Jovista Pty Ltd T/As SDR Construction v T.O'connor and Sons Pty Ltd. No. SCGRG 91/1136 Judgment No. 3825 Number of Pages 8 Practice

[1993] SASC 3825

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS
Practice - Default judgment - application to set aside - whether irregularly obtained - defendant company under receiver and manager and liquidator - whether either or both could apply to set aside default judgment - whether application should be dealt with according to ordinary principles - judgment set aside. SCR 23 Watson v Anderson (1976) 13 SASR 329, applied.
Whether liquidated or unliquidated claim - building contract - claims for variations, prolongation etc - held to be a claim for a liquidated sum. SCR
23.01(a), Alexander v Ajax Insurance Co. Ltd. (1965) VLR 436, applied.

HRNG ADELAIDE, 18 and 27 January, 1993 #DATE 18:2:1993
Counsel for plaintiff:         Mr. Morcombe QC
Solicitors for plaintiff:     Mellor Olsson
Counsel for defendant:         Mr. Evans
Solicitors for defendant:     Ross and McCarthy

ORDER
Order setting aside the default judgment.

JUDGE1 BURLEY J On 13th June 1991 the plaintiff obtained judgment in default of appearance in the sum of $1,360,026.41 inclusive of interest plus its costs of action. The defendant has applied to have the judgment set aside. The application has had a somewhat chequered history owing to the fact that on 29th April 1991, prior to the commencement of these proceedings, Mr. Campbell was appointed receiver and manager pursuant to securities held by certain secured creditors and to the fact that, after the proceedings were commenced and default judgment was obtained, Mr. Sheahan was appointed liquidator of the defendant. As a result there are some unusual features to this application not the least of which is that, if the judgment is set aside, the plaintiff is reluctant to prosecute the action given that it is unlikely that any dividend in the liquidation will be paid to unsecured creditors, that the liquidator has not called for proofs of debt from unsecured creditors and may not do so and that the receiver and manager has only a limited interest in whether or not the judgment is set aside. It is the concern of the receiver and manager to pursue a counter-claim against the plaintiff which happens to be less than the judgment debt. 2. In essence it was the plaintiff's contention that the judgment should remain (even though it was conceded that the defendant, for the purposes of the application, had an arguable defence) because, it was contended, after the receiver and manager became aware that the plaintiff intended to commence proceedings against the defendant, the inference should be drawn that the receiver and manager made a conscious decision not to defend the proceedings. Mr. Morcombe QC, counsel for the plaintiff, forcefully argued that the defendant, qua the receiver and manager, having made the decision not to defend the proceedings should not be now permitted to resile from that position notwithstanding that it had an arguable defence because of the prejudice which has accrued to the plaintiff by the effluxion of time between the date of the default judgment, the 13th June 1991, and the date of filing of the application to set aside judgment, the 17th March 1992. 3. It was the contention of Mr. Evans, counsel for the defendant, that this application should be dealt with by reference solely to the ordinary principles governing applications to set aside judgment. He submitted that the judgment had been irregularly obtained and that the defendant was, ex debito iustitiae, entitled to have the judgment set aside. The fact that the plaintiff conceded, for the purposes of the application, that the defendant had an arguable defence to the action, gave greater force, he submitted, to that contention. Mr. Evans alternatively relied upon the ordinary principles relating to the setting aside of default judgments, as to which he referred me to Watson v. Anderson (1976) 13 SASR 329 and other authorities. Having considered counsels' submissions I have come to the view that, although I must take into account the fact that there has been an ex curial appointment of a receiver and manager and a curial appointment of a liquidator, in order to ensure that in all the circumstances irremediable prejudice does not accrue to the plaintiff, at the end of the day the application is appropriately dealt with by reference to the ordinary principles governing applications to set aside default judgments. In adopting such an approach I have come to the conclusion that the judgment ought to be set aside. 4. In these reasons I intend to deal specifically with most of the arguments put by counsel but not all of them. To the extent that I do not specifically canvass an argument put by either counsel I say that I have carefully considered all such submissions and weighed them in the balance. 5. Before turning to counsels' submissions it is useful to provide a chronology:
    10.3.87 - Contract entered into between the defendant and the
    head contractor.
    26.6.87 - Contract entered into between the plaintiff and the
    defendant.
    Feb 1988 - The defendant gave the plaintiff notice of default.
