Gold Dealers Exchange Pty Ltd v Williams
[2022] VSCA 277
•14 December 2022
| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2022 0027 |
| GOLD DEALERS EXCHANGE PTY LTD (ACN 611 812 536) | Applicant |
| v | |
| REECE WILLIAMS | Respondent |
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| JUDGES: | KYROU and WALKER JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 25 November 2022 |
| DATE OF JUDGMENT: | 14 December 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 277 |
| JUDGMENTS APPEALED FROM: | [2022] VCC 120 (Ruling); [2022] VCC 209 (Costs) (Judge A Ryan) |
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PRACTICE AND PROCEDURE – Judgment in default of appearance – Whether judge erred in concluding that respondent had arguable defences – Leave to appeal refused.
PRACTICE AND PROCEDURE – Costs – Whether judge erred in ordering applicant to pay respondent’s costs upon setting aside applicant’s default judgment against respondent – Leave to appeal refused.
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| Counsel | |||
| Applicant: | Mr JG Levine | ||
| Respondent: | Mr TL Bevan | ||
Solicitors | |||
| Applicant: | Matrix Legal | ||
| Respondent: | Colin Biggers & Paisley | ||
TABLE OF CONTENTS
Introduction and summary
Facts and procedural history
Offer sheet, loan agreement and ‘pink book’
Respondent’s default, commencement of proceeding and default judgment
Events after the default judgment
Respondent’s evidence
Applicant’s evidence
Judge’s reasons
Grounds of appeal
Grounds 5 and 17: Penalty
Grounds 4 and 6: Security
Ground 7: Quantum
Ground 16: Setting aside default judgment in part
Grounds 9 to 15: Costs
Ground 8: Adequacy of the judge’s reasons
Grounds 1 and 3: Defence of non est factum
Ground 2: Evidentiary ruling
Conclusion
KYROU JA
WALKER JA:
Introduction and summary
The applicant, Gold Dealers Exchange Pty Ltd, conducts a business of buying gold, other precious metals and jewellery, and providing finance. Its director is Nigel Kukulka and its chief executive officer is Michael Kukulka.
The respondent, Reece Williams, is a gold dealer who trades under the name ‘Melbourne Gold Exchange’. His business consists primarily of buying and selling gold, other precious metals and jewellery.
In 2018, the respondent began to borrow money from the applicant on an unsecured basis.
On 28 February 2019, the respondent signed a loan offer sheet to enable him to borrow funds from the applicant (‘offer sheet’). The offer sheet provided for a rate of interest of 2 per cent per month for secured borrowings, 4 per cent per month for unsecured borrowings and a default rate of 10 per cent per month. The offer sheet also provided that a formal loan agreement would be prepared for execution by the parties.
On approximately 14 March 2019, the respondent signed a loan agreement that was prepared by the applicant’s solicitor to give effect to the offer sheet (‘loan agreement’). However, the loan agreement specified a default rate of 12 per cent per month.
After 28 February 2019, the applicant made advances to the respondent at his request from time to time. The respondent provided some security in the form of gold and other precious metals (‘security items’).
From about 10 April 2020, the respondent ceased making payments to the applicant.
It appears that, in November 2020, the applicant sold the security items for $137,014.90, inclusive of GST.
On 6 April 2021, Nigel Kukulka signed a certificate stating that the respondent was indebted to the applicant in the sum of $497,635.[1] The certificate did not specify which part of this sum constituted principal and which part constituted interest.
[1]As stated at [44] below, Nigel Kukulka signed a further certificate sometime between 7 December 2021 and 27 January 2022.
On 9 April 2021, the applicant filed a writ in the County Court claiming the sum of $497,635 pursuant to the loan agreement. The writ was served on the respondent on 30 April 2021.
As the respondent did not file an appearance within 10 days of being served with the writ, on 28 May 2021 the applicant obtained default judgment for the amount of $508,086.98, comprising the claimed sum of $497,635, interest of $6,680.58 and costs of $3,771.40.
By summons dated 18 October 2021, the respondent applied to set aside the default judgment.
On 7 December 2021, a judicial registrar dismissed the respondent’s summons and ordered him to pay the applicant’s costs of the summons.
On 21 December 2021, the respondent applied for a review of the judicial registrar’s decision pursuant to r 84.03(3) of the County Court Civil Procedure Rules 2018 (‘Rules’).
On 17 February 2022, a judge decided to set aside the default judgment and to grant the respondent leave to defend on the basis that he had ‘done enough to raise a prima facie defence on the merits’.[2] She held that there were triable issues regarding: the defence of non est factum; whether the value of the security items was equal to or exceeded the amount claimed by the applicant; whether the quantum of the amount claimed could be substantiated from the applicant’s records; and whether the interest component of the amount claimed involved a penalty.
[2]Gold Dealers Exchange Pty Ltd v Williams [2022] VCC 120 (‘Judge’s substantive decision’).
On 4 March 2022, the judge decided that the applicant should pay the respondent’s costs of the application for review.[3] She found that, when the applicant obtained the default judgment, it was aware that the respondent was legally represented and intended to defend the proceeding.
[3]Gold Dealers Exchange Pty Ltd v Williams [No 2] [2022] VCC 209 (‘Judge’s costs decision’).
On 4 March 2022, the judge made an order giving effect to her two decisions.
The applicant has sought leave to appeal against the judge’s order on 17 grounds of appeal.[4] Those grounds are set out at [73] below.
[4]In these reasons, proposed grounds of appeal are referred to as grounds of appeal.
For the reasons that follow, the application for leave to appeal will be refused.
Facts and procedural history
Offer sheet, loan agreement and ‘pink book’
In 2018, the respondent began to borrow money from the applicant on an unsecured basis to support his business. It appears that, prior to the execution of the offer sheet on 28 February 2019, the amount borrowed totalled $248,000.[5]
[5]See [27] below.
In early 2019, the respondent requested the applicant to permit him to take out another large loan for a long term at an interest rate of 2 per cent per month.
The applicant’s solicitor prepared the offer sheet containing the interest rates set out at [4] above. The offer sheet set out the following further relevant provisions:
(a)The loan amount was described as ‘$100k unsecured / Unlimited Secured’.
(b)The loan term was described as ‘Until 30 days notice [is] given at any point or after 30 days of non payment’.
(c)Interest was payable weekly in arrears.
(d)The security was described as ‘Gold … at 93% of its value’.
(e)Formal loan documents would be prepared upon the respondent signing the offer sheet.
Michael Kukulka went through the offer sheet with the respondent before the respondent signed it.
The applicant’s solicitor prepared the loan agreement approximately two weeks after the respondent signed the offer sheet. Consistent with the offer sheet, the loan agreement specified a rate of interest of 2 per cent per month for secured borrowings and 4 per cent per month for unsecured borrowings. However, unlike the offer sheet which specified a default rate of 10 per cent per month, the loan agreement specified a ‘Default Interest Rate’ of 12 per cent per month. Other relevant provisions of the loan agreement were as follows:
(a)The schedule stated that the ‘Facility Limit’ was $500,000, that the security was ‘Precious metal in the form of gold’, and the ‘Repayment Date’ was ‘On Demand by giving 30 days’ notice in writing’. Next to the item ‘Drawdown Date’ appeared the expression ‘N/A’.
(b)In cl 1:
(i)‘Advance(s)’ was defined as ‘any drawing pursuant to this Agreement up to the maximum amount of the Facility Limit, and where appropriate, the amount of each Advance’.
(ii)‘Loan’ was defined as ‘at any time and from time to time, the aggregate of the principal amount of each Advance outstanding at that time together with all accrued and unpaid interest and all other moneys payable by the Borrower to the Lender under this Agreement’.
(iii)‘Drawdown Date(s)’ was defined as ‘the date specified in … the Schedule, and such other date(s) as the Lender in its sole discretion determines in writing’. As observed above, no date was specified in the schedule.
(c)Clause 3.1 relevantly provided that ‘Subject to the terms of this Agreement, the Lender shall, upon the request of the Borrower, provide Advances … to the Borrower up to the amount of the Facility Limit by way of cash advance(s) on the terms and subject to the conditions set out in this Agreement’.
