4 Tas R 328
Building Guarantee and Discount Co Ltd v Dolejsi [1967] VR 764
City Mutual Life Assurance Society Ltd v Giannarelli [1977] VR 463
Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52
Crayden v Ottaviano [2003] WASCA 20
Evans v Bartlam [1937] AC 473
Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210
Harry Davies and Co Pty Ltd v East [1925] VLR 681
Kostokanellis v Allen [1974] VR 596
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441
Reynolds v Fury [1921] VLR 14
Rosing v Ben Shemesh [1960] VR 173
Ruddenklau v Charlesworth [1925] NZLR 161
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Troiani v Alfost Properties Pty Ltd [2002] QCA 281
Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239

Case(s) also cited:

Aboyne Pty Ltd v Dixon Homes Pty Ltd [1980] Qd R 142
BlackClawson International Ltd v Papierwerke WaldhofAschaffenburg AG [1981] 2 Lloyd's Rep 446
Citicorp Australia Ltd v Hendry (1985) 4 NSWLR 1
City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146
Commissioner of Taxation v Coulson (1995) 56 FCR 506
Farrow Mortgage Services Pty Ltd (In Liq) v Victor Tunevitsch Pty Ltd & Ors, unreported; SCt of Tas (Crawford J); Library No 9400421; 8 July 1994
Heller Financial Services Ltd v Roman Solczaniuk [1989] NTSC 36
JC Williamson Ltd v Lukey (1931) 45 CLR 282
Kylsilver Pty Ltd v One Australia Pty Ltd [2001] NSWSC 611
PrusButwilowicz v Moxey [2002] QDC 166
R T Co Pty Ltd v Minister of State for the Interior (1957) 98 CLR 168
Roehampton Developments Pty Ltd (In Liq) v FAI General Insurance Company Ltd [2000] WASC 235
SDS Corporation Ltd v Pasdonnay Pty Ltd [2004] WASC 26 (S2)
Smith v Western Metals Copper Ltd & Ors [2003] QDC 6
Teague v Phillis [2003] QDC 346
Wood Hall Ltd v Pipeline Authority [1979] HCA 21
Yankee Doodles Pty Ltd v Blemvale Pty Ltd [1999] QSC 134
Yuruga Nursery Pty Ltd v Australian Tea Tree Management Ltd & Ors [2000] QSC 297

MASTER NEWNES: This is an application by the defendants to set aside judgments entered against them, summary judgment having been obtained by the plaintiff against the second and third defendants in the sum of $9,631,000 plus interest, and judgment in default of appearance against the first defendant for the same amount. The second and third defendants did not appear in person or by counsel on the hearing of the application for summary judgment.
The present application was argued before me on 15 August 2005, but I gave leave to the defendants to file an affidavit in answer to a late affidavit filed on behalf of the plaintiff, and any further submissions, by 29 August and to the plaintiff to file any further submissions by 12 September. The defendants' further affidavit and submissions were filed on 30 August and the plaintiff's further submissions on 6 September 2005.
The defendants seek to set aside the judgments on the ground that the default judgment against the first defendant was irregularly entered, being a judgment for a liquidated sum whereas it is said the claim is in truth a claim for specific performance, and on the further ground that each of the defendants has a good defence to the plaintiff's claim.
It is convenient first to set out the circumstances giving rise to the plaintiff's claim against the defendants.
The plaintiff was at all material times until December 2003 known as Tennyson Networks Ltd. The plaintiff was from about 1996 involved in the development of a product known as "Smart Office Exchange" ("SOX"), comprising software and intellectual property which integrated voice, facsimile, voicemail, data and internet communications in small offices. A wholly owned subsidiary, Tennyson Technologies Pty Ltd, owned the SOX technology and designed and manufactured the SOX PBX digital telephony system and supplied certain hardware, licences and support services to the plaintiff. Datareach Limited was a wholly owned subsidiary of Tennyson Technologies Pty Ltd.
The second and third defendants are directors of the first defendant ("Neoside"). According to Mr Rubython, he and Mr Fletcher became interested in acquiring, through Neoside, a controlling interest in the plaintiff in order to develop and market what are described as "VoiP" telephony products. They considered that the SOX technology and the research and development staff of Tennyson Technologies Pty Ltd would provide an ideal platform for the development, manufacturing and marketing of the "VoiP" telephony products.
On 16 July 2003, Neoside entered into a subscription agreement with the plaintiff pursuant to which, in essence, Neoside agreed to subscribe for 391,040,000 shares in the plaintiff for the sum of $9,776,000 (the "Subscription Amount"). The issued shares of the plaintiff at that time totalled 170,926,958, so the issue of the further shares would increase the issued capital to 561,966,958 shares. Neoside would then hold approximately 70 per cent of the issued shares in the plaintiff. Upon execution of the subscription agreement, the second and third defendants became directors of the plaintiff and remained so until 24 December 2004.