    4.7.88 - Notice of dispute given by the plaintiff to the
    defendant.
    11.5.89 - Points of claim filed in arbitration, six months late.
    20.2.90 - Amended particulars of points of claim filed.
    22.1.91 - Initial arbitrator resigned.
    22.3.91 - Mr. DeFina nominated as arbitrator.
    2.4.91 - Defendant objected to Mr. DeFina's nomination.
    22.4.91 - Mr. DeFina purported to enter upon the reference and
    set various time limits.
    29.4.91 - Mr. Campbell appointed receiver and manager.
    15.5.91 - These proceedings commenced.
    22.5.91 - These proceedings served.
    13.6.91 - Judgment signed in default of appearance.
    30.8.91 - Letter from plaintiff's solicitors to receiver and
    manager notifying that judgment has been signed.
    11.9.91 - Mr. Sheahan appointed liquidator of the defendant.
17.9.92 - The defendant applied to set aside judgment. 6. The first point made by Mr. Evans in support of his application was that the judgment was irregularly obtained and as such should be set aside: cf Daly v. Silley (1960) VR 353, Johnsen v. Duks (1963) NSWR 730 and the other cases referred to at paragraph 23.04.10 of Civil Procedure. Mr. Evans submitted that the default judgment was obtained on the basis that the whole of the amount of the judgment constituted a claim for a liquidated sum whereas, it was submitted, a substantial proportion of the judgment sum was not liquidated. It was common ground that whether or not the amount claimed could be said to be liquidated must be determined by reference to the contents of the statement of claim. This is so because the default judgment was entered by a ministerial act as opposed to a judicial determination and the only basis upon which the nature and the amount of the judgment could be ascertained by the Registrar, when requested to enter default judgment, was by reference to the statement of claim. 7. It is apparent from the statement of claim that the judgment sum is made up of claims for variations, prolongation of the contract period, deviations to the programme (in the alternative to prolongation claims), day work and suspension of work. It was submitted that all of these claims were clearly for unliquidated sums or the pleading was such that it could not be determined from the pleading whether or not the amount claimed was liquidated or unliquidated. 8. I was referred to Spain v. The Union Steamship Company of New Zealand Limited (1923) 32 CLR 138. In that matter the High Court dealt with the question whether an action in the District Court of New South Wales could be said to be an action for a debt or for a liquidated demand. It was contended by the defendant that the claim made by the plaintiff did not come within the appropriate provision of the District Court Act because the plaintiff's right was to recover reasonable expenses and not a sum certain or any liquidated amount. Knox CJ and Starke J said at page 142:- "The objection is untenable, even if it could be insisted upon at such a late stage of the hearing of the plaint (Chitty on Pleading, 3rd Ed. Vol I, p.105; Stephenson v. Weir (1879) 4 LR Ir. 369. As is well said by Mr. Odgers (Pleading and Practice, 5th Ed., p 41), whenever the amount to which the plaintiff is entitled ... can be ascertained by calculation or fixed by any scale or charges, or other positive data, it is ... liquidated." 9. This case was referred to by Scholl J in Alexander v. Ajax Insurance Co. Ltd. (1956) VLR 436 where his Honour undertook an exhaustive examination of the test to be applied to determine whether or not the claim was a claim for a liquidated sum. At page 435 of the report His Honour said:-
    "Perhaps the best statement which could be attempted at the
    meaning of the expression 'debt or liquidated demand (in money)'
    as used in 1851, is that it covered any claim:-
    (a) for which the action of debt would lie;
    (b) for which an indebitatus (or "common") count would lie -
    including those cases formerly covered by the quantum merit or
    quantum valebat counts, notwithstanding that the only agreement
    implied between the parties in such cases was for payment at a
    "reasonable" rate;
    (c) for which covenant or special assumpsit, would lie, provided
    that the claim was for a specific amount, not involving in the
    calculation thereof elements the selection whereof was dependant
    on the opinion of the jury." 10. His Honour was of the opinion that that still remained the law. 11. It was contended by Mr. Evans that the two cases cited should be distinguished because in those cases the Court was dealing with the phrase "debt or liquidated demand" whereas in Rule 23.01(a) the expression is "the relief claimed is for a liquidated sum". In my view the difference in wording does not detract from the appropriateness of applying the principles referred to by Scholl J in Alexander v. Ajax Insurance Co. Ltd. In following that case I have come to the conclusion that, with one exception, all of the amounts claimed by the plaintiff can be said, by reference to the statement of claim, to be claims for liquidated sums. In effect the amounts claimed are either for reasonable sums or for expenses necessarily incurred. Given that, in failing to enter an appearance, the defendant is taken to admit the allegations contained in the statement of claim: (cf. Cribb v. Freyberger
