Gold Dealers Exchange Pty Ltd v Williams
[2022] VCC 120
•17 February 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-21-01391
| GOLD DEALERS EXCHANGE PTY LTD (ACN 611 812 536) | Plaintiff |
| V | |
| REECE WILLIAMS | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 January 2022 | |
DATE OF RULING: | 17 February 2022 | |
CASE MAY BE CITED AS: | Gold Dealers Exchange Pty Ltd v Williams | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 120 | |
RULING
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Subject:PRACTICE AND PROCEDURE – Review of a decision by a judicial registrar
Catchwords: Review of judicial registrar’s decision to dismiss application to set aside default judgment against the defendant – Rules 84.03 and 21.07 of the County Court Civil Procedure Rules 2018
Legislation Cited: County Court Civil Procedure Rules 2018
Cases Cited:Kostakanellis v Allen [1974] VR 596; Lubura v Nezirevic [2013] VSCA 215; Petelin v Cullen (1975) 132 CLR 355
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Levine | Matrix Legal |
| For the Defendant | Mr T Bevan | Colin Biggers & Paisley |
HER HONOUR:
1By notice to review filed 21 December 2021, the defendant seeks a review of the Order made by Judicial Registrar Muller on 7 December 2021. His Honour dismissed an application by the defendant to set aside a default judgment for debt entered on 28 May 2021. Pursuant to the default judgment, which was entered in default of appearance, the defendant was ordered to pay the plaintiff the sum of $497,635.00, together with interest and costs. The total amount ordered to be paid was $508,086.98.
2The defendant’s application is made pursuant to Rule 84.03 of the County Court Civil Procedure Rules 2018 (“the Rules”). A review under Rule 84.03 is conducted by way of a hearing de novo. The Court may exercise all power and discretions vested with the Court in respect of the subject matter of the review and confirm, vary, or set aside the order of the judicial registrar. The parties may rely upon any affidavits used and any evidence given orally before the judicial registrar. By leave of the Court, the parties may rely upon affidavits or oral evidence not given before the judicial registrar. It is not incumbent for the Court to find any error on the part of the judicial registrar to arrive at a different conclusion. Nevertheless, it is appropriate for the Court to give such weight to the judicial registrar’s decision as appears proper in the circumstances.[1]
[1] See the discussion in Bendigo and Adelaide Bank Limited v Grahame [2020] VSC 86 at [15] – [18]
3The de novo hearing requires the party seeking the orders to establish all the relevant matters. The nature of the review is such that the date for the determination of relevant facts is the date when the matter comes before the judge, not the date on which the application was dealt with by the judicial registrar.[2]
[2]Southern Motors Pty Ltd v Australian Guarantee Corporation Ltd [1980] VR 187 at 191
4The defendant relies upon his affidavit of 18 October 2021 and seeks leave to rely upon a further affidavit sworn 27 January 2022. In addition, the defendant relies upon two affidavits sworn by his solicitor, Mr James Penman, on 25 and 28 January 2022.
5The plaintiff relies upon two affidavits sworn by Mr Michael Kukulka, the director of the plaintiff company, sworn 3 December 2021 and a further affidavit sworn 27 January 2022. The plaintiff tendered a tax invoice dated 29 January 2021, during the hearing on 31 January 2022, which was marked Exhibit “P1”.
6The plaintiff relies upon its original submissions in writing dated 6 December 2021, together with a further outline dated 28 January 2022.
7The defendant relies upon his written submissions which were undated but were provided shortly before the hearing of the application.
Background
8The plaintiff commenced this proceeding by writ dated 9 April 2021. The plaintiff seeks repayment of principal and interest on loans made to the defendant between March 2019 and April 2020. The defendant is a gold dealer who trades under the name of “Melbourne Gold Exchange”. His business consists primarily of buying and selling gold, jewellery, silver, and other precious metals.
9On or about 19 February 2019, the defendant accepted a loan offer agreement (“offer agreement”) by signing and returning it. The offer agreement was exhibited to the first affidavit of Mr Kukulka as Exhibit “MK5”. This document provided that money would be advanced at 2 per cent per month on secured loans, and 4 per cent per month on unsecured loans. In the case of default, interest was to be charged at 10 per cent per month. The parties agreed to split the costs of drawing up a more formal document giving effect to the offer agreement.