The subscription agreement was subject to certain conditions precedent, including a condition that the shareholders of the plaintiff duly pass in general meeting any necessary resolutions to approve the issue of the shares to Neoside, including a resolution pursuant to s 611 of the Corporations Act 2001 (Cth).
Clause 4.1 of the subscription agreement provided that, subject to satisfaction of the conditions precedent, "Completion must take place at the offices of [the plaintiff] on the Completion Date unless otherwise agreed by the parties". Under the subscription agreement "Completion" was defined to mean completion of the obligations of the parties under cl 4. "Completion Date" was defined to mean the date that was two business days after the date of the general meeting of the plaintiff to consider the resolutions approving the issue of the shares to Neoside.
The obligations of the parties under cl 4 of the subscription agreement were as follows:
"…
4.2Subscriber's obligations at Completion
At Completion [Neoside] must pay to [the plaintiff] the Subscription Amount in Immediately Available Funds.
4.3Tennyson's obligations at Completion
Subject to [Neoside's] performance of its obligations under clause 4.2, at Completion [the plaintiff] must:
(a)allot and issue the Subscription Shares to [Neoside]; and
(b)update [the plaintiff's] register of members accordingly.
4.4Conditions of Completion
(a)Completion is conditional on both [the plaintiff] and [Neoside] complying with all of their obligations under this clause 4.
(b)If any party fails to comply with all its obligations under this clause 4 and those obligations are not waived by the other party then:
(1)each party must return to the other all documents delivered to it under this clause 4;
(2)each party must repay to the other all payments received by it under this clause 4;
(3)each party must do everything reasonably required by the other party to reverse any action taken pursuant to this clause 4; and
(4)any agreement entered into in accordance with this clause 4 will be of no effect,
without prejudice to any other rights any party may have in respect of that failure.
4.5Subsequent obligations on Tennyson
[The plaintiff] will apply for and use its best endeavours to obtain Official Quotation of the Subscription Shares by the ASX as soon as possible after the Completion Date.
4.6Bound by constitution
[Neoside] agrees to be bound by the constitution of [the plaintiff] in relation to the Subscription Shares."
Under the terms of the subscription agreement, the second and third defendants (defined as the "Guarantors") guaranteed performance of the first defendant's obligations. Clause 6 of the subscription agreement provided as follows:
"6.1 Guarantee
The Guarantors unconditionally and irrevocably guarantee to [the plaintiff]:
(a)the payment of the Guaranteed Moneys; and
(b)the performance of [Neoside's] obligations under this agreement.
6.2Payment
If the Guaranteed Moneys are not paid when due, the Guarantors must immediately on demand from [the plaintiff] pay to [the plaintiff] the Guaranteed Moneys in the same manner and currency as the Guaranteed Moneys are required to be paid.
6.3Performance
If [Neoside] fails to perform its obligations under this agreement when they are due, the Guarantors must immediately on demand from [the plaintiff] cause [Neoside] to perform its obligations under this agreement.
6.4Indemnity
(a)If any of the Guaranteed Moneys (or amounts which would have been Guaranteed Moneys had they not been irrecoverable) are:
(1) irrecoverable from [Neoside]; and
(2)not recoverable by [the plaintiff] from the Guarantors on the basis of a guarantee,
the Guarantors as a separate and principal obligation:
(3)indemnify [the plaintiff] against any loss, damage or liability of any kind suffered, paid or incurred by [the plaintiff] in relation to the non-payment of those amounts; and
(4)must pay to [the plaintiff] an amount equal to those amounts.
(b)The Guarantors indemnify [the plaintiff] against any loss, damage or liability of any kind suffered, paid or incurred by [the plaintiff] in relation to:
(1)[Neoside's] failure to perform its obligations under this agreement; or
(2)the Guarantors' failure to cause [Neoside] to perform its obligations under this agreement.
6.5Joint and several obligations
The obligations and liabilities of the Guarantors under this clause 6 are joint and several."
The "Guaranteed Moneys" are defined to mean all monetary obligations of Neoside to the plaintiff, including the Subscription Amount.
On 8 August 2003, Neoside and the plaintiff entered into a facility agreement by which Neoside agreed to lend to the plaintiff an amount of up to $2,000,000 to assist in the payment of the plaintiff's debts to its existing financiers and to provide working capital. The sum so advanced could be set off against the Subscription Amount. The facility agreement provided that the insolvency of the plaintiff, or the appointment of a controller to its assets, were events of default. In the event of default by the plaintiff, the total amount advanced by Neoside would become immediately due and payable.
According to the defendants, Neoside advanced the sum of $145,000 to the plaintiff under the facility agreement. The amount of the judgment sum in this action of $9,631,000 is the Subscription Amount less that sum.