(d)Clause 5.2 provided that, ‘If the Advance payable by the Borrower under this Agreement is not repaid in full to the Lender on or before the Repayment Date (for any reason whatsoever), default interest (Default Interest) will accrue on and from the Drawdown Date and Default Interest must be paid by the Borrower to the Lender upon demand by the Lender. Default Interest will be calculated at the Default Interest rate’.
(e)Clause 6.3 provided that ‘The Borrower must make all payments due under this Agreement without any set-off, counterclaim or condition without any declaration or withholding for any tax or any other reason.’
(f)Clause 13.3 provided that ‘This Agreement constitutes the entire agreement between the parties’.
(g)Clause 13.6 provided that ‘A statement in writing made by the Lender or its Officer as to the amount due or owing upon or secured by this Agreement at the date stated in that document will be, in the absence of manifest error, constitute conclusive evidence of that amount is due or owing or secured and of all matters in the statement’.[6]
(h)Clause 13.18 provided that ‘The Borrower acknowledges and agrees that it has been given the opportunity, and has been encouraged, to obtain independent legal and independent financial advice in relation to this Agreement and the transaction contemplated by it’.
[6]Errors in original.
The respondent signed the execution page (page 23) of the loan agreement at the applicant’s office. Unlike the execution of the offer sheet, Michael Kukulka did not explain the loan agreement before the respondent signed it. Further, the respondent asserts that: he did not read the loan agreement before he signed it; he was not aware of the change in the default rate; and the applicant did not give him a copy of the loan agreement.
Following the execution of the offer sheet and the loan agreement, the applicant made advances to the respondent from time to time and the respondent paid interest and provided security items to the applicant from time to time. The judge found that the respondent provided security for all the advances made to him, save for an unsecured advance of $10,000.[7]
[7]Judge’s substantive decision, [11].
The applicant kept handwritten records of its transactions with the respondent in a document called a ‘pink book’. The respondent initialled some of the entries that were made in the pink book. Only parts of the pink book were tendered, commencing with an entry on 15 February 2019 and concluding with an entry on 24 April 2020. Set out below are relevant extracts from the pink book:
15/2[/19] -$20,000 $248,000
15/2[/19] [Interest paid]
22/2[/19] [Interest paid]
1/3[/19] [Interest paid]
5/3[/19] +40,000 =$208,000
…
12/3[/19] -17,000 $255,000+10 OZ GOLD RW
…
23/10[/19] $300,000 BALANCE
…
13-12-19 PAID $5000 BALANCE $267,000
…
10-1-20 BALANCE $270,600
…
6-3-20 BALANCE $281,000
…
24-4[-20] TOOK GOLD BALANCE $282,500PAID $1,000
Respondent’s default, commencement of proceeding and default judgment
As we have already stated, from about 10 April 2020, the respondent stopped making payments to the applicant and fell into arrears.
On 27 April 2020, an armed robbery occurred at the applicant’s premises. Gold and jewellery valued at approximately $3,900,000 were stolen. The respondent asserts that some or all of the security items he provided to the applicant were stolen in the robbery. The applicant denies this assertion.
On 6 July 2020, the applicant’s solicitor sent a letter by email to the respondent asserting that the respondent was indebted to the applicant in the sum of $376,559 and demanding payment of that amount. The letter stated that the ‘agreed’ value of the security items provided by the respondent to the applicant was $140,000 and advised that, if the outstanding debt was not paid by 10 July 2020, the security items would be sold and the proceeds would be applied in reduction of the debt. We note that, if the value of the security items was as stated by the solicitor and the balance of the principal component of the sum claimed was $282,500 as stated in the pink book, only about 50 per cent of the principal was secured.
On 28 July 2020, the applicant’s solicitor advised the respondent by email that the security items would be realised to reduce the loan indebtedness and that a reconciliation would be provided. No such reconciliation was provided.
As we have already stated, it appears that, in November 2020, the applicant sold the security items for $137,014.90, inclusive of GST.
On 6 April 2021, Nigel Kukulka signed a certificate on the applicant’s letterhead (‘loan certificate’) which stated the following:
To Whom it may concern
I Nigel Kukulka hereby certify on behalf of Gold Dealers Express Ltd that Reece Williams is truly indebted thereto in the sum of $497,635
Liability limited by a scheme approved under the Professional Standards Legislation[8]
[8]Emphasis added. The correct name of the applicant is Gold Dealers Exchange Pty Ltd. It is not clear why the last paragraph was included in the loan certificate.
As we have already stated, the applicant filed a writ against the respondent on 9 April 2021. The statement of claim accompanying the writ referred to the terms of the offer sheet (which was described as ‘the Facility Offer’), the loan agreement (which was described as ‘the Facility Agreement’), the pink book, the respondent’s failure to comply with the demands for payment from the applicant’s solicitor, and the loan certificate. Paragraph 8 of the statement of claim asserted that, by reason of those matters, ‘the amount that the [respondent] owes to the [applicant] pursuant to the Facility Agreement became due and payable’. Paragraph 9 asserted that the respondent was ‘thereby indebted to the [applicant] for … the sum of $497635.00 as at 1 April 2021, pursuant to [the loan certificate]’.
We make two observations on the statement of claim. First, whilst it pleaded that the ‘Facility Offer’ and the ‘Facility Agreement’ were partly in writing and partly to be implied, it did not plead that they were partly oral. Secondly, both documents were said to contain the parties’ agreement regarding loans to be made prospectively by the applicant to the respondent and did not refer to any loans that the applicant had already made to the respondent.
On the same day that the respondent was served with the writ and statement of claim on 30 April 2021, Michael Kukulka sent an SMS message to the respondent stating ‘I assume you will be representing yourself. I’ll let you know the court date, all good?’ Michael Kukulka did not, at any time, provide such information to the respondent.
On 27 May 2021, the respondent sent an SMS message to Michael Kukulka stating: ‘Michael, My solicitor has asked if you could please send the court case papers to me.’
On 28 May 2021, without replying to the respondent’s SMS message of the previous day or giving any prior notice to him, the applicant applied for judgment in default of appearance. Judgment was entered on the same day for the amounts set out at [11] above.
On 3 June 2021, the respondent engaged James Penman of Logie-Smith Lanyon (‘LSL’). On 4 June 2021, LSL filed a notice of appearance on behalf of the respondent. After discovering that the applicant had obtained default judgment, on 7 June 2021 LSL sent an email to the applicant’s solicitor requesting various documents, including all documents referred to in the statement of claim.
On 24 June 2021, the applicant’s solicitor provided to LSL all the documents referred to in the statement of claim, other than the offer sheet, the loan certificate and the pink book. He informed LSL that the pink book could be inspected at the applicant’s office by appointment. No appointment for inspection was made by LSL.
Events after the default judgment
On 3 August 2021, LSL sent a letter by email to the applicant’s solicitor asserting that the respondent had a defence and counterclaim against the applicant and seeking consent to an order setting aside the default judgment with costs reserved. The applicant did not consent to such an order.
In approximately August 2021, the applicant commenced a bankruptcy proceeding against the respondent in the Federal Circuit Court based upon the default judgment. The bankruptcy proceeding was due to be heard on 2 September 2021 but the hearing was adjourned on several occasions until it was listed for 20 January 2022.
By a summons dated 18 October 2021, the respondent applied to the County Court for an order setting aside the default judgment and granting him leave to file a defence and counterclaim.
Sometime between 7 December 2021 (the date of the judicial registrar’s decision) and 27 January 2022 (the date of Michael Kukulka’s second affidavit),[9] Nigel Kukulka signed a further, undated, loan certificate (‘further loan certificate’), which was in the following terms:
To Whom it may concern
I Nigel Kukulka hereby certify on behalf of Gold Dealers Exchange Pty Ltd ABN: 76611812536 that Reece Williams is truly indebted thereto in the sum of $497,635 as at the 9th of April 2021
[9]See [61] below.
As is apparent from [33] above, the further loan certificate differs from the loan certificate in two relevant respects, namely, it correctly named the applicant and provided a date for the stated indebtedness of the respondent. In his affidavit of 27 January 2022,[10] Michael Kukulka stated that the further loan certificate was prepared ‘to deal with any technical objections [to the loan certificate]’.
