Hillside Vineyards Pty Ltd (in Liquidation) (Respondent) v Dean Liebich Nominees Pty Ltd

[1993] SASC 4003

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA DEBELLE J

CWDS
Practice and procedure - Judgment in default of appearance - Multiple defendants - Judgment against first defendant only - Appeal from refusal to set aside judgment - Judgment for liquidated demand and damages to be assessed - Claim for damages is different cause of action from claim for liquidated demand - Claim for damages on same grounds as against other defendants - Other defendants defending the action - Possibility of inconsistent judgments - Appeal allowed only against judgment for damages to be assessed
Evans v Bartlam (1937) AC 473; Ex parte Vigilant Finance (NSW) Pty Ltd
(1964) NSWR 1282; Grimshaw v Dunbar (1953) 1 QB 408 and Watson v Anderson
(1976) 13 SASR 329, applied.

HRNG ADELAIDE, 1 April 1993 #DATE 24:6:1993
Counsel for appellants:     Mr N Strawbridge
Solicitors for appellants:    Baker O'Loughlin
Counsel for respondent:     Mr R C White
Solicitors for respondent:    Sykes Bidstrup

ORDER
Appeal allowed in part.

JUDGE1 DEBELLE J The first defendant appeals from an order of a Master of this court in which the Master refused to set aside a judgment entered against it on 14 April 1992 in the sum of $72,328 together with damages to be assessed. 2. On 26 March 1992 the plaintiff, Hillside Vineyards Pty Ltd (in liquidation) ("Hillside"), issued the summons in this action with a statement of claim annexed. The defendants were Dean Liebich Nominees Pty Ltd ("Liebich Nominees") and Mr H.K. Liebich and Mr D.K. Liebich, both of whom are directors of Liebich Nominees. The first part of the statement of claim concerned a claim for the sum $72,828 alleged to be a debt due by Liebich Nominees to Hillside. The balance of the statement of claim related to a claim against the defendants Messrs H.K. and D.K. Liebich for breaches of their duties as directors of Hillside concerning the sale or other disposition of wine stock, plant, equipment and vehicles of Hillside. In the alternative, there were claims based on the latter allegations against all three defendants for wrongful conversion or detention of wine stock of Hillside to the value of $212,748.20 and of plant, equipment and vehicles of Hillside to the value of $59,461. 3. The summons was served on Liebich Nominees on 30 March 1992 by leaving a copy at its registered office which was also the office of the secretary of Liebich Nominees. The secretary failed to inform either the directors of the company or its solicitors of the fact of service. As at 21 July 1992 the summons had not been served on either Mr H.K. Liebich or Mr D.K. Liebich. On 14 April 1992 Hillside entered judgment in default of appearance against Liebich Nominees. The terms of the judgment were:
    1. That Hillside recover against Liebich Nominees the sum of
    $72,328.
    2. That Hillside recover against Liebich Nominees in respect of
    that proportion of its claim which comprises damages, the damages
    to be assessed.
    3. That Hillside recover against Liebich Nominees its costs to be
    taxed. 4. On 21 July 1992 Liebich Nominees applied to have the judgment set aside. 5. The application was ultimately heard by a Master on 10 November 1992. The Master referred to the dicta of Bray CJ and Walters J in Watson v Anderson
(1976) 13 SASR 329, at 334, 341 and to the criteria mentioned by Bollen J in Hill v Park Davis &; Co Ltd (1986) 41 SASR 349. He concluded that the matters put forward by Liebich Nominees as grounds of a possible defence had been answered by Hillside and that there was no reasonable possibility of success on the part of Liebich Nominees. He therefore refused the application. Liebich Nominees appeals from that decision. Liebich Nominees does not take issue with the fact that judgment was entered very soon after the expiry of the time in which it should have entered an appearance. As already mentioned, the failure to enter an appearance resulted from the fact that neither the secretary of the company nor any of his employees informed either the directors of the company or its solicitors of the fact of service. In my view, the prompt entry of judgment was not a ground on which the judgment in this case should be set aside. 6. Mr A.I. Sach, a public accountant, was secretary of Hillside from 26 June 1973 until the liquidation of the company. He has also been the secretary of Liebich Nominees since 21 October 1984. He prepared the financial statements of both Hillside and Liebich Nominees for the financial years ending 30 June 1988, 1989 and 1990. The balance sheet of each company in the years ending 30 June 1988 and 1989 disclosed that Liebich Nominees was indebted to Hillside in the sum of $97,828. In the financial year ending 30 June 1990, the balance sheet states that that indebtedness was reduced to $72,828. The reduction of the debt results from a payment by Liebich Nominees to Hillside of $25,000 to which reference will shortly be made. The amount claimed by Hillside from Liebich Nominees was $72,828. In consequence of what is apparently a typographical error in the prayers for relief in the statement of claim, judgment was entered in the sum of $72,328 instead of the sum of $72,828. 