By notice dated 26 September 2003, the plaintiff gave notice to its shareholders of a general meeting to be held on 31 October 2003 to consider the resolutions required by the subscription agreement. The notice to shareholders said that the funds to be raised under the proposed placement to Neoside were necessary for working capital requirements to:
(a)fund the data services business of Datareach Ltd operating in New Zealand, following its acquisition by Tennyson on 30 June 2003;
(b)fund the SOX business of Tennyson Technologies Pty Ltd, including a new strategy to upgrade core technology, expand the SOX product range and implement marketing and sales initiatives to expand distribution in the Australian and overseas markets;
(c)fund expected requirements for new staff, new stock and new equipment in the SOX business; and
(d)fund the head office management and co-ordination costs arising from Tennyson's expanded activities.
The notice contained a description of Neoside's proposed business plan after it acquired the shares in the plaintiff. That business plan included to "upgrade the SOX business core technology, add new technologies and expand the SOX product range to better supply existing sectors serviced by the business as well as create new market opportunities", to "upgrade the SOX business and marketing and sales operations …" and to "realize the technological synergies of the Datareach and SOX businesses to promote each other's product range". The notice said, among other things, that subject to the results of a strategic review, it was the intention of Neoside to continue the plaintiff's business and those of its subsidiaries in substantially the same manner as they were currently being conducted.
The defendants contend that the references in the notice to Neoside's business plan are consistent with an agreement made between the parties that both Tennyson Technologies Pty Ltd and Datareach would be retained as fully functioning businesses, an agreement which the plaintiff has breached. The plaintiff denies that there was any such agreement and says that, in any event, the only reason the plaintiff was unable to proceed in that way was that Neoside did not provide the funds payable by it under the subscription agreement.
In the notice to shareholders, the chairman of the plaintiff said that the funds to be obtained from the placement to Neoside were critical to the ongoing operations of the plaintiff's business. Without the funds the plaintiff would require urgent funding from an alternative source and, should that not be immediately available, the directors would need to consider whether the plaintiff should be placed into voluntary administration.
In fact, on 14 October 2003 administrators were appointed to the plaintiff, and to Tennyson Technologies Pty Ltd, under Pt 5.3A of the Corporations Act.
The meeting of shareholders of the plaintiff was nevertheless held on 31 October 2003 and the resolutions were duly passed. Pursuant to the terms of the subscription agreement, the Completion Date was therefore 2 November 2003. It was not in issue that Neoside was unable to perform its obligations in relation to Completion on that date and that Completion has not occurred. There was, however, no evidence as to what, if any, communications occurred prior to or on 2 November 2003 in respect of Neoside's inability to complete the subscription agreement or what, if anything, occurred on that date.
On 10 November 2003, Neoside wrote to the administrators saying that Neoside expected to have the necessary funds to complete the transaction within 14 days.
In a report to creditors dated 28 November 2003, for the adjourned second meeting of creditors which was to be held on 8 December 2003, the administrators advised of a proposal for the recapitalisation of the plaintiff to be effected by deeds of company arrangement in respect of both the plaintiff and Tennyson Technologies Pty Ltd. The proposal, in essence, was that a syndicate, represented by Ascent Capital Pty Ltd, would acquire a controlling interest in the plaintiff and the SOX technology. The SOX technology would be acquired by the plaintiff from Tennyson Technologies Pty Ltd for the sum of $365,000 and the issue of 5,000,000 shares in the plaintiff to the deed administrator of Tennyson Technologies Pty Ltd for the benefit of creditors. The sum of $365,000 was to be applied, first, in discharge of a secured debt owed to National Australia Bank, and the balance would be applied to payment equally to creditors of the plaintiff and Tennyson Technologies Pty Ltd.
Under the proposal, the plaintiff's share capital was to be consolidated on a 10:1 basis. Following that consolidation there were to be placements of new equity. Ascent Capital was to pay the sum of $2000 for 20,000,000 ordinary shares in the plaintiff, an amount of $1000 for 34,000,000 options exercisable at 1 cent each, and an amount of $200,000 for 90,000,000 shares. There was also to be a general placement of shares in the plaintiff to raise not less than $1,250,000.
The administrators advised that, in addition, action was to be commenced against Neoside under the subscription agreement to recover the money payable by Neoside and the net proceeds were to be distributed among creditors of the plaintiff and Tennyson Technologies Pty Ltd. The proposed deeds of company arrangement provided that the deeds would come to an end if Neoside completed the subscription agreement.
On 8 December 2003, Neoside, by the second and third defendants, wrote again to the administrator to provide an update on its position. The defendants said while there had been some delay, funding arrangements were in place to enable the subscription agreement to be completed. They noted that even if the creditors voted in favour of the deeds of company arrangement, the deeds were still subject to shareholder approval and a vote in favour at the creditors' meeting would not prevent completion of the subscription agreement by Neoside. The defendants said that once Neoside's funding was in place they would contact the administrator to determine the mechanism to return control of the plaintiff to the directors and terminate the administration.