[10]See [61] below.
The respondent’s summons was heard by a judicial registrar of the County Court on 7 December 2021. At the hearing, there was discussion about the applicant’s failure to provide relevant documents to the respondent, but the respondent declined an opportunity for the hearing to be adjourned. On the same day, the judicial registrar made an order dismissing the respondent’s summons and requiring him to pay the applicant’s costs.
By a notice of review dated 21 December 2021, the respondent applied for a review of the decision of the judicial registrar. The notice of review was listed for hearing before a judge of the County Court on 31 January 2022.
The respondent sought from the applicant consent to have the hearing of the bankruptcy proceeding adjourned from 20 January 2022 until after the hearing of the respondent’s summons on 31 January 2022. The applicant refused to do so. The Federal Circuit Court adjourned the hearing to 3 February 2022.
On 19 January 2022, Mr Penman (now of Colin Biggers & Paisley (‘CBP’)) sent an email to the applicant’s solicitor requesting copies of the offer sheet, the loan certificate and the pink book. On the same day, the applicant’s solicitor refused the request. CBP repeated the request in an email dated 21 January 2022 and gave notice that an order would be sought if the documents were not provided. On 24 January 2022, the applicant’s solicitor agreed to provide copies of the offer sheet and the loan certificate. He refused to provide a copy of the pink book upon the basis that it was not part of the evidence relied upon before the judicial registrar and therefore leave to rely upon it before the judge was required under r 84.03(7)(b) of the Rules. We note that the offer sheet and the loan certificate had been exhibited to the affidavit of Michael Kukulka of 3 December 2021,[11] which would have been served upon the respondent prior to the hearing before the judicial registrar on 7 December 2021.
[11]See [59] below.
On about 25 January 2022, CBP filed a summons seeking an order that the applicant produce the pink book. On 26 January 2022, the applicant’s solicitor emailed a copy of certain pages from the pink book to CBP.
As we have already stated, the judge: granted the respondent’s application to review the decision of the judicial registrar; set aside the default judgment; and ordered the applicant to pay the respondent’s costs of the application. The judge did not disturb the order for costs made by the judicial registrar.
Respondent’s evidence
Before the judicial registrar, the respondent relied upon an affidavit sworn by him on 18 October 2021. The evidence in that affidavit, insofar as it is relevant to the application for leave to appeal and does not form part of the factual background to which we have already referred, was as follows:
(a)The respondent did not take any immediate action after he was served with the writ on 30 April 2021 because he: suffers from anxiety; was focusing on his business which had been disrupted by the COVID-19 pandemic; and believed Michael Kukulka would contact him further in accordance with his text message of 30 April 2021.
(b)In August 2021, it became apparent that the applicant would not consent to an order setting aside the default judgment and that the respondent would have to make an application for such an order. He was not able to provide instructions to Mr Penman for the making of such an application immediately because he: was trying to find records to assist his defence; was trying to run his business; and continued to struggle with anxiety.
(c)The respondent had provided security for all advances made by the applicant, except an advance for $10,000.
The respondent’s affidavit of 18 October 2021 referred to possible defences and a possible counterclaim against the applicant, but did not exhibit a proposed defence.
Before the judge, the respondent sought, and was given, leave to rely upon a further affidavit sworn by him on 27 January 2022 and two affidavits sworn by Mr Penman on 25 and 28 January 2022, respectively.
In his affidavit of 27 January 2022, the respondent exhibited a proposed defence, which is summarised at [56] below, and relevantly stated the following:
(a)‘In total, [he] borrowed approximately $280,000.00 from the [applicant], all of which [he] had provided security to cover the amount of the loans’.
(b)He did not have his own records of the loans he obtained from the applicant or the securities he provided to the applicant.
(c)In early 2019, Michael Kukulka ‘asked [him] to sign a document [the offer sheet] to record our arrangement’. A few weeks later, Michael Kukulka asked him to sign a loan agreement which, he was given to understand, ‘was to simply record the arrangement [they] had with each other up to that date’. He was not informed that the loan agreement contained terms that were different from the offer sheet.
(d)‘If the total amount of the security [he] provided to the [applicant] was taken into account, [he] would owe [the applicant] nothing, or close to nothing’.[12]
[12]All errors in original.
The proposed defence which the respondent exhibited to his affidavit of 27 January 2022 relevantly stated the following:
(a)The respondent admitted signing the offer sheet (which he described as ‘the Facility Offer’) and the loan agreement (which he described as ‘the Facility Agreement’). In relation to the Facility Agreement, para 4 of the proposed defence relevantly stated the following:
[The respondent]:
i.did not read the Facility Agreement;
ii.[was] not provided an opportunity to read or consider the Facility Agreement;
iii.[was] not provided an opportunity to obtain legal or financial advice regarding the Facility Agreement;
iv.did not obtain legal or financial advice regarding the Facility Agreement;
v.[was] not provided with a copy of the Facility Agreement.
PARTICULARS
[The respondent] attended at the office of the [applicant] in or about March 2019 to pay weekly interest on loans advanced by the [applicant] to the [respondent]. While at the [applicant’s] office, the [respondent] met with Daniel Ede, manager of the [applicant], and Michael Kukulka, director of the [applicant].
Mr Kukulka stated to the [respondent] that he had to sign the Facility Agreement immediately and that ‘they would sort everything out later’. The [respondent] was not provided an opportunity by the [applicant] to review the Facility Agreement, get legal or financial advice and was not able to confirm whether the Facility Agreement was on the same terms as the Facility Offer.
The [respondent] signed page 23 of the Facility Agreement, but did not sign or initial any other page of the document.
The [respondent] was not provided a copy of the Facility Agreement by the [applicant] and was unaware of the terms of the Facility Agreement.[13]
[13]Emphasis in original.
(b)Paragraph 5(c)(i) of the proposed defence stated that ‘the interest rate of 12% per month, being 144% interest, per annum on a secured loan is a penalty and is unenforceable’.
(c)In para 7 of the proposed defence, the respondent admitted that he had not made weekly interest payments from about 10 April 2020 and that he had not complied with the demands for payment made by the applicant’s solicitor. However, in para 7(c), he pleaded that the amount alleged to be owing was incorrect because ‘it failed to take into account security provided by the [respondent]’.
(d)In para 9 of the proposed defence, the respondent denied that he was indebted to the applicant in the amount of $497,635 and stated the following in relation to the loan certificate:
i.[The respondent] did not receive a copy of the [loan certificate] until 3 December 2021;
ii.the [loan certificate] does not refer to the [applicant]; and
iii.the sum alleged to be owing includes penalty interest calculated in the sum of 144% per annum and is unenforceable by virtue of being a penalty.
(e)Paragraph 10 of the proposed defence stated the following:
(a)all monies advanced by the [applicant] to the [respondent] were secured by security sufficient to cover the advances;
(b)the [applicant] has failed to take into account the security;
(c)any amount owing by the [respondent] to the [applicant] is set off by the value of the security provided to secure the advances.
In his affidavit of 25 January 2022, Mr Penman relevantly stated that he did not make an appointment to inspect the pink book in response to the invitation in the email from the applicant’s solicitor dated 24 June 2021 for two reasons. First, he did not know what the pink book was because it was not described as such in the applicant’s statement of claim. Secondly, Victoria was subject to COVID-19 pandemic lockdowns or work‑from‑home directions during May, June and July 2021, and further lockdowns followed.
In his affidavit of 28 January 2022, Mr Penman relevantly stated that he received a copy of the pink book by email from the applicant’s solicitor at 5:29 pm on 26 January 2022. He exhibited the pink book.
Applicant’s evidence
Before the judicial registrar, the applicant relied upon an affidavit sworn by Michael Kukulka on 3 December 2021. The evidence in that affidavit, insofar as it is relevant to the application for leave to appeal and does not form part of the factual background to which we have already referred, was as follows:
(a)The respondent was not pressured into signing the loan agreement in any way.
