Grow Funding Pty Ltd v Sklovsky
[2021] VCC 1060
•10 August 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-21-00221
| GROW FUNDING PTY LTD (ACN 603 273 365) formerly Commercial Pty Ltd | Plaintiff |
| V | |
| MICHAEL GREGORY SKLOVSKY | First Defendant |
| and | |
| TOBY LEPOER DARVALL | Second Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 July 2021 | |
DATE OF RULING: | 10 August 2021 | |
CASE MAY BE CITED AS: | Grow Funding Pty Ltd v Sklovsky & Anor | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 1060 | |
RULING
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Subject:PRACTICE AND PROCEDURE – Review of decision by a judicial registrar
Catchwords: Review of judicial registrar’s decision to set aside default judgment obtained in default of appearance against the first defendant – Rules 84.03 and 21.07 of the County Court Civil Procedure Rules 2018
Legislation Cited: County Court Civil Procedure Rules 2018; Civil Procedure Act 2010
Cases Cited:Bendigo and Adelaide Bank Ltd v Grahame [2020] VSC 86; Kostakanellis v Allen [1974] VR 596; Lubura v Nezirevic [2013] VSCA 215; Gunns Finance Pty Ltd (R & M Appointed) (In Liq) v Storey [2014] VSC 260
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Harrison | SLF Lawyers |
| For the First Defendant | Ms M Harris | KCL Law |
| For the Second Defendant | No appearance |
HER HONOUR:
1By notice filed 3 June 2021, the plaintiff seeks a review of orders made by Judicial Registrar Burchell (as Her Honour then was) on 6 May 2021. Her Honour made various orders, including an order that a default judgment entered against the first defendant on 6 February 2021 be set aside. The first defendant was given leave to file and serve a defence.
2The plaintiff’s application is made pursuant to Order 84.03 of the County Court Civil Procedure Rules 2018 (Vic) (“the Rules”). A review under Rule 84.03 is conducted by way of a hearing de novo. On the review, 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. But it is appropriate, nevertheless, 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 Ltd v Grahame [2020] VSC 86 at [15]-[18].
3The plaintiff relies upon the affidavit of Louise Tran affirmed 27 April 2021 (“the Tran affidavit”). The first defendant relied upon the affidavit of Michael Gregory Weigall Sklovsky affirmed 17 March 2021, as well as an affidavit of Andrew Kenneth Ball sworn 5 May 2021. These were the affidavits placed before JR Burchell. The parties did not seek to adduce further evidence.
4The plaintiff also relied upon written submissions dated 2 June 2021. The first defendant relied upon written submissions dated 6 May and 3 June 2021.
Background
5This proceeding was commenced by writ on 22 January 2021. Paragraph 3 of the statement of claim alleges that on 31 July 2017, the plaintiff and Michael Sklovsky Pty Ltd (“the Company”) entered into a written master lease agreement. The master lease agreement comprises multiple documents. The first and second defendants were directors of the Company. They guaranteed to the plaintiff payment by the Company of any amounts which the Company did not pay and the obligations of the Company pursuant to clause 24 of the Master Lease Agreement.
6Paragraph 6 of the statement of claim refers to a first lease schedule dated around 31 July 2017 relating to goods leased by the plaintiff to the Company. These goods were the subject of a lease back and a shop fit out of a shop at Chadstone Shopping Centre. There was also a second lease schedule entered into on or about 6 August 2018 for leased goods located at Clayton. It is then pleaded there were various defaults by the Company and the master lease agreement was terminated. The plaintiff seeks monetary relief. The claim made against the defendants is that they are liable pursuant to the guarantee to pay the plaintiff the sum of $213,250.57. An alternative claim is made against the defendants for restitution.
7The first defendant was served with the writ on 2 February 2021. He did not file an appearance. On 26 February 2021, the plaintiff obtained judgment in default of appearance against the first defendant for the sum of $219,066.89. A summons seeking to set aside the default judgment was filed on 18 March 2021. The application came on before the judicial registrar on 6 May 2021, following which her Honour gave oral reasons. Her Honour’s reasons were the subject of a revised ruling dated 6 June 2021.
8Rule 21.07 of the Rules deals with the setting aside of default judgments. A court should assess the following when considering such applications:
(a) whether there is a defence on the merits;
(b) the reason for the default;
(c) whether the application to set aside the default judgment is made promptly; and
(d) whether if the judgment is set aside, the plaintiff would suffer any prejudice which could not be adequately compensated for by an award of costs.[2]
[2] Kostakanellis v Allen [1974] VR 596.
9The 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. [3]
[3]Lubura v Nezirevic [2013] VSCA 215, [3]-[5], [18]-[20].
10In Gunns Finance Pty Ltd (R & M Appointed) (In Liq) v Storey,[4] Derham AsJ summarised the Court’s approach as follows:
“[8] Accordingly, a defendant will ordinarily be required to file an affidavit which discloses a defence. It is not sufficient that a defendant swears as to his or her belief in the existence of a defence. The affidavit must set out all the defences sought to be relied upon and the facts by which a defendant seeks to establish them. The Court should not have to search for a defence by sifting through exhibits or other material.” (citations omitted)
[4][2014] VSC 260.