At the meeting of creditors of the plaintiff and Tennyson Technologies Pty Ltd held on 8 December 2003, pursuant to s 439A of the Corporations Act, the creditors resolved that each of the companies enter into a deed of company arrangement giving effect to the proposal. The deeds of company arrangement were executed on behalf of the plaintiff, Tennyson Technologies Pty Ltd and Ascent Capital Pty Ltd on 24 December 2003. The plaintiff changed its name to Fusia Ltd on 31 March 2004 and the external administration of the company ceased on 13 April 2004. Subsequently, a prospectus was issued by the plaintiff and the sum of $1,453,000 was raised.
In the meantime, on 9 February 2004, the plaintiff entered into a joint venture agreement with CDM Australia Pty Ltd in respect of the SOX technology business of the plaintiff. The plaintiff has a 49 per cent interest in the joint venture and CDM has 51 per cent.
According to the defendants, Neoside was ultimately unable to obtain the expected funding and as a result was unable to complete the subscription agreement. On 31 May 2004 the plaintiff commenced these proceedings and subsequently obtained the judgments to which I have referred earlier.
The defendants' counsel submitted that when Neoside failed to pay the Subscription Amount and complete the subscription agreement in accordance with its terms, the plaintiff had the option either of terminating the subscription agreement and claiming damages for breach of it, or of affirming the agreement and seeking to enforce it. The plaintiff has sought to enforce it. The plaintiff has, however, put it out of its power to perform the agreement or, at least, it is not currently in a position to perform the agreement.

The defendants contend that the restructuring and recapitalisation of the plaintiff is inconsistent with the plaintiff's obligations under the subscription agreement. They say, among other things, that the issue of the shares specified in the subscription agreement would constitute not, as contemplated, a shareholding in the order of 70 per cent, but would now constitute a shareholding in the order of 95 per cent, having regard to the subsequent consolidation of capital. The defendants also say that the business interests of the plaintiff have changed so fundamentally that the basis upon which the subscription agreement was entered into, as evidenced by the business plan contained with the notice of meeting of 31 October 2003, could not now be implemented.
It was argued too that the plaintiff would, in any event, first need to convene a further shareholders' meeting to obtain a fresh approval under s 611 of the Act. It was submitted that the approval obtained at the meeting on 31 October 2003 would not be sufficient because the basis upon which the subscription agreement was founded has since substantially changed.
It was further argued on behalf of the defendants that, in any event, the subscription money was not due and payable by Neoside when judgment was obtained. The subscription agreement provides that the payment of the subscription money and the allotment and issue of the shares, is to occur on "Completion". Clause 4.4(a) provides that Completion is conditional on both the plaintiff and Neoside complying "with all of their obligations under this clause 4". The plaintiff's cause of action against Neoside was therefore one for specific performance, not debt. The obligation of the second and third defendants, as guarantors, was clearly a secondary obligation and that obligation only arose, pursuant to cl 6 of the subscription agreement, once the Subscription Amount became due and payable, but was not paid, by Neoside.
Counsel for the defendants referred to McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 for the proposition that where a purchaser fails to complete an executory contract the vendor is not entitled to sue for the purchase price as a debt but is entitled only to sue for specific performance or for damages for the loss of the bargain.
Counsel also referred to Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, where it was held that as settlement of a contract for the sale of land had not occurred the purchase price did not become a debt payable by the purchaser to the vendor and, in the absence of an accrued liability on the part of the purchaser to make the payment, it was not recoverable by the vendor from the guarantors.
It was submitted on behalf of the defendants that the plaintiff was not, therefore, entitled to recover the Subscription Amount as a debt without issuing the shares and it could not recover the Subscription Amount under the guarantee while there was no existing liability in the first defendant to pay it. The proper claim of the plaintiff, it was submitted, is either for a decree of specific performance, which would involve issuing the shares in exchange for the Subscription Amount, or, upon termination of the subscription agreement, a claim for damages against the first defendant. In fact, specific performance would no longer be available because the plaintiff is no longer in a position to perform its obligations in accordance with the subscription agreement, the shareholding and business of the plaintiff having since significantly changed.
The plaintiff contended that the general rule referred to did not apply in this case because the subscription agreement expressly provided otherwise. Counsel referred to the judgment of Salmond J in Ruddenklau v Charlesworth [1925] NZLR 161 at 164 ‑ 165 (cited with approval by Dixon J in McDonald v Dennys Lascelles Ltd [supra]) as follows:
"The general rule however that in an executive contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is shown by the express terms of the contract. And it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase price or any part thereof is made payable on a fixed day, not being the agreed day for the completion of the contract by conveyance. In all such cases the purchase money or some part thereof becomes, on the day so fixed for its payment, a debt immediately recoverable by the vendor irrespective of the question of whether a conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated his contract".
Counsel also referred to Reynolds v Fury [1921] VLR 14 at 17 (referred to with approval by Dixon J in McDonald v Dennys Lascelles Ltd [supra]) where the Full Court of the Supreme Court of Victoria decided that instalments of purchase money, which, by the conditions of a contract of sale of land are payable fixed times before conveyance, become immediately recoverable as a debt or liquidated demand, notwithstanding that the sale has not yet been completed by conveyance.