(b)The respondent’s loan from the applicant became more and more unsecured as the loan to value ratio (‘LVR’) was continually decreasing. By May 2020, the LVR was approximately 60 per cent.
(c)None of the respondent’s security items were stolen during the armed robbery of 27 April 2020.
(d)The respondent owes the applicant $497,635 as at 6 April 2021, comprising principal of $282,500 and interest of $215,135.
Michael Kukulka exhibited to his affidavit of 3 December 2021 a quote for $134,893.10 plus GST that the applicant had received from PP Rentals Pty Ltd on 29 January 2021 for the respondent’s security items. Attached to the quote was a list of those items.
Before the judge, the applicant relied upon an affidavit sworn by Michael Kukulka on 27 January 2022, to which he exhibited the further loan certificate. The applicant also tendered a tax invoice for the amount of $137,014.90 which was said to represent the proceeds of sale of the security items.
Judge’s reasons
In her substantive reasons for granting the respondent’s application to review the judicial registrar’s decision and to set aside the default judgment, the judge summarised the applicable principles as follows:
In determining an application to set aside a default judgment, the Court should assess:
(a)whether there is a defence on the merits;
(b)the reasons for the default;
(c)whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the defendant, and
(d)whether costs and the giving of security would be adequate to address the prejudice suffered by the plaintiff.
Rule 21.07 of the Rules deals with the setting aside of default judgments. The primary consideration is whether there is a defence on the merits. Warren CJ in Lubura v Nezirevic describes the test as ‘not all that different from the test for summary judgment’. The defendant needs to show a defence which has a real, as opposed to fanciful, chance of success.
The Court will not set aside a default judgment if there is no possible defence. The question is whether the defence has any merits to which the Court should pay heed. A defendant is ordinarily required to file an affidavit of merits which discloses a prima facie defence. The affidavit must set out the defence on which the defendant intends to rely. The test is whether a defence on the merits has been adequately raised, not that the defence will succeed. Providing some defence on the merits is shown, the strength or weakness of the defence does not matter.[14]
[14]Judge’s substantive decision, [16]–[18] (citations omitted).
Neither party has sought to impugn the judge’s summary of the applicable principles.
The judge summarised the issues raised by the respondent’s proposed defences and his submissions in support of those defences. We set them out below because they assist in understanding the judge’s reasons:
The [respondent] contends the plea of non est factum is made out on the basis that although [he] signed the loan contract, he did so in the belief that it contained the same terms as the earlier offer agreement. …
The [respondent] says the uncontradicted evidence is that the [applicant] prepared a document materially different to the agreement which had been previously discussed. Further, the [applicant] procured the [respondent’s] signature without acknowledging the alterations. The effect then is that a finding of non est factum is open with the result that the loan contract is void. …
The next issue is the quantum of the debt and whether any sums are in fact owing. The [respondent] argues that there is a conflict on the evidence as to whether the advances were wholly secured. The [applicant’s] solicitors asserted in July 2020 that there were secured advances of $140,000 and unsecured of $142,500. That position is different to [Michael] Kukulka’s affidavit of 3 December 2021 where he deposed there was a loan to value ratio of 60 per cent. The records of the [applicant] are unclear and incomplete. The so-called ‘pink book’ exhibited to the second affidavit of Mr Penman is said to be the [applicant’s] ledger and record of the [respondent’s] loan account. The [respondent] says the figures listed in the pink book are unable to be reconciled with the list of securities exhibited by [Michael] Kukulka. Moreover, the pink book shows a total of $291,000 owing as of 15 February 2019 which pre‑dates the loans advanced under the loan contract. The scant material discovered by the [applicant] suggests that a considerable proportion of the debt now claimed is not subject to the loan contract at all.
The [respondent] contends that the factual dispute about security, if ultimately proved, will affect the quantum of the debt and prima facie provides a ground for the judgment to be set aside.
The final ground relied upon was that the interest calculation claimed was arguably a penalty. The default interest is payable monthly with the result that the interest charged is 144 per cent per annum. Both parties made submissions as to the law relating to penalties, and in particular, whether the default rate was a genuine pre‑estimate of loss or not. It was also contended by the [respondent] that the [applicant] had charged default interest for an extended period which was irreconcilable with what was right and reasonable.[15]
[15]Judge’s substantive decision, [20]–[24]. As is apparent from [27] above, the judge’s statement that the pink book shows a balance of $291,000 as at 15 February 2019 is incorrect.
The judge then summarised the applicant’s submissions and concluded as follows:
Although the matter is not free from doubt, I consider the [respondent] has done enough to raise a prima facie defence on the merits and therefore should be given leave to defend. There are triable issues in my view regarding:
(a)the enforceability of the loan contract because of the allegation raised relating to non est factum;
(b)whether a debt is in fact owed on the assumption that the value of the security advanced by the [respondent] for the loans was equal to or exceeded the sum claimed in which case no debt is owed;
(c)the quantum of the debt claimed having regard to the matters raised about the accuracy and sufficiency of the entries in the pink book; and
(d)the entitlement of the [applicant] to charge penalty interest and at what rate and from when, which in turn depends upon a factual finding that the [respondent] was in default.
As noted before, it is not the function of the Court in these types of applications to determine whether a defence will succeed or not. That is a matter for trial. The [respondent] has satisfied me that he has a defence to the claim which has some real prospects of success.
The focus on the review was centred on the merits or otherwise of the [respondent’s] potential defences to the claim. As for the remaining elements when considering these types of applications, I am satisfied that the [respondent] acted promptly to set aside the judgment and his reasons for not filing an appearance within the time limited are adequately explained. Additionally, it was not suggested that any prejudice to the [applicant] could not be overcome by an award of costs.[16]
[16]Judge’s substantive decision, [30]–[32]. At para 33 of her substantive decision, the judge stated that the pink book ‘raises more questions than answers’.
Following the publication of the judge’s substantive decision, the parties filed written submissions in relation to costs.
The applicant submitted that the respondent should be ordered to pay its costs of the application before the judge and its costs in seeking to enforce the default judgment in the Federal Circuit Court. It did so on the basis that the respondent was given an indulgence by the Court in having the default judgment set aside and, as there were no special circumstances warranting an order that the applicant pay the costs, the respondent should be ordered to pay the applicant’s costs.[17]
[17]The applicant relied upon Coxon v Duggan [2013] VSC 168, [16] (‘Coxon’).
The applicant relied upon the following observations of Robson AJA in Lubura v Nezirevic:
In my opinion it would be appropriate that the appellant pay the costs of and incidental to the application to set aside judgment entered in default of appearance and the costs thrown away by reason of judgment being entered including the costs of assessing the respondent’s damages and the respondent’s attempted enforcement of the judgment, such costs to be taxed on an indemnity basis in the absence of agreement.[18]
[18](2013) 42 VR 43, 63 [120] (‘Lubura’).
The respondent submitted that the applicant should be ordered to pay his costs. He did so on two bases. First, the applicant had acted in an underhand manner in ‘snapping on’ a default judgment when it knew that the respondent was legally represented and intended to defend the proceeding. Secondly, the applicant adopted an obstructionist attitude in initially failing to provide key documents upon which it relied in its statement of claim (such as the offer sheet and the loan certificate) that the respondent had requested.
The respondent relied upon the following observations of Bongiorno J in French v Triple M Melbourne Pty Ltd:
[T]he entry of a default judgment at the earliest possible opportunity without warning against parties known to the plaintiff’s solicitor to be represented constituted a precipitate and unwarranted, if nonetheless legal, attempt to advance his client’s case by taking advantage of what any reasonable and experienced solicitor should have realised was an oversight or perhaps several oversights by the defendants and their legal advisors. It would be contrary to justice for this Court to allow this tactic to be successful by refusing to set aside the judgment entered by default. Litigation is not a steeple chase nor even a bike race where a fall can determine the outcome.[19]
[19][2006] VSC 36, [23].