10Mr Kukulka arranged for a formal loan contract (“loan contract”) to be drawn up, which the defendant signed when he attended at the plaintiff’s offices in early 2019. He signed one page of the document. Unlike the offer agreement, no one went through the loan contract with the defendant, which he signed without reading. He believed that it simply formalised the terms of the earlier offer agreement. In fact, the loan contract was materially different, in that it provided for a default interest rate of 12 per cent rather than the 10 per cent previously agreed. It is alleged that this change was not brought to the defendant’s attention. Further, the defendant claims he was not provided with a copy of the loan contract after he had signed it.
11Subsequently, the plaintiff made various loans to the defendant which, with one exception, were always secured by gold, diamonds, or other precious metals or jewellery. The plaintiff did make one unsecured loan of $10,000, but otherwise the plaintiff always sought security before it would lend money to the defendant.
12The defendant deposes that the security provided exceeded the value of the loans, and that the value of that security should have increased with rising gold prices. The defendant contends therefore that the loans were wholly secured, and a fair realisation of the security should have returned a surplus.
13On 27 April 2020, the plaintiff was robbed, and $3.9m of gold and jewellery was stolen. The defendant believes that some or all of his security was stolen.
14On 6 July 2020, the plaintiff’s then lawyers, Madgwicks, wrote to the defendant asserting that only about half of the advances had been secured. On 28 July 2020, the plaintiff advised that it would now realise the security and provide a reconciliation. No reconciliation was provided.
15Mr Kukulka deposes that the security was sold in November 2020 for the sum of $134,893.10. The affidavit did not exhibit any relevant invoices but a quote dated 29 January 2021. The invoice tendered at the hearing was rendered by the plaintiff to PP Rentals Pty Ltd on 29 January 2021 for an amount of $137,014.90.
Relevant principles
16In determining an application to set aside a default judgment, the Court should assess:[3]
(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.
[3] Kostakanellis v Allen [1974] VR 596
17Rule 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[4] describes the test as “not all that different from the test for summary judgment”.[5] The defendant needs to show a defence which has a real, as opposed to fanciful, chance of success.
[4][2013] VSCA 215
[5]Ibid at [3]
18The 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.[6]
[6]Ibid at [3]–[5] and [18]–[20]
Defendant’s contentions
19The defendant claims he has three prima facie defences to which the Court ought to have regard, namely:
(i) the defence of non est factum;
(ii) a genuine dispute over the existence of the debt; and
(iii) whether the default interest rate imposed constitutes a penalty.
20The defendant contends the plea of non est factum is made out on the basis that although the defendant signed the loan contract, he did so in the belief that it contained the same terms as the earlier offer agreement. He relied upon an extract from the High Court in Petelin v Cullen[7] where the Court said:
“It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it. The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed. It is otherwise when the defence is asserted against the other party to the transaction who is aware of the circumstances in which it came to be executed and who knows (because the document was signed on his representation) or has reason to suspect that it was executed under some misapprehension as to its character. In such a case the law must give effect to the policy which requires that a person should not be held to a bargain to which he has not brought a consenting mind for there is no conflicting or countervailing consideration to be accommodated – no innocent person has placed reliance on the signature without reason to doubt its validity.”[8] (emphasis added)
[7](1975) 132 CLR 355
[8]Ibid at [14]
21The defendant says the uncontradicted evidence is that the plaintiff prepared a document materially different to the agreement which had been previously discussed. Further, the plaintiff procured the defendant’s signature without acknowledging the alterations. The effect then is that a finding of non est factum is open with the result that the the loan contract is void. Other cases suggest that where the party is under a serious mistake about the terms of the contract, it would be unconscionable of the other party to take advantage of the mistake, and the contract will be set aside. Consequently, the defendant argues the loan contract is void or alternatively voidable, and the plaintiff cannot rely on the higher default rate of 12 per cent per month.