It was argued on behalf of the plaintiff that the obligation of the first defendant in the subscription agreement was to pay the Subscription Amount on a specific day - the Completion Date - and before the issue of the shares, although both events were to occur on the same day. The payment was first to be made by the first defendant to the plaintiff, whereupon the plaintiff would issue the shares to the first defendant. The plaintiff could not allot and issue the shares (which were fully paid shares) until it had received full payment for the shares. The obligation of the first defendant to pay the Subscription Amount was therefore a "stand alone" obligation.
I do not accept the plaintiff's contention that the money payable by the first defendant under the subscription agreement was a separate and distinct obligation from the obligation of the plaintiff to allot and issue the shares. The authorities referred to by the plaintiff refer to circumstances where the relevant obligations of the vendor and purchaser are separate and distinct, not where the one is concurrent or contemporaneous with the other.
In McDonald v Dennys Lascelles Ltd [supra], Dixon J (at 475 ‑ 476) cited with approval the following passage in the judgment of Sir John Salmond in Ruddenklau v Charlesworth [supra] at 164:
"As a general rule, on the failure or refusal of a purchaser to complete an executory contract for the purchase of land the vendor is not entitled to sue for the purchase money as a debt. He is entitled merely to sue for specific performance or for damages for the loss of his bargain. It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly. … The sale of land is in this respect similar to the sale of goods. In the case of goods sold and delivered, and of goods bargained and sold, the property in each case having passed to the buyer, the seller's remedy is to sue for the price. But if under any executory contract the buyer wrongfully refuses to accept the goods the seller's only remedy is an action for damages. The general rule, however, that in an executory contract for the sale of land the vendor cannot sue for the price is excluded whenever a contrary intention is shown by the express terms of the contract. And it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase money or any part thereof is made payable on a fixed day, not being the agreed day for the completion of the contract by conveyance. In all such cases the purchase money or such part thereof becomes, on the day so fixed for its payment, a debt immediately recoverable by the vendor irrespective of the question whether a conveyance has been executed and notwithstanding the fact that the purchaser may have repudiated his contract. Notwithstanding such repudiation the vendor is not bound to sue for damages or specific performance, but may recover the agreed purchase money".
In Sunbird Plaza Pty Ltd v Maloney [supra], the parties had entered into a contract for the sale of a home unit. The purchaser paid a deposit of 10 per cent and the balance of the purchase price was payable "upon settlement". The purchaser subsequently sought to avoid the contract and the vendor successfully sued for specific performance. The purchaser failed to comply with the order whereupon the vendor sued the guarantors and judgment was given against the guarantors for the balance of the purchase price, interest and certain expenses. The High Court held that as the balance of the purchase price was payable "upon settlement", and as settlement had not taken place and there had been no conveyance, the balance of the purchase price had not become a debt payable by the purchaser. As no liability had accrued on the part of the purchaser to make the payment the guarantors, who had promised that the purchaser would perform its obligations including the payment of all money payable under the contract, were not liable to pay an amount equivalent to the balance of the purchase price.
In Reynolds v Fury [supra], a contract for the sale of land provided for payment of the contract price by an instalment of £150 on the signing of the contract, instalments of £100 on 22 April in each of the years 1920, 1921, 1922 and 1923, and the final balance of £642 on 22 April 1924, when the title was to be transferred. Interest was payable on the unpaid purchase price. The plaintiff sued for the instalment of £100 which had not been paid on the due date of 22 April 1920, and interest. The defendant contended that as there had been no conveyance or transfer the plaintiff was not entitled to claim the £100 as a liquidated sum. The Full Court rejected that contention. It held that where a purchaser agrees to pay a sum of money independently of the completion of the sale by conveyance or transfer, the vendor may sue for that money as a liquidated sum. The rule that until conveyance a claim cannot be made for a sum payable under a contract for the sale of land was restricted to cases where the conveyance was a condition precedent to or concurrent with the payment. In that respect, the Full Court observed that its decision would, or might, not extend to the final instalment payable in 1924.
In Harry Davies and Co Pty Ltd v East [1925] VLR 681, Cussen J (who had delivered the judgment of the Court in Reynolds v Fury) reiterated that Reynolds v Fury did not deal with the situation where the payment was concurrent or contemporaneous with the completion of the purchase and the execution of the conveyance. In such situations, the plaintiff could not claim the money as no conveyance had been executed.
In this case, the subscription agreement provides, by cl 4, that Completion must take place on the Completion Date. Completion is defined to mean completion of the obligations of the parties under the agreement. Clause 4 provides that at Completion Neoside must pay to the plaintiff the Subscription Amount and, subject to that payment being made, at Completion the plaintiff must allot and issue the shares. Clause 4.4(a) provides that Completion "is conditional on both [the plaintiff] and [Neoside] complying with all of their obligations under … clause 4".