The respondent also submitted that the applicant had contravened the overarching obligations in ss 20 and 26 of the Civil Procedure Act 2010 (‘CPA’) by withholding key documents. Those sections relevantly provide as follows:
20Overarching obligation to cooperate in the conduct of civil proceeding
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
…
26Overarching obligation to disclose existence of documents
(1)[A] person to whom the overarching obligations apply must disclose to each party the existence of all documents that are, or have been, in that person’s possession, custody or control—
(a)of which the person is aware; and
(b)which the person considers, or ought reasonably consider, are critical to the resolution of the dispute.
(2)Disclosure under subsection (1) must occur at—
(a)the earliest reasonable time after the person becomes aware of the existence of the document; or
(b)such other time as a court may direct.
…
(4)The overarching obligation imposed by this section—
(a)is an ongoing obligation for the duration of the civil proceeding; and
(b)does not limit or affect a party’s obligations in relation to discovery.
On 4 March 2022, the judge decided ‘on the papers’ that the applicant should pay the respondent’s costs of the application to review the judicial registrar’s decision, but that the judicial registrar’s order that the respondent pay the applicant’s costs of the application before the judicial registrar should not be disturbed. The judge gave the following reasons:
Although the general rule is that costs incurred in having the default judgment set aside are to be payable by the defendant, this can be displaced in special circumstances.
In my view the circumstances here are somewhat different from the usual application to set aside judgment. The first point is that this is an application pursuant to a review under Rule 84.03 of the [Rules]. Although the subject matter involves the setting aside of a default judgment, it does not automatically mean that the [applicant] should have its costs because the [respondent] has been successful. …
The second matter which I consider to be relevant to the exercise of my discretion is the conduct of the [applicant] in respect of the application more generally. I am satisfied that the [applicant] did seek to ‘snap on’ a judgment and did so in circumstances where the [respondent] had asked the [applicant’s] director to send court documents to him. The [applicant] was clearly on notice that the [respondent] was engaging legal representation, but rather than provide the documents that had been requested, immediately entered judgment in default. Whilst the judgment was regular to that extent, the sentiments expressed by Bongiorno J in French v Triple M Melbourne are apposite. The [applicant] sought to adopt a tactic by which it thought that it would obtain an advantage in circumstances where the [applicant] was aware that the [respondent] was intending to defend the matter.
Additionally, the conduct of the [applicant] in failing to provide relevant documents and only producing the pink book following the subpoena show that it was engaging in a war of attrition, contrary to the paramount duty and overarching obligations imposed under the [CPA]. Similarly, the issue of the bankruptcy application was precipitous in circumstances where the [applicant] knew the [respondent] had engaged lawyers. Although the judgment was regular, conduct of this sort, namely snapping on judgments, should be discouraged. It serves no useful purpose and increases the costs of litigation unnecessarily. Accordingly, that is another reason why, in the exercise of my discretion, I do not consider the [applicant] is entitled to an award of costs, let alone the considerable amount sought on an indemnity basis both in this proceeding and costs said to have been incurred in the Federal Circuit Court. …
The [applicant] could, had it wished to do so, have consented to the application for review. It chose not to do so and was unsuccessful. In my view, costs should follow the event.[20]
[20]Judge’s costs decision, [20]–[25] (citations omitted).
Grounds of appeal
The applicant relied upon 17 grounds of appeal, which are in the following terms:
1The County Court Judge failed to provide natural justice to the [applicant] by allowing the [respondent] to argue the defence of non est factum.
2The County Court Judge erred in granting the [respondent] leave to rely upon further affidavit evidence as there were no special circumstances to justify doing so pursuant to Rule 84.03(7)(b) of the … Rules.
3The County Court Judge erred in holding that there was a defence of non est factum on the merits.
4The County Court Judge erred in setting aside the judgment in whole on the basis of a dispute about security as it was at most a partial defence.
5The County Court Judge erred in deciding that there was a defence on the merits in relation to the rate of interest being a penalty as it was at most a partial defence.
6The County Court Judge erred in holding that there was a defence on the merits in relation to the value of the security equaling or exceeding the sum claimed.
7The County Court Judge should have held that the onus was upon the [respondent] to establish that there was a manifest error in the quantum of the debt in determining whether there was a defence on the merits.
8The County Court Judge failed to provide proper reasons for her decision that there was a defence on the merits.
9The County Court Judge erred in holding that there were special circumstances that justified … not making an order for costs in favour of the [applicant].
10The County Court Judge erred in holding that the [applicant] had acted in an improper manner by entering default judgment in default of appearance.
11The County Court Judge erred in holding that the [applicant] was in breach of s 20 and 26 of the [CPA] in withholding key documents.
12The County Court Judge erred in exercising her power as to costs that the [respondent] had satisfactorily explained his failure to file a notice of appearance.
13The County Court Judge erred in exercising her power as to costs in taking into account that the [respondent] had acted promptly to set aside judgment.
14The County Court Judge erred in deciding that the [respondent] should not pay the [applicant’s] costs of enforcing the judgment.
15The County Court Judge erred in holding that the need for appeal was generated by the [applicant’s] inappropriate conduct.
16The County Court Judge erred in failing to set aside the judgment in part.
17The County Court Judge erred in deciding that the [respondent] had discharged his onus of demonstrating that the interest rate was a penalty.
We propose to discuss the grounds in the following order:
(a)Grounds 5 and 17, which deal with whether the judge erred in finding that the respondent had raised a prima facie defence of penalty in relation to the interest rate payable under the loan agreement.
(b)Grounds 4 and 6, which deal with whether the judge erred in finding that the respondent had raised a prima facie defence based upon the value of the security items provided by the respondent.
(c)Ground 7, which deals with whether the judge erred in finding that the respondent had raised a prima facie defence in relation to the quantum claimed by the applicant.
(d)Ground 16, which deals with whether the judge erred in failing to set aside the default judgment in part.
(e)Grounds 9 to 15, which deal with whether the judge erred in ordering the applicant to pay the respondent’s costs.
(f)Ground 8, which deals with the adequacy of the judge’s reasons.
(g)Grounds 1 and 3, which deal with the judge’s finding on the defence of non est factum and whether she denied the applicant natural justice in relation to it.
(h)Ground 2, which deals with the correctness of an evidentiary ruling made by the judge.
Grounds 5 and 17: Penalty
The applicant submitted that the judge erred in deciding that the respondent had established an arguable defence that the rate of interest in the loan agreement constituted a penalty. That was said to be because the applicant had not adduced evidence to establish that the interest rate was a penalty as distinct from a normal commercial rate. In any event, according to the applicant, even if the interest rate constituted a penalty, a finding to this effect would only amount to a partial defence. The applicant contended that a finding that a defence was available in relation to the interest component of the default judgment should have resulted in the judge substituting a judgment for the amount of principal set out in Michael Kukulka’s affidavit of 3 December 2021, namely, $282,500.[21]
[21]See [59] above.
In our opinion, grounds 5 and 17 are not made out.
The most recent and authoritative decisions of the High Court on the principles relating to penalties are Ringrow Pty Ltd v BP Australia Pty Ltd,[22] Andrews v Australia & New Zealand Banking Group Ltd[23] and Paciocco v Australia & New Zealand Banking Group Ltd.[24] Those principles were also discussed by this Court in Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd.[25]
[22](2005) 224 CLR 656 (‘Ringrow’).
[23](2012) 247 CLR 205.
[24](2016) 258 CLR 525 (‘Paciocco’).
[25][2017] VSCA 161, [5]–[11], [164]–[176] (‘Gippsreal’).
It is not necessary for us to comprehensively set out the applicable principles. It suffices for us to say that one of the circumstances in which the law of penalties may be invoked is where a term of a contract stipulates that, upon breach of the contract, the party in breach must pay an agreed sum which on no view could be regarded as a genuine pre‑estimate of the damage likely to be caused by the breach.[26] Consistently with the authorities referred to above, one approach to assessing whether a contractual term constitutes a penalty is to:
(a)first, identify the commercial interests of the applicant that the loan agreement sought to protect by stipulating that term; and
(b)then, consider whether that term was ‘out of all proportion’ or ‘wholly disproportionate’ to the protection of those interests.[27]
[26]Gippsreal [2017] VSCA 161, [164], citing Ringrow (2005) 224 CLR 656, 662 [10]. See also Paciocco (2016) 258 CLR 525, 578–9 [157]–[159], 616 [282], 625–6 [317].