22The next issue is the quantum of the debt and whether any sums are in fact owing. The defendant argues that there is a conflict on the evidence as to whether the advances were wholly secured. The plaintiff’s solicitors asserted in July 2020 that there were secured advances of $140,000 and unsecured of $142,500. That position is different to Mr 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 plaintiff are unclear and incomplete. The so-called “pink book” exhibited to the second affidavit of Mr Penman is said to be the plaintiff’s ledger and record of the defendant’s loan account. The defendant says the figures listed in the pink book are unable to be reconciled with the list of securities exhibited by Mr 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 plaintiff suggests that a considerable proportion of the debt now claimed is not subject to the loan contract at all.
23The defendant 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.
24The 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 defendant that the plaintiff had charged default interest for an extended period which was irreconcilable with what was right and reasonable. The plaintiff advised the defendant that the security would be sold on 27 July 2020; however, the plaintiff deposed that it was not sold until November 2020. Subsequently, the plaintiff provided quotes showing the sale of items on 29 January 2021. It was claimed that such conduct is relevant to a potential finding of unconscionability under s12CC of the Australian Securities and Investments Commission Act 2001 (Cth).
25Arising out of these matters, the defendant says that he has established prima facie defences to the claim, and therefore the default judgment ought be set aside.
Plaintiff’s contentions
26The plaintiff contended the Court should not give the defendant leave to rely upon his second affidavit, dated 27 January 2022. It was put that the affidavit was inadmissible by reason of the objections set out in paragraph 6 of the plaintiff’s second outline of submissions. However, I was not persuaded that the objections made to the second affidavit of the defendant were sound and should be upheld. I granted leave for the defendant to rely upon the affidavit.
27The plaintiff also sought to adduce additional evidence at the hearing, namely, the tendering of Exhibit “P1”, together with the further affidavit sworn by Mr Kukulka dated 27 January 2022. The defendant did not object to the receipt of this additional material.
28The plaintiff contends the default judgment should not be set aside. The issue of security provided by the defendant did not affect the debt claim and was at a best a counterclaim and not capable at law of being a set off. The defendant had not given details of the security he had provided and what is said to be missing. The invoice tendered by the plaintiff showed the goods which had been sold by the plaintiff. The pink book evidenced the loans which had been advanced and payments made by the defendant.
29The plaintiff also argues that the allegations regarding the default interest clause being a penalty cannot be made out, as there has been no attempt to adduce evidence in respect of all the material facts that need to be proved to show the rate charged is a penalty. Further, even if the contractual term for the default interest rate is regarded as a penalty, that would only reduce the amount that the defendant owes the plaintiff.
Analysis and conclusions
30Although the matter is not free from doubt, I consider the defendant 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 defendant 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 plaintiff to charge penalty interest and at what rate and from when, which in turn depends upon a factual finding that the defendant was in default.
31As 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 defendant has satisfied me that he has a defence to the claim which has some real prospects of success.
32The focus on the review was centred on the merits or otherwise of the defendant’s potential defences to the claim. As for the remaining elements when considering these types of applications, I am satisfied that the defendant 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 plaintiff could not be overcome by an award of costs.
33In the circumstances, I will set aside order 2 of the orders made by the judicial registrar on 7 December 2021 and give the defendant leave to defend. It should also be noted that the materials before me on the review were far more extensive than the materials put before the judicial registrar, including a more nuanced affidavit from the defendant, well-crafted written submissions, and a detailed proposed defence. The plaintiff’s pink book, which was produced by the defendant and raises more questions than answers, was not placed before the judicial registrar, and nor was Exhibit “P-1”.
34Unless the parties bring to my attention any reason why costs should not follow the event, I will order that the plaintiff pay the defendant’s costs of the application for a review of the determination made on 7 December 2021, such costs to be taxed on the standard basis in default of agreement. The parties are directed to confer and file a minute of proposed orders to reflect these reasons. If the parties are unable to reach agreement, any submission on the formal orders must be filed and served by 4pm on 23 February 2022, limited to three pages. Final orders will then be made on the papers.
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Certificate
I certify that these 9 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 17 February 2022.
Dated: 17 February 2022
Associate to Her Honour Judge A Ryan
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