Houses to Go Pty Ltd v Roumeliotis
[2012] VSC 44
•16 February 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. SCI 03977 of 2011
| HOUSES TO GO PTY LTD (ACN 136 801 548) | Plaintiff |
| v | |
| LYNETTE JOYCE ROUMELIOTIS | First Defendant |
| and | |
| JOHLYN PTY LTD (ACN 129 188 638) | Second Defendant |
| and | |
| KALIMNA HOTEL PTY LTD (ACN 147 299 607) | Third Defendant |
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JUDGE: | J FORREST J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 February 2012 | |
DATE OF JUDGMENT: | 16 February 2012 | |
CASE MAY BE CITED AS: | Houses To Go Pty Ltd v Roumeliotis & ors | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 44 | |
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PRACTICE AND PROCEDURE – Default judgment – Setting aside of default judgment – Whether leave should be granted under Orders 77.06(6) and 77.06(7)(b) of the Supreme Court (General Civil Procedure) Rules 2005 – Merits of the case demand default judgment removed – Appeal allowed and default judgment set aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Magowan | MSB Lawyers |
| For the Second and Third Defendants | Ms E Mealy | Darroll Nelson & Co |
HIS HONOUR:
This is an appeal from the decision of an Associate Justice declining to set aside a default judgment against the second and third defendants, Johlyn Pty Ltd[1] and Kalimna Hotel Pty Ltd.[2]
[1]“Johlyn”.
[2]“Kalimna”.
From the time the writ was issued, the two companies have disputed any indebtedness to the plaintiff, Houses To Go Pty Ltd,[3] but attempts to get their defences into a proper form have been beset by omissions and neglect.
[3]“HTG”.
However, to dismiss this appeal would be to permit form to triumph over substance. The allegations made against the two companies are curious, to say the least, and each company has at all times (although in an incorrect manner) denied any liability to HTG. To reach this conclusion implies no criticism of the Associate Justice who, it is now clear, did not have the full picture when he determined to refuse the application.
The background to this appeal
In December 2009, HTG loaned Lynette Roumeliotis, the first defendant, $80,000 secured by a mortgage over a property in Doncaster. Her husband John was the guarantor of the loan.
The loan fell into default on 29 July 2011; this proceeding was issued seeking recovery from Mrs Roumeliotis of the sum of just over $103,000 plus interest in accordance with the terms of the loan agreement.
The companies were also joined in the proceeding and the statement of claim made a series of interesting allegations against them. Neither are said to have been parties to the loan agreement. Neither are said to have been guarantors of the loan agreement. Rather, HTG alleges that the monies were used for the refurbishment of a property at Kalimna which provided a benefit to the two companies. The final paragraph demonstrates the ingenuity of the pleader:
On a quantum meruit basis, the second defendant and/or the third defendant owe the plaintiff the sum of $80,000 or as much as the loan monies as was invested in the refurbishment and/or renovation of the refurbished property.
On 23 August 2011, Lynette and the two companies filed appearances.
On 23 September, each of the companies filed defences to the statement of claim.[4] Their filing contravened the rules of the Court in that they were filed by directors of the company and not by a solicitor: rule 1.17(1) of the Supreme Court (General Civil Procedure) Rules 2005. Whatever the procedural problem, the defences made it abundantly clear that neither of the companies owed any money to HTG and had not derived any benefit out of the loan agreement. Further, Kalimna alleged it was not incorporated until after the loan agreement came into existence.
[4]“the September defences”.
On 26 September 2011, the proceeding came before an Associate Justice for directions. At that hearing, Mrs Roumeliotis appeared in person and her daughters Natasha and Talisa were given leave to appear on behalf of Johlyn and Kalimna respectively. Her Honour, aware of the defect in the form of the companies’ defences, made the following orders:
The time for the second and third defendants to file and serve any defence is extended to 24 October 2011…
The second and third named defendants are required to file their defences and appear on the next occasion by a solicitor pursuant to rule 1.17(1) of the Supreme Court (General Civil Procedure) Rules 2005.
Notwithstanding that the September defences were irregular, no strike out order was made.
On 2 November 2011, the companies (out of time) filed a joint “amended defence” through their solicitor. He asserts that he posted a copy of the defence to HTG’s solicitors, who deny receiving it.
On 8 November 2011, the HTG entered judgment against the companies purportedly on the basis of their failure to serve a defence. The application for default judgment was supported by an affidavit sworn by a solicitor, Ms Sophie Inwood. The affidavit did not refer to the September defences (which still remained on the file), and contained the following paragraph:
At the time of swearing this affidavit I had made enquiries with the Supreme Court Registry and have had cause to search our firm’s running file relating to those proceedings and have determined that following the making of the order a defence has neither been filed nor served in this matter by the second or third defendant.
The extent, date and nature of the enquiries made by Ms Inwood are not set out in the affidavit.
On 6 December 2011, the companies issued a summons seeking to have the default judgment set aside.
On 15 December 2011, the Associate Justice dismissed the companies’ application. His Honour’s reasons (which are of assistance but not necessarily relevant to this appeal which, of course, is a hearing de novo[5]) are set out in other matters:
C.The judgment was entered regularly as the time for compliance had not been observed.