[27]Paciocco (2016) 258 CLR 525, 547 [29], 548 [32], 577 [154], 578 [156], 580 [164], 612 [270], 631 [331].
The features of the loan agreement upon which the respondent relied in support of his contention that the amount of interest claimed by the applicant constitutes a penalty were as follows:
(a)The default rate of 12 per cent per month, which translates to 144 per cent per annum. That rate was said to be so extravagant that it could not constitute a genuine pre-estimate of the loss suffered by the applicant arising from the respondent’s default in making payments under the loan agreement.
(b)The difference of 100 per cent between the rates of 2 per cent per month for secured borrowings and 4 per cent per month for unsecured borrowings. The fact that the default rate of 12 per cent per month does not distinguish between secured and unsecured borrowings was said to mean that it does not constitute a genuine pre-estimate of the loss suffered by the applicant arising from the respondent’s default.
(c)Clause 5.2, which provides that the default rate applies not from the time of default but retrospectively from the time the advance was made. That was said to mean that cl 5.2 does not provide for a genuine pre-estimate of the loss suffered by the applicant arising from the respondent’s default.
It is sufficient for the purposes of addressing grounds 5 and 17 to observe that, having regard to the authorities referred to at [77] above, the features referred to at [79] above, in combination, raise an arguable defence of penalty. Accordingly, the judge did not err in reaching this conclusion. It is true that such a defence would affect only that part of the interest component of the amount claimed by the applicant against the respondent and would not affect the principal component of that amount. However, contrary to the applicant’s submission, there is uncertainty about the quantum of the principal. As discussed at [101]–[104] below, the default judgment must be set aside because it is not possible on the evidence to calculate a lower sum that is indisputably owing to the applicant and to amend the default judgment by substituting that sum.
Grounds 4 and 6: Security
The applicant submitted that, because the respondent did not adduce any evidence of the value of the security items, the judge erred in deciding that the respondent had an arguable defence on the basis that the value of the security items equalled or exceeded the amount claimed by the applicant. According to the applicant, it was insufficient for the respondent merely to assert, without evidence, that the value of the security items equalled or exceeded the amount claimed by the applicant, and it was not open to the judge to make findings based upon the respondent’s assertion.
The applicant contended that, insofar as the respondent alleged that the applicant had failed to properly realise the security items, that allegation did not provide a defence but only a potential counterclaim. The applicant argued that, to the extent that the respondent had an arguable counterclaim, he was not entitled to set off the amount of the counterclaim due to cl 6.3 of the loan agreement.[28]
[28]See [24(e)] above. The applicant relied upon Palaniappan v Westpac Banking Corporation [2016] WASCA 72, [73].
In our view, grounds 4 and 6 are not made out.
The evidence before the judge established that there was a factual dispute about the value of the security items that the respondent provided to the applicant.
The respondent asserted, in substance, that the value of the security items equalled the amount of his debt to the applicant, or came close to that amount. We accept the applicant’s contention that the judge could not rely upon the respondent’s assertion in the absence of evidence to support it.
However, on the applicant’s own evidence, there was a factual issue as to the value of the security items. In his letter of 6 July 2020, the applicant’s solicitor stated that the ‘agreed’ value of the security items was $140,000.[29] In his affidavit of 3 December 2021, Michael Kukulka stated that, as at 6 April 2021, the respondent owed to the applicant the principal amount of $282,500 and interest of $215,135.[30] On this basis, the value of the security items was around 50 per cent of the principal amount. However, in the same affidavit, Michael Kukulka stated that, as at May 2020, the LRV was approximately 60 per cent.
[29]See [30] above.
[30]See [59] above.
Even if it is assumed in the applicant’s favour that the issue of the value of the security items could not be relied upon as a defence or as a set-off or that the value of the security items was the amount of $137,014.90 for which they were sold in November 2020,[31] another important factual issue arises on the evidence. That is whether the sale proceeds were taken into account in calculating the amount of $497,635 that the applicant claimed and which was the subject of the default judgment. The applicant has not adduced any evidence on this issue. The issue is material to ascertaining the quantum of the debt owed by the respondent to the applicant.
[31]See [8], [61] above.
We accept that the issue may not have provided the respondent with a complete defence to the applicant’s claim. However, as discussed at [101]–[104] below, the default judgment must be set aside because it is not possible on the evidence to calculate a lower sum that is indisputably owing to the applicant and to amend the default judgment by substituting that sum.
Ground 7: Quantum
The applicant submitted that the judge erred in deciding that the respondent had an arguable defence based upon uncertainty about the quantum of the debt owed by the respondent to the applicant. That was said to be so because cl 13.6 of the loan agreement provided that the loan certificate constituted conclusive evidence of the amount of the debt in the absence of manifest error,[32] and the respondent had not established an arguable case of manifest error.
[32]See [24(g)] above. The applicant relied upon Collopy v Commonwealth Bank of Australia [2019] WASCA 97, [57]–[59].
The applicant contended that, even though the pre-28 February 2019 loans are not referred to in either the offer sheet or the loan agreement, they were covered by those documents because the respondent stated in his affidavit of 27 January 2022 that those documents recorded the ‘arrangement’ of the parties.[33] He argued that, in any event, the respondent failed to plead that any part of the default judgment represented pre‑28 February 2019 loans and did not adduce any evidence in support of such a contention.
[33]See [55] above.
In our opinion, ground 7 is not made out.
Our discussion of grounds 5 and 17 establishes that there is an arguable case that there is uncertainty about the amount of interest the respondent is liable to pay to the applicant. Our discussion of grounds 4 and 6 establishes that there is an arguable case that there is uncertainty about the quantum of the debt owed by the respondent to the applicant due to uncertainty about whether the sale proceeds of the security items have been taken into account in calculating that debt. There is a further arguable case which casts doubt on the quantum of that debt due to the existence of loans between the parties which pre-date the offer sheet.
It will be recalled from our previous discussion that:
(a)the pink book indicated that, prior to the execution of the offer sheet on 28 February 2019, the applicant had made loans to the respondent totalling $248,000;
(b)the offer sheet contained terms regarding prospective loans to be made by the applicant to the respondent;
(c)the loan agreement was signed on approximately 14 March 2019 and contained terms regarding prospective loans to be made by the applicant to the respondent;
(d)the loan certificate and the further loan certificate certified that the respondent was indebted to the applicant in the amount of $497,635 without specifying that this indebtedness was confined to amounts advanced since 28 February 2019; and
(e)the amounts claimed in the statement of claim were confined to advances made by the applicant to the respondent prospectively after the execution of the offer sheet and the loan agreement and did not include any advances made prior to 28 February 2019.
We reject the applicant’s submission that, even though the pre-28 February 2019 loans are not referred to in either the offer sheet or the loan agreement, they were covered by those documents because the respondent stated in his affidavit of 27 January 2022 that those documents recorded the ‘arrangement’ of the parties. That is so for three reasons. First, the statement of claim does not allege that either contract is partly oral.[34] Secondly, the respondent’s subjective views cannot affect the objective construction of the scope of the documents.[35] Thirdly, the loan agreement contained an ‘entire agreement’ clause (cl 13.3).
[34]See [35] above.
[35]See, eg, Butler v Kenny [2022] VSCA 102, [27]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16].
In the light of the above matters, the pre-existing principal sum of $248,000 and post‑28 February 2019 interest on that sum did not form part of the applicant’s proceeding against the respondent and could not be included in any default judgment in the applicant’s favour. However, the above matters give rise to an arguable case that the amount of $497,635 that formed part of the default judgment erroneously included the principal sum of $248,000 and post-28 February 2019 interest on that sum.
We reject the applicant’s submission that the respondent did not adduce any evidence in support of the contention that parts of the default judgment represented pre‑28 February 2019 loans. Mr Penman’s affidavit of 28 January 2022 exhibited the pink book, which showed that a balance of $248,000 was owed prior to 28 February 2019.[36]
[36]See [27], [58] above.