In my view, the Subscription Amount is not payable by Neoside independently of the plaintiff's obligations to allot and issue the shares, but is payable in exchange for the allotment and issue of the shares. It is not to the point that at Completion, on the Completion Date, Neoside must first hand the Subscription Amount to the plaintiff. For all relevant purposes, the obligation of Neoside is concurrent or contemporaneous with that of the plaintiff and the Subscription Amount is given in exchange for the shares. It follows that as settlement has not taken place, the Subscription Amount has not become a debt due and payable by Neoside.
The question then is whether the judgment entered against Neoside was irregular. I consider that it was. In Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210, the question was whether a judgment for a liquidated demand, where in truth the claim was for an unliquidated demand, was irregular. Debelle J said:
"I have not been able to ascertain any case in which it has been held that entry of judgment on the footing that the judgment is for a liquidated demand, where in truth it is an unliquidated demand, constitutes an irregularity of the kind which requires that the judgment be set aside. Nor have the researches of counsel disclosed such a decision. However, given that there is clear authority that a judgment entered for an amount in excess of the amount actually due is irregularly entered, there are strong reasons for concluding that the judgment in this case was also entered irregularly. For the purpose of this application, I am prepared to assume that it was."
In the present case the plaintiff's claim was expressed in the writ to be for payment of the sum of $9,631,000 in respect of the subscription agreement. Judgment has been entered against Neoside for that amount; that is, for a liquidated sum to which the plaintiff is not presently entitled. In truth, as matters stand, the plaintiff's claim would appear to be for specific performance of the subscription agreement. That, however, is not the relief sought in the action.
The Court does have power to amend a default judgment, even where the application for amendment is made after the defendant has applied to set aside the judgment: Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [supra]; Building Guarantee and Discount Co Ltd v Dolejsi [1967] VR 764; City Mutual Life Assurance Society Ltd v Giannarelli [1977] VR 463; Australia & New Zealand Banking Group Ltd v Luck (1995) 4 Tas R 328. But such a course was not suggested by the plaintiff and in my view it would not be open in this case. Among other things, whether in the circumstances of this case an order for specific performance would be made involves discretionary considerations which could only be determined when the relevant findings of fact have been made.
I would therefore set aside the default judgment against Neoside.
It was submitted on behalf of the plaintiff that it did not follow that if the judgment against Neoside was set aside the judgments against the second and third defendants must also be set aside. The liability of the second and third defendants was a distinct liability that did not depend upon there being a debt due and owing by Neoside. Counsel for the plaintiff argued that even if no debt was currently due and owing by Neoside to the plaintiff, the terms of cl 6.2 make it clear that, the Subscription Amount not having been paid on the Completion Date, that sum thereupon became a debt due and owing to the plaintiff by the second and third defendants.
Counsel for the second and third defendants pointed out that that could have the result that if specific performance were refused and the plaintiff left to a remedy in damages against Neoside, then the second and third defendants, as guarantors, would be liable to the plaintiff under their guarantee of Neoside's obligations for an amount substantially in excess of the liability of Neoside to the plaintiff.
In Sunbird Plaza Pty Ltd v Maloney [supra], Mason CJ described as "a daunting task" the making good of the proposition that the guarantors were liable under their guarantee to pay the balance of the purchase price, in the absence of an accrued liability on the part of the purchaser to make the payment. His Honour observed, however, that a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation of which performance is guaranteed, and it is open to the parties to make such agreement as they choose. Mason CJ went on (at 255):
"If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract."
In that case, the guarantors had guaranteed that the purchaser would make payment of all moneys payable under the contract. Mason CJ found that to the extent the promise fell within the first category referred to, the vendor would have been entitled to sue the guarantors for the balance of the purchase price as a liquidated amount only if that amount had become due and payable by the purchaser. As the balance of the purchase price had not become due and payable by the purchaser, that action was not open to the vendor.
The question in the present case is as to the effect of cl 6.1(a) and cl 6.2 of the guarantee, which were relied upon by the plaintiff as giving rise to the liability of the second and third defendants for the Subscription Amount. By cl 6.1(a), the guarantors "guarantee to [the plaintiff] … the payment of the Guaranteed Moneys …" and by cl 6.2, the guarantors agree that if "the Guaranteed Moneys are not paid when due, the Guarantors must immediately on demand from [the plaintiff] pay to [the plaintiff] the Guaranteed Moneys …"
I do not accept the plaintiff's submission that it is clear beyond argument that in the present circumstances the guarantors are liable under the guarantee for the Subscription Amount. I consider that, among other things, it is arguable that on the proper construction of the guarantee, the Subscription Amount did not became "due" within the meaning of cl 6.2 on 2 November 2003 but only becomes due on Completion. It is common ground that Completion did not occur on 2 November 2003, although, apart from the fact that Completion did not occur (and has not occurred) due to the inability of Neoside to complete, there is no evidence as to what (if anything) happened on that day or what has occurred otherwise in relation to a Completion Date. It is, in my view, arguable that in the absence of an accrued liability of Neoside for the Subscription Amount, the liability of the second and third defendants for the Subscription Amount did not arise under either cl 6.1(a) or cl 6.2.