D.Accordingly, the second the third defendants were required inter alia to demonstrate a defence on the merits which was not done.
E.In any event, the defence filed out of time was in the form of a denial without setting a position which would have enabled a defence to be distilled.
[5]Rule 77.06(7).
On 13 January 2012, and not unsurprisingly out of time, a Notice of Appeal was lodged by the companies against his Honour’s decision.
On 6 February 2012, a default judgment was entered against Mrs Roumeliotis.
On the day of the hearing of the appeal (9 February 2012), the companies sought to file three affidavits: one from Mr Nelson, the solicitor, endeavouring to explain the ongoing failure to comply with the Rules and the other two brief affidavits of Natasha and Talisa denying any obligation on the part of Johlyn and Kalimna to HTG.
The issues on this application
This is a hearing de novo and the substantive question is whether the default judgment should stand. There are also two subsidiary questions: First, whether leave should be given pursuant to r 77.06(6) to bring the appeal out of time and second, whether special leave should be given pursuant to r 77.06(7)(b) to the two companies to rely upon the affidavits of Natasha and Talisa. I will look at these issues compendiously.
Was judgment entered regularly?
I was told in the course of submissions that no mention was made of the September defences in the course of the hearing before the Associate Justice. This was a pity because there was, at least to my mind, a respectable argument that, absent dismissal of these defences, they still stood as defences to HTG’s claim. No argument was advanced that the September defences were served out of time, rather it was the failure to comply with r 1.17 that led to the 26 September ruling. But as the High Court explained in Berowra Holdings v Gordon,[6] such an irregularity was not necessarily fatal until it was challenged procedurally and then ruled upon. No order had been made dismissing or striking out the defences. At least arguably, the September defences remained, until removed, responsive to HTG’s claim and the application for default judgment based on the failure to comply with the 26 September timetable was misconceived.
[6](2006) 225 CLR 364.
I do not stay to consider this matter any further as it is abundantly clear, as I shall endeavour to explain, that the merits of the case demand that the default judgment be removed.
The interests of justice
The starting point is the curious nature of the claim. The companies are not alleged to have any direct relationship with HTG; they were neither borrowers nor guarantors. They had no dealings with HTG. Rather, the claim seems to be based upon liability by association (akin to guilt) leading to an asserted quantum meruit claim. This is not the time or place to discuss the niceties of such a claim save to observe that the nature of the allegations made within the statement of claim in attaching liability for the loan to the companies is unusual if not novel.[7]
[7]See Sopov v Kane Constructions Pty Ltd (No 2) [2009] 24 VR 510 in which the nature of a quantum merius claim is considered.
The second consideration is obvious. Both companies have from barrier rise contended, understandably, that they have no liability to HTG. In the context of this case and the allegations made by HTG, I respectfully differ from the Associate Justice’s views on this matter. In my opinion, they were required to assert in their defences no more than they had no obligation or liability to HTG. It was up to HTG to establish at trial what is, as I have observed, a very curious claim.
Third, there is a real mystery surrounding the contents of the affidavit of Miss Inwood. Whilst I accept that, absent the September defences, the judgment in default was regularly entered as the defences had not been served by 24 October 2011: r 21.02(1) the failure to mention the presence on the court file of the “amended defence” of the companies filed six days prior to the entry of the default judgment is, to put it mildly, surprising. But this can be put to one side – again the filing of the “amended defence” demonstrates that the companies wished to defend the claim brought by HTG against them. That desire is now borne out by the affidavits filed by Talisa and Natasha – if it needed to be.
As the Court of Appeal said in Goldberg v Morrow:[8]
What the learned judge was adverting to, which perhaps he ought to have spelt out for the application in the circumstances, is the practice whereby the Court does not ordinarily enter a default judgment where it is pointless to do so because a defendant is seeking genuinely on a tenable basis to defend the proceeding. In other words, whatever the technical failure of the defendant may be, a default judgment serves no purpose and the failure can properly be taken into account only on other questions of discretion, such as the question of costs. It is this well known kind of consideration which formed the basis for the judge’s (and the master’s) approach, though not expressly stated.
[8][2003] VSCA 127, [12].
I think it clear, indeed crystal clear, that the companies have a solid argument that any indebtedness to HTG is confined to Mrs Roumeliotis, as the borrower, and her husband, John, as the guarantor. Whether there is substance to HTG’s argument as to extended liability can only be determined at trial.
Conclusion
In my opinion, each of the companies should be granted leave to appeal out of time and I am satisfied that the circumstances of this case warrant special leave being granted to file each of the affidavits.
The appeal should be allowed and the default judgment set aside.
The conduct of this case does no one any credit and I do not confine my remarks to the appalling record of the companies in relation to the late filing of documents. I repeat that it is a pity that the matters that were ventilated before me were not before the Associate Justice.
In any event, the appropriate course is for the proceeding between HTG and the companies to go to trial before an Associate Justice. The proceeding will be referred to an Associate Justice pursuant to r 77(3).
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