On the basis of our analysis at [80], [87] and [95] above, the evidence before the judge indicated that there was a genuine factual dispute as to the quantum of the debt owed by the respondent to the applicant. In these circumstances, the respondent established that there was an arguable case that the loan certificate and the further loan certificate contained a manifest error in relation to the quantum of the respondent’s debt to the applicant and therefore did not constitute conclusive evidence of the amount of the debt for the purposes of cl 13.6 of the loan agreement.
There is a further argument, raised by the Bench in the course of the hearing before this Court, that the loan certificate and the further loan certificate cannot engage cl 13.6 of the loan agreement. That is because cl 13.6 refers to ‘[a] statement … as to the amount due or owing upon or secured by this Agreement’ whereas neither the loan certificate nor the further loan certificate refer to the loan agreement or state that the source of indebtedness of $497,635 is the loan agreement. However, as neither party referred to this issue before the judge and the parties’ written cases did not deal with it, we have not taken it into account for the purposes of the application for leave to appeal.
It follows that the judge was correct to conclude that the respondent had an arguable defence in relation to the quantum of the respondent’s debt to the applicant.
Ground 16: Setting aside default judgment in part
The applicant submitted that the judge erred in setting aside the entire judgment rather than only part of it. That was said to be because, in his affidavit of 27 January 2022, the respondent admitted that he borrowed approximately $280,000 from the applicant.[37] According to the applicant, the judge failed to take into account that interest was payable on that amount and that the value of the security items might not have covered the principal and interest combined. The applicant contended that the judge ‘should have quantified the value of the set offs and set aside the [default] judgment in part at most’.
[37]See [55(a)] above.
In our opinion, ground 16 is not made out.
For the reasons we have already discussed, the evidence before the judge indicated that there was an arguable case that the respondent’s indebtedness to the applicant on the basis of the applicant’s pleaded case could not be calculated because:
(a)part of the interest claimed may be unenforceable on the basis that it constitutes a penalty;
(b)part of the amount claimed may pre-date 28 February 2019 and could not be the subject of the default judgment because it did not form part of the applicant’s pleaded case; and
(c)it is unclear whether the value of the security items (which was the subject of a factual dispute) had been taken into account in calculating the amount claimed by the applicant against the respondent as part of its pleaded case.
As it is unlikely that the applicant would have entered into the loan agreement with the respondent unless the respondent was up-to-date with his interest payment as at 28 February 2019, there was an arguable case that the amount of $248,000 owing as at that date comprised principal only, thus accounting for most of the approximate amount of $280,000 that was the subject of the respondent’s admission and the principal amount of $282,500 referred to in Michael Kukulka’s affidavit of 3 December 2021.[38]
[38]See [59] above. Alternatively, it is arguable that, when interest payments were made after the loan agreement had been executed, they were applied to the interest owing on loans advanced pursuant to that agreement, consistently with cl 10 of the loan agreement, leaving interest accruing and unpaid on the loan amount that pre-dated the offer sheet. Clause 10 set out the priority in which amounts received by the applicant from the respondent were to be applied, including that such amounts had to be applied to interest due under the loan agreement before being applied to principal due under the loan agreement. Clause 10 did not refer to application of amounts received to interest or principal due on loans preceding the offer sheet. There is some uncertainty about the scope of cl 10 because it refers to moneys received by the applicant ‘under or by virtue of clause 9.12’, but the loan agreement does not contain a cl 9.12.
It follows that, even if some of the arguable defences upon which the respondent relied constitute only partial defences, there was no evidentiary basis upon which an indisputable amount was due from the respondent to the applicant to enable the default judgment to be amended to reflect that amount.[39] Accordingly, as no part of the default judgment could be ‘saved’, it had to be set aside in its entirety.
[39]Before the judge, the applicant submitted that $282,500 was indisputably owing, which was comprised solely of principal. But that figure did not take account of the defence that disputed the quantum of the principal owing under the loan agreement. Thus, that amount was not indisputably due.
Grounds 9 to 15: Costs
The applicant submitted that the general principle is that, except in special circumstances, a defendant who succeeds in an application to set aside a default judgment must pay the plaintiff’s costs of the application to set aside the judgment and any costs thrown away by reason of the setting aside of the judgment.[40] The applicant contended that the judge erred in holding that there were special circumstances in the present case that justified the costs order that she made (ground 9).
[40]The application relied upon Coxon [2013] VSC 168, [16].
By ground 10, the applicant argued that the judge erred in holding that the applicant had acted in an improper manner by entering judgment in default of appearance. That was said to be because: the writ was served on the respondent on 30 April 2021 and he had until 9 May 2021 to file a notice of appearance; the respondent did not attempt to do so until 4 June 2021, after default judgment was entered on 28 May 2021; and there was no impediment to the respondent filing a notice of appearance even if he did not have some of the key documents. The applicant relied upon the fact that, at the hearing before the judge, the respondent’s counsel conceded that the respondent was ‘certainly at fault in not attending to [the] matter promptly’. According to the applicant, it was not incumbent upon it to have waited beyond 28 May 2021 for the respondent to file a notice of appearance.
The applicant submitted under ground 11 that the judge erred in finding that it was in breach of ss 20 and 26 of the CPA in withholding documents. According to the applicant, it provided the key documents to the respondent in a timely manner. The applicant contended that, save for the offer sheet, the loan certificate and the pink book, the key documents were provided to the respondent in response to his requests in June 2021. In relation to the offer sheet, the applicant argued that this was inadvertently omitted initially but it was exhibited to Michael Kukulka’s affidavit of 3 December 2021, together with the loan certificate.
In relation to the pink book, the applicant emphasised that, in June 2021, the applicant gave the respondent an opportunity to inspect the pink book but the respondent never did so. According to the applicant, the respondent’s counsel conceded before the judicial registrar that there were several weeks in between the COVID-19 pandemic lockdowns and work-from-home directions during which the pink book could have been inspected. The applicant contended that, following a further request for the pink book by the respondent on 19 January 2022, it was provided on 26 January 2022.
Under ground 12, the applicant argued that the respondent did not provide a satisfactory explanation for his failure to file a notice of appearance prior to the entry of default judgment, and that the judge erred in finding otherwise. According to the applicant, the judge also erred in finding that the respondent had acted promptly in applying to set aside the default judgment (ground 13). The applicant emphasised that, although the respondent was aware on 7 June 2021 that default judgment had been entered, he did not apply to set aside the default judgment until 19 October 2021, and did not provide a satisfactory explanation for this delay.
Under ground 14, the applicant submitted that the judge erred in concluding that the respondent should not be required to pay the applicant’s costs of enforcing the default judgment. The applicant relied upon the observations of Robson AJA in Lubura[41] in support of this submission.
[41]See [68] above.
Under ground 15, the applicant contended that the judge found that ‘the need for appeal was generated by the [applicant’s] inappropriate conduct’ and that she erred in doing so. According to the applicant, the respondent had all the relevant documents before the judicial registrar save for the pink book — which he had the opportunity to inspect — and had an opportunity to adjourn the hearing before the judicial registrar, but did not do so. The applicant contended that there was no disentitling conduct on its part.
In our opinion, grounds 9 to 15 are not made out.
The judge’s decision to order the applicant to pay the respondent’s costs involved the exercise of a discretion and, therefore, in order for grounds 9 to 15 to succeed, the applicant must establish an error falling within the principles discussed in House v The King.[42] In accordance with those principles, the applicant has to demonstrate that the judge acted upon a wrong principle, was affected by irrelevant matters, failed to take into account a material consideration or mistook the facts, or that her decision was unreasonable or plainly unjust such that it could be inferred that she failed to properly exercise her discretion.
[42](1936) 55 CLR 499, 505.
In our opinion, it was open on the evidence for the judge to conclude that there were circumstances that warranted an order requiring the applicant to pay the respondent’s costs. Accordingly, the applicant has failed to establish any House v The King error.
On the very day that the applicant served the writ upon the respondent, on 30 April 2021, Michael Kukulka represented to the respondent that he would inform him of the court date, but never did so. Further, as a result of the respondent’s SMS message to Michael Kukulka on 27 May 2021, the applicant was aware that the respondent: was legally represented; was requesting copies of the ‘court case papers’ on behalf of his solicitor; and intended to defend the proceeding.