11It is not disputed the application made by the first defendant to set aside judgment was made promptly once he became aware the default judgment had been entered. Nor was it argued that the explanation given by the defendant for his failure to file an appearance should militate against the granting of relief. Similarly, the question of any prejudice to the plaintiff was not raised as a barrier to the granting of relief. The focus between the parties was whether the first defendant had established he had a prima facie defence to the plaintiff’s claim.[5]
[5]See paragraph 2 of the plaintiff’s outline of submissions dated 2 June 2021, where it is acknowledged the only issue in dispute is whether the first defendant has a defence on the merits.
First defendant’s contentions
12The first defendant contends that there are seven triable issues. The first defendant disputed the plaintiff’s claim that he was asking the Court to in effect trawl through the affidavit material to find a reasonably arguable defence. Reference was made to the proposed defence which had been drafted and exhibited to the first defendant’s affidavit as Exhibit “MGWS-03”.
Triable issue one - Acceptance of the master lease agreement.
13The first defendant said that paragraph 3 of the statement of claim pleaded a conclusion of law, namely, that an agreement was entered into on 31 July 2017. Clause 1.4 of the document entitled “Master Agreement” expressly provided that acceptance by the plaintiff of a company’s offer only occurred when the plaintiff signed it. It was said there was no acceptance on 31 July 2017 and an agreement had not been made on that date as pleaded. The first defendant referred to the version of the master agreement which is exhibited to the Tran affidavit and dated 3 August 2017. It was submitted the recent production of this version could potentially raise an arguable defence as to whether this document was a recent invention used to “cure” triable issue number one. It was said this required factual investigation. It was noted the particulars to paragraph 5 of the statement of claim referred only to the defendants having signed the master lease agreement, but no particulars were given of the plaintiff having signed it.
14It was said there were two reasons for rejecting the plaintiff’s submissions on this aspect, namely:
(a) rectification is not available to amend a conclusion of law pleaded by the plaintiff in paragraph 6 of its statement of claim; and
(b) at trial, not the notice of review, is the proper place to test whether the first lease schedule exhibited to the Tran affidavit is a recent invention.
15It was also argued that clause 17.5 of the Master Lease Agreement relating to the ability to purchase the leased goods at the end of the term of the agreement had been amended by a letter dated 28 July 2017, which capped the amount payable at $100. The first defendant contends this amendment was made without his knowledge and was done by his former director, the second defendant. The flow on effect it is said could affect the overall liability of the first defendant as it changed the amount of the security available and was not consented to by the first defendant.
Triable issue two – no acceptance of first lease schedule
16This issue was the same but concerned the date of the first lease schedule. The first defendant noted there was no date on the first lease schedule. It had not been signed by the plaintiff. Therefore, acceptance had not taken place in accordance with clause 1.4 of the master lease agreement.
17In support of the suggestion that there may have been a recent invention, the plaintiff noted that Exhibit LT-2 to the Tran affidavit bore the typed date of 31 July 2017 which was different to the version provided to KCL Law on 3 March 2021. It was said an inference could be drawn that the first lease schedule was altered after it had been signed by the first defendant.
Triable issues three and four - conditions precedent pleaded in the proposed defence.
18By reason of the first two triable issues, the first defendant pleads there is what is described as an acceptance condition precedent, as well as a privacy statement condition precedent (paras 5(j) and 5(k) of the proposed defence). If these were not met, then it raised questions as to whether the guarantee could be enforced against the first defendant.
Triable issue five – effect of termination of the master lease agreement
19This issue relates to whether the plaintiff as creditor discharged the guarantee by its determination of the master lease agreement by its positive surrender of the goods, or whether it discharged the first defendant’s guarantee by its act of abandonment of the goods to the prejudice of the guarantor. Alternatively, that the plaintiff discharged or reduced the defendant’s liability by releasing or impairing the leased goods by their abandonment which were otherwise collateral security that may have become available to the first defendant.
20It is alleged in paragraph 10 of the proposed defence that a Deed of Company Arrangement (“DOCA”) dated 5 June 2020 was made by the Company and the plaintiff as a participating creditor. It is then pleaded that any loss will only crystallise upon termination under clause 21 of the DOCA, which has yet to occur and consequently, any loss against the first defendant is in effect premature.
Triable issue six – election and estoppel
21The first defendant pleads in paragraph 11(a) and (b) of the proposed defence that the plaintiff made an election as it could have taken various steps once it became aware of the Company’s default in payments. Having not done so, it made what is described as an “election”. It is then alleged that the plaintiff is bound by its election and is estopped from denying its election - the result of which is that the first defendant’s liability was discharged under the guarantee.
Triable issue seven - quantum
22The seventh issues relates to the proper quantification of the alleged debt being an action for damages. It was said that any calculation of loss must be referrable to the terms of the master lease agreement. None of the documents exhibited by the plaintiff identified any commencement date from which the obligation to pay is to occur. This was not a matter pleaded in the statement of claim. For example, in paragraph 6(a)(iii) of the statement of claim, the plaintiff pleads the monthly payments in advance that were to be paid under the first lease schedule, but failed to plead the material date from which those repayments commenced. The same applied in paragraph 7(a)(iv) of the statement of claim. It was contended that in the absence of any express commencement date, the plaintiff needs to put its case as to when the obligation to repay commenced, which was a fundamental pleading error.