(1919) WN 22; except allegations as to damages: cf. Watson's Specialised Tooling Pty. Ltd. v. Stevens (1991) 1 QdR 85), the defendant is taken to admit, for example, that the variations were agreed and that the reasonable costs for same were as pleaded in the statement of claim. The position is similar to, if not the same as, an action for quantum meruit. Accordingly I am of the view that most of the judgment sum consists of liquidated sums, the exception being the claim for crane hire referred to at paragraphs 27 to 30 of the statement of claim. It is clear from those paragraphs that the amount claimed, $9065, is for damages for breach of either an express or implied term of the contract and as such cannot be said to be a liquidated sum. The amount of damages is approximately 100th of the plaintiff's claim and it might be said that the de minimis rule should apply. I do not need to decide the point because I have reached the conclusion that the judgment ought to be set aside on the application of the ordinary principles relating to the setting aside of default judgments. 12. In support of his submission that the judgment was irregularly obtained, Mr. Evans submitted that the interest component, amounting to in excess of $400,000, was wrongly included in the judgment sum. I do not agree with that contention. It is clear from the document headed "Re- calculation of Interest" lodged by the plaintiff prior to obtaining the default judgment, that interest has been claimed on the sum of $814,299.03 being the claims set out in paras. 8, 16, 20, 26, 30, 33 and 41 of the statement of claim. The commencement date for the interest is 31st March 1988 when, it is alleged in the statement of claim, the plaintiff had completed its work. When the interest is confined to the sum of $814,299.03 from 31st March 1988, I consider that interest has been properly allowed in accordance with the contents of the statement of claim. 13. The second point raised by Mr. Evans related to the fact that no notice was given by the plaintiff's solicitors to Messrs Ross and McCarthy, prior to the signing of judgment, that judgment would be signed. This is correct in the sense that no notice was given between the date of service and the date that judgment was signed. However it cannot be said that no notice at all had been given. It is common ground that a copy of a letter from Jackson and McDonald, the plaintiff's Western Australian solicitors, was sent by inadvertence to Messrs Ross and McCarthy who in turn, on about 9th May 1991, forwarded a copy to the receiver and manager. A copy of the letter is exhibit "PWN2" to the affidavit of Mr. Nobbs sworn on 16th March 1992. In that letter Messrs Jackson and McDonald advised Mellors, the plaintiff's South Australian solicitors:-
    "The purpose of issuing the writ is to bring this matter to a
    head and to force T. O'Connor and Sons to either accept the
    jurisdiction of the Institution of Engineers Nominee as
    arbitrator or proceed in the Supreme Court. We expect that T.
    O'Connor and Sons will most probably make an application to stay
    the Supreme Court proceedings pursuant to section 53 of the
    Commercial Arbitration Act 1986. However, we request that if
    T. O'Connor and Sons fails to enter an appearance and/or file and
    serve a defence within the requisite time that you proceed to
    enter judgment in default. We advise that Mr. Phillip Nobbs of
    Ross and McCarthy has been acting for T. O'Connor and Sons in the
    arbitration proceedings." 14. It is common ground that the plaintiff's South Australian solicitors requested Mr. Nobbs to obtain instructions to accept service of proceedings and that Mr. Nobbs subsequently advised that he did not have instructions to accept service of the proceedings. The plaintiff's solicitors then arranged for service on the defendant at the registered office of the defendant. On the affidavit material before me I find that the summons was delivered to the registered office of the defendant but that the secretary to whom the document was handed did not pass it on to anyone in authority. Hence, neither the receiver or manager nor the officers of the defendant company became aware of the service of the proceedings. 15. Mr. Evans referred to various authorities which were to the effect that if solicitors were acting for a defendant, the fact that no notice was given to those solicitors prior to the signing of judgment was a material consideration on the question of whether or not the judgment should be set aside. I agree with that proposition. However, I do not think it applies in these circumstances. Mr. Nobbs and the receiver and manager were well aware that the plaintiff intended to commence proceedings and to obtain a default judgment if an appearance or defence were not filed. In addition the only inference to be drawn from the fact that Mr. Nobbs advised the plaintiff's South Australian solicitors that he did not have instructions to accept service is that the defendant chose to be served personally. In those circumstances I have little sympathy for a defendant who is subsequently the subject of a default judgment. In particular I do not consider that the defendant can be heard to complain that no notice of the intention to sign judgment was given, particularly