In these circumstances, the appropriate course for the applicant to adopt was to provide the court documents that the respondent requested and, if it intended to apply for default judgment, give the applicant notice that it would do so if the respondent did not file an appearance by a particular date. Such a course would have been consistent with the overarching purpose in s 7(1) of the CPA ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. Instead of adopting this course, the applicant moved quickly to apply for default judgment the very next day, without giving any notice to the respondent. In our opinion, the judge correctly characterised the applicant’s conduct as ‘snapping on’ the judgment.[43]
[43]See [72] above.
Far from facilitating the real issues in dispute — namely, whether the respondent was indebted to the applicant and, if so, for what amount — being resolved in a timely and cost-effective manner, the applicant’s conduct had the foreseeable consequence of an application being made by the respondent to set aside the default judgment, with the result that the dispute was prolonged and the parties’ costs increased.
In these circumstances, it was open to the judge to find that the applicant was responsible for all the costs that were incurred from the time that it entered default judgment. Nevertheless, the judge did not disturb the judicial registrar’s costs order in favour of the applicant. This course was also open to the judge having regard to the incomplete nature of the evidence that the respondent adduced before the judicial registrar.
It was also open to the judge to find that the applicant acted in an obstructionist manner in the provision of key documents to the respondent, contrary to the overarching obligations in ss 20 and 26 of the CPA. No justification is apparent on the evidence as to why the applicant did not email the offer sheet, the loan certificate and the pink book — each of which was referred to in the applicant’s statement of claim — to LSL when that firm initially requested them.
It is true that the applicant’s solicitor advised LSL on 24 June 2021 that the pink book could be inspected by appointment at the applicant’s office and that LSL did not make such an appointment. It is also true that there may have been windows of time in between COVID-19 pandemic lockdowns and work-from-home directions during which such inspection could have taken place. However, having regard to the fact that ultimately only 13 pages of the pink book were tendered before the judge and the fact that those pages were emailed to the respondent’s new solicitors, CBP, on 26 January 2022, it is difficult to understand why, consistently with ss 20 and 26 of the CPA, the applicant did not email those pages to LSL when LSL initially requested a copy of the pink book.
It may be readily accepted that the respondent should have consulted a solicitor as soon as he was served with the writ so that the solicitor could file an appearance within the time period allowed by the Rules. In his affidavit of 18 October 2021, the respondent gave an explanation for his delay. It was open to the judge to treat that explanation as satisfactory in the circumstances and no House v The King error was made by the judge in doing so.
It may also be readily accepted that there was considerable delay by LSL in applying to set aside the default judgment once that firm was engaged by the respondent. However, as one of the key issues in such an application would be whether the respondent had an arguable defence, some of the delay by LSL is explicable on the basis that the firm needed the key documents in order to determine whether the respondent had an arguable defence. In any event, the delay in the making of the application to set aside the default judgment would have been taken into account by the judicial registrar in ordering the respondent to pay the applicant’s costs in the application before the judicial registrar. The judge did not disturb the order for costs made by the judicial registrar.
We now turn to the applicant’s complaint in ground 14 regarding the judge’s decision not to order the respondent to pay the applicant’s costs of seeking to enforce the default judgment by commencing a bankruptcy proceeding in the Federal Circuit Court against the respondent.
The judge’s decision must be seen in the context of the chronology of events. As stated at [115] above, on the day prior to the entry of the default judgment, the applicant was aware that the respondent was legally represented and intended to defend the County Court proceeding. Notwithstanding that knowledge, the applicant proceeded to obtain default judgment. Further, notwithstanding that the applicant was aware that the respondent intended to apply to set aside the default judgment, the applicant commenced the Federal Circuit Court proceeding. In these circumstances, it was open to the judge to find that the respondent incurred enforcement costs in the Federal Circuit Court prematurely and unnecessarily and that, accordingly, the respondent should not be liable for those costs.
Finally, ground 15 is misconceived. Contrary to the applicant’s submission, the judge did not find that ‘the need for appeal was generated by the [applicant’s] inappropriate conduct’. What the judge said was that, in considering whether to grant the applicant a certificate under s 4(2) of the Appeal Costs Act 1998, a relevant discretionary factor which might warrant refusal of such a certificate was ‘whether the need for an appeal was generated by the inappropriate conduct of the respondent’.[44] After stating that the refusal to grant a costs certificate is not appealable under s 37(2) of that Act, the judge gave reasons why ‘the [applicant] should not be entitled to recover funds from the public purse’.[45] These reasons relate to the costs certificate issue, which the judge considered after she decided to order the applicant to pay the respondent’s costs. Accordingly, these reasons have no bearing on the correctness of the judge’s costs orders as between the parties.
[44]Judge’s costs decision, [27].
[45]Judge’s costs decision, [27].
Ground 8: Adequacy of the judge’s reasons
The applicant submitted that the judge failed to provide adequate reasons for her decision that the respondent had established arguable defences. According to the applicant, the judge’s reasons on the substantive issues are confined to a single paragraph of her substantive decision (para 30). That paragraph was said to set out the judge’s decision without explaining the reasoning process by which she arrived at that decision or why she accepted or rejected the parties’ competing contentions.[46]
[46]The applicant relied upon Sun Alliance Insurance Ltd v Massoud [1989] VR 8, 18; Franklin v Ubaldi Foods Pty Ltd [2005] VSCA 317, [37]; Fletcher Construction Australia Ltd v Lines MacFarlane & Marshall Pty Ltd [No 2] (2002) 6 VR 1, 44–5 [166].
In our opinion, ground 8 is without merit. Although the judge’s reasons are brief, they sufficiently articulate her path of reasoning for the orders that she made. Paragraph 30 of the judge’s substantive decision must be read in the context of her summary of the parties’ submissions and the comments that she made on those submissions in the course of summarising them. Moreover, in assessing the adequacy of the judge’s reasons, it must be borne in mind that the judge was not finally determining whether the respondent had a defence on the merits, but only deciding on an interlocutory basis whether the respondent had arguable defences.
Grounds 1 and 3: Defence of non est factum
It is not necessary for us to summarise the parties’ submissions on whether the judge erred in finding that the defence of non est factum was arguable and whether she denied the applicant natural justice by permitting the respondent to raise that defence at a very late stage. That is because, even if it is assumed in favour of the applicant that the defence was not arguable and that the judge should not have taken it into account in deciding to set aside the default judgment, for the reasons we have set out under previous grounds, such an assumption could not have affected the correctness of the judge’s decision.
Ground 2: Evidentiary ruling
The applicant submitted that the judge erred in granting the respondent leave to rely upon his affidavit of 27 January 2022 and Mr Penman’s affidavits of 25 and 28 January 2022 because there were no special circumstances justifying the granting of leave pursuant to r 84.03(7)(b) of the Rules. The applicant contended that the respondent had every opportunity to file evidence in support of his case before the judicial registrar and the judge should not have given him leave to file the further affidavits which sought to remedy the deficiencies in the evidence he adduced before the judicial registrar. According to the applicant, the respondent should have put his best case forward at first instance and should not have been permitted to augment his case on review, particularly because the further evidence played an important role in the outcome of the review before the judge.[47]
[47]The applicant relied upon C Tina Pty Ltd v Barham-Floreani [2019] VSC 819, [27].
In our opinion, ground 2 is not made out.
Rule 84.03(7)(b) of the Rules provides that a judge of the County Court who is reviewing an order of a judicial registrar may grant leave to a party to rely upon any affidavit or oral evidence that was not used or given before the judicial registrar. Contrary to the applicant’s submission, the rule does not provide that a judge must find that there are special circumstances as a precondition to granting leave.
In the present case, the applicant objected to the respondent relying upon his affidavit of 27 January 2022 on the basis that significant parts of it were inadmissible. The judge was not persuaded that the applicant’s objections as to admissibility were ‘sound’ and granted leave to the respondent to rely upon that affidavit.[48] This course was open to the judge. No House v The King error has been established.
[48]Judge’s substantive decision, [26].
Conclusion
For the above reasons, the application for leave to appeal will be refused.
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