7. At all material times, Messrs H.K. and D.K. Liebich were the only directors of Hillside and of Liebich Nominees. They ceased to be directors of Hillside on 27 March 1991, when the order was made winding up Hillside. 8. I turn to the claim by Liebich Nominees that it has a good defence to the judgment entered against it in the sum of $72,328. The affidavit of Mr D.K. Liebich sworn in support of the application states the facts on which Liebich Nominees relies. In his affidavit, Mr Liebich refers to a series of what he calls "inter-company transactions" which, he says, totally expunge the debt of $72,828 due by Liebich Nominees to Hillside. His evidence seeks to go behind the financial statements of Hillside. There is no advantage in seeking to deal with each of the claims he makes. It is sufficient to note three aspects only. 9. Mr Liebich claims that three payments made by Liebich Nominees on behalf of Hillside have not been taken into account. Those three payments are as follows:
    Date         $                 Payee
    19/12/89 $15,000            Oakwood Wines
    24/ 1/90    $5,000            Hillside
    14/ 2/90    $5,000            Hillside
$25,000 10. The payee Oakwood Wines is Oakwood Wines and Spirits Pty Ltd ("Oakwood"), a liquor merchant trading in Victoria. Mr Liebich says that the payment made on 19 December 1989 was made by Liebich Nominees on behalf of Hillside for goods purchased by Hillside from Oakwood. Contrary to the assertion of Mr Liebich, all three payments have been brought into account in reducing the indebtedness of Liebich Nominees to Hillside. They are the payments which reduced the debt from $97,828 in the years ending 30 June 1988 and 1989 to $72,828 in the year ending 30 June 1990. 11. Apart from the assertions of Mr Liebich, there is no evidence whether any of the other inter-company transactions on which Mr Liebich relies are recorded in the financial statements of Hillside. The amounts the subject of these claims are quite substantial. To give effect to the claim that they have not been included is to say that Mr Sach, the secretary of both companies, failed to notice them in the preparation of the accounts. It would also require a re-writing of the accounts of both companies. One would expect that Mr Sach who had been the secretary of each company for some years would have been very familiar with each of these transactions. He has sworn that he prepared the financial statements from the accounting records and other records of each company and from information supplied to him by both Mr H.K. Liebich and Mr D.K. Liebich. Further, as a director of both Hillside and Liebich Nominees, Mr Liebich would have signed a statement to the effect that the balance sheet of each company gave a true and fair view of the state of the affairs of the company at the end of each of the financial years ending 30 June 1988, 1989 and 1990: see s.269(9) of the Companies (South Australia) Code. There must, therefore, be very serious doubts as to the existence of the inter-company transactions on which Mr Liebich relies or, if they exist, as to their effect on the financial statements of Liebich Nominees. These doubts are reinforced by Mr Liebich's mistaken assertion that the three payments totalling $25,000 have not been taken into account. 12. Mr Liebich also alleges that Hillside incurred a debt of $131,020.10 to Oakwood in consequence of the purchase of wines from Oakwood in December 1988 and that that indebtedness or at least a substantial part of it was still outstanding as at 30 June 1990. However, the accounts of Hillside for the year ending 30 June 1990 show that Hillside had no trade creditors as at 30 June 1990. That is consistent with the fact that on 28 February 1989, Hillside ceased to hold a licence to sell liquor under the Liquor Licensing Act, 1985 and that on 30 June 1989, following the sale of its business "Rovalley Wines", on 20 November 1988, Hillside ceased to trade. The fact that the accounts of Hillside, prepared by Mr Sach and signed by Mr Liebich for the year ending 30 June 1990, show that it had no trade creditors calls into question any alleged indebtedness of Hillside to Oakwood of the nature alleged by Mr Liebich. 13. It is possible to criticise another aspect of the claims by Mr Liebich. He relies on three payments which, he says, were made by Oakwood to Hillside, namely: 18/11/89 $15,072 8/1/90 $4,900 23/4/90 $2,100 In answer to that allegation, Mr Lowe, an accountant employed by the liquidator of Hillside, swore an affidavit stating that each of these payments was made by Oakwood to Merrivale Wines, which was the name under which Liebich Nominees traded. Mr Liebich has not denied this reply by the liquidator of Hillside. 14. Although I have mentioned only three aspects of the claims made by Mr Liebich, they are sufficient, when viewed as a whole, to show that the claims made by Mr Liebich have little prospect of success and fall short of demonstrating that Liebich Nominees has some reasonable prospect of success. The claims now made by Mr Liebich fly in the face of the financial statements of the company which he, as a director, has signed as giving a true and fair view of the affairs of the company. 