in view of the fact that the letter of Jackson and McDonald made it clear, prior to the commencement of proceedings, what the intention of the plaintiff was. 16. Mr. Evans next referred to the general principles relating to the setting aside of a default judgment. Before dealing specifically with those principles I think it appropriate to refer to one of the central submissions of Mr. Morcombe. It was submitted that I should draw the inference that either after the time Mr. Campbell became aware that the plaintiff would commence proceedings or after he had received notice that a default judgment had been entered, he decided that he would not take steps to defend the proceedings. It is not clear from Mr. Morcombe's submissions that he made the distinction between the making of such a decision either after Jackson and McDonald's letter was received by the receiver and manager or after he was notified that a default judgment had been entered but I deal with both so that the field might be covered. In relation to the former I cannot see how an inference could be drawn that after Mr. Campbell received a copy of the letter from Jackson and McDonald he decided not to take steps to defend the proceedings. The only inference that I can draw is that he gave instructions to Mr. Nobbs not to accept service of the proceedings, although this may be speculation on my part. For all I know Mr. Nobbs may have taken instructions from the directors of the company. In any event even if Mr. Campbell, having received a copy of the letter from Jackson and McDonald, instructed Mr. Nobbs not to accept service of the proceedings, that is no warrant for the drawing of an inference that he had decided not to defend the proceedings. All I am prepared to infer is that once he had received a copy of the letter from Jackson and McDonald he was aware, until the time that he was notified that judgment had been signed, that the plaintiff intended to commence proceedings. I also infer that he did not take adequate steps to ensure that, if proceedings were served at the registered office of the defendant company, they were immediately brought to his attention. I do not attribute that failure to a decision of Mr. Campbell's part that he would take no steps to defend the proceedings. 17. What then is the position after Mr. Campbell was advised that a default judgment had been entered? Another short chronology is of assistance.
    30.8.91 - Mr. Campbell advised of default judgment.
    23.9.91 - Mr. Campbell sought solicitor's advice regarding the
    judgment.
    4.10.91 - The defendant's solicitors conducted a search of the
    Supreme Court records to ascertain the state of the file and
    counsel was retained.
    5.1.91 - Solicitors gave advice to the receiver and manager.
    30.1.92 - Mr. Campbell requested solicitor to set aside judgment.
    By 27.2.92 - Counter-claim settled by counsel.
17.3.92 - Application to set aside judgment filed. 18. In my view the above chronology precludes the inference that, after he was advised of the default judgment, Mr. Campbell decided not to defend the proceedings. Although there was an inordinate delay, between 23rd September 1991 and 17th March 1992, in the filing of the application to set aside the judgment, it seems to me that steps were taken by Mr. Campbell with a view to ascertaining whether or not it was appropriate to apply to set aside the judgment. Neither he nor the solicitors acted with dispatch but the lack of expedition, in my view, does not justify the inference that he made a decision not to defend the proceedings. Consequently I am against the plaintiff in this regard. 19. It is now necessary to consider the implications for this application of the previous appointment of a receiver and manager and subsequently a liquidator. It is the contention of the plaintiff that because of the intervention of the winding up of the defendant company, it has been placed in the position of serious prejudice such that the judgment ought not be set aside even though it is accepted that the defendant has an arguable defence to the plaintiff's claim. 20. Mr. Morcombe submitted that if the judgment is set aside the plaintiff would be put to the expense of prosecuting the action against the defendant who is impecunious. That is obviously the position that the plaintiff would be in, but it is not referable to the fact that the defendant failed to enter an appearance. Had the defendant entered an appearance the liquidator would subsequently have been appointed in any event, the winding up application having been made by another creditor. Indeed, the winding up of the defendant is not material as such. It is the impecuniosity of the defendant which is the plaintiff's concern and the plaintiff always had to meet that difficulty. In addition, the fact that the plaintiff is precluded from enforcing the judgment because of the intervening winding up is not a significant consideration. The plaintiff would have been faced with essentially the same position had an appearance been entered in that the plaintiff would not have been able to continue the proceedings against the defendant because of the winding up of the defendant company. Leave would have had to have been obtained by the plaintiff to continue the proceedings just as the plaintiff now would require leave of the Court