Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd

[2005] NSWCA 331

CITATION:	Magnate Projects Pty. Ltd. v. Youma Constructions (No.2) Pty. Ltd. [2005] NSWCA 331
HEARING DATE(S):	9 September 2005
JUDGMENT DATE:	26 September 2005
JUDGMENT OF:	Handley JA at 1; Hodgson JA at 20; Campbell AJA at 77
DECISION:	1. Leave to appeal granted, Notice of Appeal to be filed within 7 days. 2. Appeal allowed, and order of 24 June 2005 setting aside Master Macready's judgment set aside. 3. In lieu thereof:(a) Provided Youma and/or Mr. Marsh pay Magnate $20,000.00 on account of costs within 28 days as required by par.(c), Master Macready's judgment set aside. (b) It is a condition of this order that Youma not apply for security for costs against Magnate beyond an order that may be satisfied by Mr. Luu becoming personally liable for Magnate's costs incurred after this date. (c) Youma (as well as Mr. Marsh) to pay Magnate's costs (i) thrown away by reason of the judgment made on 23 March 2005 being set aside, and (ii) the costs of the Notice of Motion filed on 7 June 2005, on an indemnity basis, such costs to be borne by Mr. Marsh as between himself and Youma, $20,000.00 to be paid on account of such costs within 28 days. 4. Youma to pay Magnate's costs of the application and the appeal, and to have a Suitors' Fund Act certificate if otherwise eligible.

CATCHWORDS:	PROCEDURE - Judgment obtained after hearing in absence of defendant - Absence of defendant due to gross default of solicitor - Judgment set aside - Onus on defendant to show defence on the merits - Whether affidavit verifying defence is evidence in support of such defence - Relevance of prejudice to plaintiff and principal of plaintiff - Appropriate conditions on setting aside such a judgment.
LEGISLATION CITED:	Property Stock & Business Agent Act 2002, ss.3, 9.
CASES CITED:	Adam P Brown Male Fashions Pty Ltd v Phillip Morris Incorporated (1981) 148 CLR 170 Allesch v Maunz (2000) 203 CLR 172 House v The King (1936) 55 CLR 499 Taylor v Taylor (1979) 143 CLR 1 Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239 Yates Property Corporation Pty Ltd v Darling Harbour Authority (1991) 24 NSWLR 156, 177
PARTIES:	Magnate Projects Pty. Ltd. - claimant Youma Constructions (No.2) Pty. Ltd. - opponent
FILE NUMBER(S):	CA 40602/05
COUNSEL:	Mr. D. Allen for claimant Mr. R. Horsley with Ms. L. Dive for opponent
SOLICITORS:	J. Kekatos Lawyers, Parramatta for claimant Paul Marsh, Strathfield for opponent

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED50050/04
LOWER COURT JUDICIAL OFFICER:	Master Macready

CA40602/05
ED 50050/04

HANDLEY JA
HODGSON JA
M.W. CAMPBELL AJA

Monday 26 September 2005

MAGNATE PROJECTS PTY. LTD V. YOUMA CONSTRUCTIONS (NO.2) PTY. LTD.

Judgment

1 HANDLEY JA: I have had the benefit of reading the reasons for judgment of Hodgson JA in draft. He has set out the history of the litigation, the material facts, and the issues raised on this application. I agree with much of what Hodgson JA has written but, with respect, cannot agree with the orders he has proposed.

2 Mr Horsley, counsel for Youma, informed the Court that the defences relied on before Nicholas J to establish that the judgment should be set aside did not depend on the defendant’s evidence, but arose on the documents before the Court. Hodgson JA acknowledges (para 43) that the defence under s 9(2) of the Property Stock and Business Agents Act 2002 is arguable as a matter of law. I respectfully agree.

3 My provisional view is that the Deed of 11 February 2002 was framed as it was to avoid paying stamp duty on a transfer of the whole property from Youma to Magnate for a purchase price in the order of $22,000,000 as proposed in July 2001 (para 14). If so and the statutory defence succeeds this will not be the first case where over enthusiastic tax avoidance has produced a contrived transaction with unexpected legal consequences under other legislation.