Plaintiff’s contentions
23The plaintiff argued the first defendant had failed to establish a prima facie defence on the merits. It was insufficient for the first defendant to simply exhibit a proposed defence without deposing on oath as to the facts which would establish any such defence. It was said a defence must be established by way of evidence, not by a document upon which the first defendant proposed to file.
24The plaintiff disputed that there were seven triable issues as raised by the first defendant. It was said none of them had any merit and none of them provided a sufficient basis for the Court to exercise its discretion to set aside the default judgment.
25As to alleged triable issue number one, the plaintiff noted that the Tran affidavit confirmed that the master lease agreement was accepted by the plaintiff. The complaint raised by the first defendant that the date upon which it was signed, being 3 August 2017, differed from the date pleaded in the statement of claim, namely 31 July 2017, had no merit. It said nothing turned on this discrepancy. For example, it was not suggested there was more than one agreement or there was any significance about the particular date. Even if the date were an issue, it would only mean that the plaintiff could then amend its statement of claim and then proceed to make an application for summary judgment. It was argued that setting aside a judgment because of a date would be inconsistent with the principles set out in Order 2 of the Rules as well as the Civil Procedure Act 2010.
26The plaintiff contends there is no merit to alleged triable issue two. The Tran affidavit showed the first lease schedule offer was accepted and signed by the plaintiff.
27The plaintiff contends the alleged triable issues three to seven turned upon the first two and were not otherwise supported by any evidence. Nor was it said they were arguable as a matter of law.
28Given all these matters, the plaintiff submits the orders made by the judicial registrar should be set aside.
Analysis
29As the case law shows, the first defendant must show that he has a prima facie defence but not necessarily one that is bound to succeed. It is trite law that guarantees fall to be construed strictly and any ambiguities will be construed contra proferentem against the person seeking to rely upon the guarantees.
30It can be accepted that many of the arguments raised on behalf of the first defendant are legal arguments which follows a matter of construction of the various documents which have been exhibited. The affidavit of the first defendant does attach a proposed defence which raises those matters as defences to the plaintiff’s claim. He does depose to the fact that that master lease agreement and first lease schedule were not executed by the plaintiff. Mr Ball’s affidavit also referred to the discrepancies in the dates in the documents provided.
31In this instance, the plaintiff says that there is effectively no dispute that the master lease agreement was entered into nor that a guarantee was provided. The question of whether the date of the agreement is 31 July or 4 August really has no bearing upon the issue of the first defendant’s liability. The difficulty of course at this stage is that the statement of claim as pleaded does refer to a specific date, namely 31 July 2017. The document which has been exhibited to Ms Tran’s affidavit shows the acceptance by the plaintiff on 4 August 2017. Whilst I am not particularly persuaded that there could be some suggestion of a recent invention as put by the first defendant, the discrepancy in the dates is a matter which the first defendant is entitled to explore further.
32The first defendant seeks to argue that various events have discharged his obligations under the guarantee. These include the potential effect of the DOCA. The plaintiff says this can have no effect whatsoever, particularly as the plaintiff was not a party to the DOCA and this document cannot affect or release the first defendant from his liability under the guarantee and indemnity he provided. This may well prove to be a sound argument, as indeed so may many of the other criticisms levelled by the plaintiff regarding what are described as “technical” and hopeless defences. But it is not the function of the Court in these types of applications to decide whether a defence will succeed or not. That is a matter for trial. Whilst this point may ultimately fail, it cannot be said now that it does not amount to a prima facie defence. The same applies to the arguments raised about condition precedents not being satisfied and the abandonment or surrender of the leased goods which could in turn potentially discharge the first defendant’s liability under the guarantee.
33The potential defence raised that the first defendant’s former co-director entered into different arrangements about clause 17.5 of the master lease agreement without telling him, which may affect the first defendant’s liability to pay, is also a triable issue in my view.
34The date on which the payments under the lease schedules commenced is also an issue as it is not clear when the liability to pay commenced. To that extent also, the first defendant should be entitled to challenge the calculation of the quantum of the claim made against him. The first defendant should be entitled to the benefit of a trial to explore these various issues.
35Although the matter was not free from doubt, on balance, I consider the first defendant has done enough to raise a prima facie defence on the merits and therefore, should be given leave to defend. In the circumstances, I will confirm the orders made by the judicial registrar made on 6 May 2021.
36Unless the parties bring to my attention any reason why costs should not follow the event, I will order that the plaintiff pay the first defendant’s costs of the application to review of the determination made on 6 May 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 submissions on the form of the orders must be filed and served by 4.00pm on 13 August 2021, limited to three pages. Final orders will then be made on the papers.
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Certificate
I certify that these 10 pages are a true copy of the Reasons for Ruling of Her Honour Judge A Ryan delivered on 10 August 2021.
Dated: 30 August 2021
Associate to Her Honour Judge A Ryan
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