to enforce the judgment. It was also argued by Mr. Morcombe that, on the basis that the receiver and manager made a decision not to defend the proceedings, that factor should outweigh the fact that it is conceded that the defendant has an arguable defence to the proceedings. Given that I am not prepared to draw the inference that the receiver and manager made a decision not to defend the proceedings that point must fail. 21. It was further submitted by Mr. Morcombe that the liquidator can have no interest in setting aside the judgment. The judgment is not enforceable against the liquidator. The plaintiff is able to submit a formal proof of debt to the liquidator and that proof of debt is either accepted or rejected in whole or in part. To the extent that it is rejected the plaintiff may then appeal from the liquidator's decision and thereby obtain a judicial determination of its rights. Mr. Morcombe strongly submitted that, given that the liquidator has made no decision one way or the other as to whether or not he will admit the plaintiff's claim (he has not as yet called for proofs of debt), the liquidator has no interest in whether or not the judgment is set aside. That may well be the case. However, when Mr. Evans announced his appearance he informed me that he was instructed by both the receiver and manager and the liquidator. Mr. Evans later submitted that it was not for the Court at this stage to question the decision of the liquidator to participate in the application for setting aside the judgment. I think he is correct in that regard. I am not privy to, nor should I be, any arrangement between the liquidator and the receiver and manager with regard to the administration of the company's assets. However, when weighing all of the factors relating to this application, I am not concerned about the position of the liquidator. It really makes no difference to his position whether I set aside this judgment or not. In addition, that is so whether or not a dividend is likely to be paid to the secured creditors. What is of greater significance is the position of the receiver and manager. If I refuse to set aside this judgment then an issue estoppel may arise as to the matters pleaded in the statement of claim and to the extent that there are issues common both to the statement of claim and the proposed counter-clainm of the defendant, it is open to the plaintiff, in defence of the counter-claim, to plead either res judicata or issue estoppel: cf. Re: South American and Mexican Co.; exparte Bank of England (1895) 1 Ch. 37 at 45 and the other cases referred to at paragraph 23.00.1 of Civil Procedure. Consequently I am of the view that the receiver and manager has a material interest in having the judgment set aside. 22. It was also submitted by Mr. Morcombe that if I set aside the judgment, the plaintiff would be in a position where it would need leave to proceed in order to continue these proceedings against the defendant whereas the defendant, qua the receiver and manager, would be able to pursue a counter-claim against the plaintiff and obtain a judgment in respect thereof, if successful. I would agree that the position of the plaintiff is thereby invidious but I do not think that it is a material consideration on an application such as this. The position of the plaintiff in respect of the liquidation of the defendant remains the same whether or not an appearance had been entered by the defendant. To put it another way, the fact that the defendant failed to enter an appearance did not visit upon the plaintiff the consequences that flow from the liquidation of the defendant. It seem to me that, if the judgment is to be set aside, then the plaintiff's invidious position is a matter which is relevant to the exercise of a discretion by the Court on an application for leave to continue these proceedings against the defendant, if it is made. 23. It is for the above reasons that I have come to the conclusion that this application should be dealt with by reference to the ordinary principles relating to the setting aside of default judgments. I must ask myself the questions: has the defendant provided a satisfactory explanation for its failure to enter an appearance and does the defendant have an arguable defence? The latter consideration is the subject of a concession by the plaintiff. As to the former I find that, although the receiver and manager was aware that the plaintiff proposed to commence proceedings, he was not aware of the service of the summons upon the defendant at its registered office and did not become aware of the proceedings until he was advised that default judgment had been entered. Although I consider that there was a lack of expedition on the part of the receiver and manager and the solicitors instructed by him in the bringing of an application to set aside the judgment, I consider that, in all the circumstances, that delay is not such that the application should be refused. 24. Accordingly I intend to make an order setting aside the default judgment. It was agreed between counsel that if I came to that conclusion I should hear counsel on the question of what (if any) terms should be imposed in relation to the setting aside of the judgment. I therefore adjourn further consideration of the application to the 23rd day of February 1993 at 9 a.m. for mention.