15. There are other factors which substantially undermine the claims made by Mr Liebich. First, pursuant to s.475(1) of the Corporations Law, Mr Sach has prepared a report of the affairs of Liebich Nominees dated 31 May 1991. In that report Mr Sach states that Hillside is a creditor of Liebich Nominees in the sum of $72,828. Neither Mr H.K. Liebich nor Mr D.K. Liebich have completed the report required by s.475(1) and they certainly have not disputed what is contained in the report prepared by Mr Sach. Secondly, in addition to having signed the financial statements of Liebich Nominees in the years ending 30 June 1988, 1989 and 1990, Messrs H.K. and D.K. Liebich caused an information brochure on behalf of Hillside to be published in August 1988 when they were considering three options as to the future of Hillside. Those options were to sell the company, to sell assets of the company, or attract new capital to the company. The brochure includes the following statement: "The information contained in this document is designed to provide interested parties with sufficient detail of Hillside's operations and, thus, promote further discussion and presentation of detailed information at a later date." 16. The financial information contained in the brochure included as a current asset of Hillside a debt in the sum of $97,828 due by Merrivale Wines, the name under which Liebich Nominees traded. 17. Thirdly, the claim for repayment of the sum of $72,828 was first made by the liquidator of Hillside by a letter dated 22 May 1991. In the following ten months, five further letters of demand were sent by the liquidator or his solicitors to the company and its directors. None of the letters were returned and none of the letters elicited any response. It has not been suggested by either the company or its directors that Liebich Nominees was not indebted to Hillside until Mr Liebich's affidavit of 21 July 1992. There is another factor which, I think, goes to the bona fides of the defence which Mr Liebich seeks to advance. On 29 May 1992, an application was made by the liquidator of Hillside to wind up Liebich Nominees. The ground upon which the application was made was a failure to pay the judgment debt of $72,328. The application to wind up the company came on for hearing on 24 June 1992 and was adjourned to 22 July 1992. 18. The application to set aside the judgment was made on 21 July, that is to say, on the eve of the adjourned hearing of the application to wind up Liebich Nominees. Mr Liebich's affidavit in support was sworn on 21 July and was filed the same day. The application was listed for hearing on 29 September. The application to wind up Liebich Nominees was eventually adjourned also to 29 September. 19. On 29 September Liebich Nominees made a further application to adjourn both the application to wind up the company and this application. The adjournment was sought to enable Liebich Nominees to obtain cheques from its bank in support of allegations by Mr Liebich that payments had been made by Liebich Nominees to or on behalf of Hillside. After argument, both applications were adjourned to 10 November. 20. When the application came on for hearing on 10 November the cheques were not produced. Counsel for Liebich Nominees said that the company was still seeking to obtain them from the bank. That assertion was not supported by any evidence from Mr Liebich or from any other officer of the company. It must be weighed against the fact that on 28 September 1992 Mr Liebich had sworn an affidavit that the cheques would be available in three weeks. There is no satisfactory explanation for the absence of the cheques. In addition to failing to produce the cheques, Liebich Nominees sought an adjournment for the purpose of adducing evidence in support of fresh claims of inter-company transactions to offset any indebtedness of Liebich Nominees to Hillside. These claims were made on grounds quite unrelated to the inter-company transactions referred to in the affidavit of Mr Liebich sworn on 21 July. 21. The new claims were that there had been no accounting between the companies for the supply of substantial quantities of grapes grown on land owned by Liebich Nominees and made available to Hillside over a number of years. It was alleged that Hillside had thereby obtained a substantial benefit for which it had not paid Liebich Nominees. There was no evidence either in support of this defence or which provided any kind of reasonable basis for it. It was stated that it was proposed to engage Mr Sach to locate the relevant documents and to prepare a report in support of the claim. Apart from that statement, the only other affidavit in support merely asserted the nature of the claim. It was not until 10 November 1992 that the claim was first raised and it represented a very material departure from the earlier grounds advanced as the company's defence. This eleventh hour claim has all the hallmarks of an ill-conceived attempt to delay the inevitable and in my view it comes too late in the day. It does not suggest that the defence is bona fide. 22. The position might be summarised in this way:
    1. The balance sheets of Hillside and Liebich Nominees for the
    year ending 30 June 1989 both provide clear evidence of the
    existence of the debt.