The question then is whether the judgments entered against the second and third defendant should be set aside. It was not in issue that on such an application the usual factors to be considered are whether the second and third defendants have provided a satisfactory explanation for their failure to appear on the application for judgment, explained any reasons for delay in making the application to set the judgment aside and established that they have an arguable defence on the merits.
In view of my conclusion that the last has been made out, it is necessary to turn now to the first two of those factors.
I consider that the second and third defendants' explanation for their failure to appear on the application for judgment was less than satisfactory. In substance these defendants say they did not have the funds to engage lawyers to provide them with legal advice or to act for them in what the defendants thought would be complex and expensive litigation, or even to defend the applications for summary judgment. They say that they have now obtained legal advice that they have defences available to them that they did not appreciate earlier.
The defendants have not, however, sought to adduce any evidence of their financial circumstances at any relevant time, despite being given every opportunity to do so and the acknowledgement of their counsel at earlier directions hearings that the failure of the defendants to avail themselves of that opportunity may well lead to inferences adverse to them being drawn as to their financial circumstances.

The defendants' counsel submitted that while the evidence may be unsatisfactory in that respect, the defendants should not be precluded from defending the action on that basis in circumstances where they had an arguable defence and there would be no irreparable prejudice to the plaintiff if the judgments were set aside. The plaintiff's counsel, on the other hand, argued that, whilst the Court must weigh up the factors relevant to whether the judgments should be set aside, the defendants' case on the merits was so weak that in the absence of a satisfactory explanation for the delay, the application should be dismissed.
It is, I think, clear that the Court has an unfettered discretion to set aside a judgment which has been entered under O 14 in the absence of the defendant. Order 14 r 12 provides that any "judgment given against a party who does not appear at the hearing of an application under Rule 1 or Rule 6 may be set aside or varied by the Court on such terms as it thinks just". The rule is to precisely the same effect as the rule applicable to setting aside a judgment obtained in default of appearance (O 13 r 10) or in default of defence (O 22 r 10). Although in each case it is usual for a defendant, in applying to set aside a regularly entered judgment, to explain the failure to appear and for any delay in making the application, there is no hard and fast rule to that effect.
In Evans v Bartlam [1937] AC 473, the House of Lords pointed out that since the power to set aside a default judgment, as it is expressed in the rules, is not expressed to be subject to qualifications, the Court should not qualify a discretion that is left unfettered.
In that case, Lord Atkin said (at 480):
"The discretion is in terms unconditional. The Courts, however, have laid down for themselves rules to guide them in the normal exercise of their discretion. One is that where the judgment was obtained regularly there must be an affidavit of merits, meaning that the applicant must produce to the Court evidence that he has a prima facie defence. It was suggested in argument that there is another rule that the applicant must satisfy the court that there is a reasonable explanation why judgment was allowed to go by default, such as mistake, accident, fraud or the like. I do not think that any such rule exists, though obviously the reason, if any, for allowing judgment and thereafter applying to set it aside is one of the matters to which the court will have regard in exercising its discretion. If there were a rigid rule that no-one could have a default judgment set aside who knew at the time and intended that there should be a judgment signed, the two rules would be deprived of most of their efficacy. The principle obviously is that unless and until the court has pronounced judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has only been obtained by failure to follow any of the rules of procedure.
But in any case in my opinion the Court does not, and I doubt whether it can, lay down rigid rules which deprive it of jurisdiction. Even the first rule as to affidavit of merits could, in no doubt rare but appropriate cases, be departed from. The supposed second rule does not in my opinion exist."
To similar effect was the reasoning of Lord Russell of Killowen at 481; he went on at 482:
"The contention no doubt contains this element of truth, that from the nature of the case no judge could, in exercising the discretion conferred on him by the rule, fail to consider both (a) whether any useful purpose could be served by setting aside the judgment, and obviously no useful purpose would be served if there were no possible defence to the action, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained, to which he could have set up some serious defence. But to say that these two matters must necessarily enter into the judge’s consideration is quite a different thing from asserting that their proof is a condition precedent to the existence or exercise of the discretionary power to set aside a judgment signed in default of appearance."
Lord Wright said (at 489):
"In a case like the present there is a judgment, which, though by default, is a regular judgment, and the defendant must show grounds why the discretion to set it aside should be exercised in his favour, the primary consideration is whether he has merits to which the Court should pay heed. If merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication ... The Court might also have regard to the applicant’s explanation why he neglected to appear after being served though as a rule his fault, if any, can be sufficiently punished as to terms of costs or otherwise which the Court in its discretion is empowered by the rules to impose".
Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239 concerned an application to set aside a judgment where the defendant had failed to appear at trial, the rule being described as much stricter than in the case of a default judgment. Jordan CJ (with whom Davidson and Roper JJ agreed) said (at 243 ‑ 244):
"The question is whether, upon the material that has been placed before us, there is a real likelihood that it would be unjust to allow the judgment to stand. If so, it should be set aside on such terms as will minimise the possibility of injustice to the plaintiff. If not, we should not interfere."
The Full Court of Victoria in Rosing v Ben Shemesh [1960] VR 173 said (at 176) that, where a defendant has shown a prima facie defence on the merits, to "refuse the defendant's application [to set aside a default judgment] is to shut him out from ever having his answer tested, and if it be that he has a good answer, a grave injustice will be done to him".
In Kostokanellis v Allen [1974] VR 596, the defendant's application to the County Court to set aside a judgment entered in his absence had been refused on the ground that the defendant had failed to show sufficient reason for his non‑appearance on the return date of the plaintiff's summons for judgment. An appeal to the Full Court was allowed and the judgment set aside. The Full Court, having reviewed a number of authorities, said (at 605):
"What emerges from these authorities is that … what the judge is required to do is to determine what, in his opinion, is the just way in which the court’s discretion should be exercised. To do this must involve weighing up the extent to which the defendant is prejudiced by allowing the order and judgment to stand and the prejudice to the plaintiff in setting them aside. In many cases the situation will be that the plaintiff will not suffer any prejudice that cannot be remedied by an appropriate order as to costs. So far as the defendant is concerned, if he is unable to [show a prima facie defence on the merits], the order and judgment cannot be set aside and there would appear to be little purpose in doing so. On the other hand, if the defendant does show on affidavit a prima facie defence on the merits it would seem that usually he will be seriously prejudiced if he is debarred from being able to present his defence at a trial of the action. One cannot tell until this has been done whether or not the defendant will succeed in such a defence. While it is undoubtedly relevant to the judge to consider what explanation the defendant has for not appearing on the return of the summons of final judgment, the weight to be attached to his explanation will depend upon the circumstances. … However, it does not necessarily follow that if the explanation does not amount to something which can be categorized as a 'sufficient reason' the defendant’s application should fail. It must all depend on the circumstances."
In National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441, McPherson J (at 449) said the most cogent consideration is whether a defendant against whom a default judgment has been entered, has a prima facie defence on the merits:
"It is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending, even though a lengthy period of time had elapsed provided that no irreparable prejudice is thereby done to the plaintiff."
That case was referred to with approval by the Full Court of this Court in Crayden v Ottaviano [2003] WASCA 20 at [53].
In Troiani v Alfost Properties Pty Ltd [2002] QCA 281, McPherson AJ described the defendants' explanation for their delay in applying to set aside a default judgment as "[u]nimpressive", but noted that much less significance is now ascribed to delay than may have been the case in the past. His Honour went on:
"It should always be borne in mind in matters of this kind that a refusal to set aside a judgment has the consequence that a plaintiff succeeds in obtaining and retaining a judgment, sometimes for a substantial sum of money, in an action in which the defendants may, as in this case, have been found to have a plausible defence on the merits which is never tried. That is an unusually heavy sanction for delay and one that, in the context of the finding here that there is a defence on the merits, should not be imposed in the present case."
In Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52, Williams JA (with whom de Jersey CJ and McPherson JA agreed) reiterated (at [16] ‑ [19]) that it is not the law that an applicant seeking to have a default judgment set aside must establish each of three matters, namely, provide a satisfactory explanation for the failure to appear, establish no unreasonable delay in making the application, and demonstrate that it has a prima facie defence on the merits, before the discretion to set aside the judgment can be exercised. His Honour referred to the wide discretionary nature of the power to set aside a judgment and the significance which courts in recent times have placed on the fact that the applicant is able to demonstrate an arguable defence on the merits. His Honour referred with approval to the passage from the judgment of McPherson J in National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [supra], which is set out above.
The discretion to set aside a judgment obtained in the absence of a party is therefore to be exercised as the justice of the case requires in the circumstances. But generally the dominant considerations will be whether the defendant has a prima facie defence on the merits and whether irreparable prejudice would be caused to the plaintiff if the judgment were set aside.
In the end, I consider that in the circumstances of this case, issues of the defendants' failure to appear and delay should not preclude the defendants from defending the plaintiff's claim on the merits. The amount involved is very substantial, I am satisfied that these defendants have an arguable defence and it does not appear that the plaintiff will suffer irreparable prejudice if the judgments are set aside. While the explanations for the second and third defendants' failure to defend the proceedings and their delay in bringing this application are less than satisfactory, I consider that to deny them the opportunity to defend the claim would be too onerous a sanction.
I would therefore set aside the judgments against the second and third defendants. I do not consider that, as submitted by the plaintiff, if the judgments were set aside that should be conditional upon the defendants paying the amount in issue into Court.
I will hear the parties on the appropriate form of orders and on costs, and on any directions that may be sought to advance the action.