    2. Liebich Nominees seeks to deny the accuracy of balance sheets
    which have been prepared pursuant to a statutory obligation and in
    respect of which Messrs H.K. and D.K. Liebich, as directors of
    both Hillside and Liebich Nominees, have stated that they give a
    true and fair view of the state of affairs of the company.
    3. A statement of affairs prepared by the secretary of the
    company confirms the existence of the debt.
    4. The defendants did not deny the existence of the debt until
    faced with the treat of a winding up order against Liebich
    Nominees.
    5. Having obtained an adjournment to enable it to place material
    before the Court in support of its claims, Liebich Nominees did
not do so. 23. The discretion to set aside a judgment entered in default of appearance is unfettered: Evans v Bartlam (1937) AC 473. It has not been demonstrated that the learned Master has in any respect erred in determining that Liebich Nominees have failed to establish that it had a prima facie defence. That in itself would be sufficient ground to dismiss this appeal. The Master was at pains to avoid trying the matter on the basis of the affidavits. Where there has been negligence on the part of a defendant - and Liebich Nominees has been guilty of negligence in failing to file an appearance - the Court will be disposed to require a reasonably clear case on the merits to be shown to incline it to interfere: Ex parte Vigilant Finance (NSW) Pty Ltd (1964) NSWR
1282, 1285. As Jenkins LJ put it in Grimshaw v Dunbar (1953) 1 QB 408, 416: "The Judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success." 24. All of these decisions were applied in Watson v Anderson (supra). I do not think that Liebich Nominees has demonstrated that it has any reasonably possibility of defending the claim for $72,328. In my view, the Master correctly decided not to set aside that part of the judgment. 25. For these reasons I would dismiss the appeal in so far as it relates to the judgment for the sum of $72,328. 26. I turn to the appeal in relation to the judgment for damages against Liebich Nominees. Paragraphs 8, 9, 10 and 11 of the statement of claim refer to alleged misconduct of Messrs H.K. and D.K. Liebich as directors of Hillside. In paragraph 12 of the statement of claim, there is an alternative plea against all three defendants for conversion and wrongful detention of the wine stock and plant equipment and vehicles. The plea is obviously based on the allegations in paragraphs 8-11. It is said on behalf of Liebich Nominees that judgment should not have been entered against it in relation to that part of Hillside's claim. 27. I think that different considerations apply in relation to this part of the judgment. Both Mr H.K. Liebich and Mr D.K. Liebich have filed a defence putting in issue all of the allegations made against them. If the judgment for damages against Liebich Nominees is not set aside, there is potential for a serious anomaly in that the two directors of the company might successfully defend the claims against them but the company would nevertheless be liable in respect of the same allegations and only because judgment had been entered against it in default of appearance. In those circumstances, it is, I think, proper to set aside that part of the judgment which relates to the claim for damages founded on paragraph 12 of the statement of claim. The learned Master failed to address this aspect of the matter and for that reason I would allow the appeal in so far as it relates to the claim for damages. 28. For these reasons, there will be orders in the following terms:
    1. Appeal allowed.
    2. The judgment for the plaintiff entered on 14 April 1992 will
    be varied to the extent that paragraph 2 thereof is deleted. 29. I will hear the parties as to the costs of this appeal.