4 Hodgson JA has concluded that Magnate is not entitled, at this time, to a money judgment for the amount against which it is indemnified by Youma under cl 5.2 of the Deed. This is established by Wren v Mahony (1972) 126 CLR 212. This defence was not pleaded by Youma and the point was not taken by Mr Horsley. However the Court can and should take the point because it concerns the nature of the relief to which Magnate is entitled as a matter of law under cl 5.2 of the Deed until it has discharged the liability for which it was indemnified.

5 The rebates from the purchase price provided for by special conditions in 15 of the contracts reduced the return to Youma by about $1,650,000 (para 23) and this would reduce the selling fees to which Magnate was entitled but no allowance was made for these rebates in the judgment entered pursuant to the Master’s orders. There are also the real difficulties with the amount awarded in the judgment for selling fees compared with the amount claimed in the summons (para 47).

6 These matters establish that judgment was entered by the Master for an amount substantially in excess of that which can be supported. This coupled with the statutory defence which is clearly arguable required the setting aside of that judgment.

7 Nicholas J said (para 15) that he had the benefit of extensive submissions and having heard the issues raised by the defence illuminated in submissions he was satisfied that there were arguable defences. In this context he considered that it was relevant that Magnate had made no attempt to have them struck out. His reference to the absence of a strike out application was unnecessary and could not strengthen his conclusion, arrived at independently, that the defences were arguable.

8 In these circumstances the errors of the primary Judge identified by Hodgson JA in treating the affidavit verifying the defence and cross-claim as evidence, and treating as material the “failure” of Magnate to apply to strike out the defences are immaterial. Neither affect the errors in the amount of the judgment or the statutory defence to the whole claim.

9 There remains the Judge’s statement that the financial hardship to Magnate and Mr Luu were not relevant in the exercise of his discretion under SCR Pt 40 r 9. Hodgson JA considers that these matters were relevant (para 35) at least to the extent of requiring “greater clarity in the demonstration [of] a defence on the merits”. In my opinion any such error was immaterial because Hodgson JA has concluded that a defence on the merits has been established so that any requirement for “greater clarity” has been satisfied.

10 An error is only material if the decision depends on it. A decision based on alternative findings will be supported on appeal if at least one of those alternatives is not vitiated by error: Yates Property Corporation Pty Ltd v Darling Harbour Authority (1991) 24 NSWLR 156, 177.

11 Furthermore in my judgment Taylor v Taylor (1979) 143 CLR 1 and Allesch v Maunz (2000) 203 CLR 172 establish that a Court will ordinarily be satisfied that there has been a miscarriage of justice if an adverse order has been made ex parte where the failure to appear is adequately explained unless it also appears that no different result would be reached on a re-hearing or that a re-hearing would work an irremediable injustice to the other side. These principles are more favourable to defendants in the position of Youma than those stated by Jordan CJ in Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239.

12 Proof of financial hardship falls well short of establishing “irremediable injustice” which, in my judgment, is concerned with the merits of the claim or claims that have passed into judgment, the strength of the defences and the justice or otherwise of setting the judgment aside so that there can be a re-hearing. Any prejudice the plaintiff would suffer because one or more witnesses would no longer be available, or the benefit of an execution, or the right to avoid transactions in an insolvent administration would be lost would also be relevant.

13 The financial hardship to Magnate and Mr Luu, whilst relevant to the terms on which the judgment should be set aside, was of no weight in determining the justice or otherwise of allowing the judgment to stand where it was for an amount substantially greater than any figure which could be justified on the present evidence and there is an arguable defence to the whole claim.

14 I cannot see how a Court can hold that the financial hardship of the plaintiff requires a judgment to stand that would otherwise be set aside. The merits of a defence do not depend on the financial position of the plaintiff. Appellate courts do not apply such a principle.

15 Youma was not bound to pursue the alternative remedy of an appeal from the Master’s judgment. This was not likely to be as satisfactory or complete as a re-hearing at first instance and there was a risk that the appeal would result in an order for a new trial which would have prolonged the litigation and increased the costs. The principles stated in Allesch v Maunz (2000) 203 CLR 172 fully justified the decision of the primary Judge to set aside the judgment.

16 The claimant has not established that the Judge’s exercise of discretion miscarried. The errors that have been identified are not material and do not vitiate his exercise of discretion. The principles in House v The King (1936) 55 CLR 499, governing appellate review of the exercise of a judicial discretion, apply with special stringency in appeals, such as the present, from a discretionary judgment in a matter of practice and procedure: Adam P Brown Male Fashions Pty Ltd v Phillip Morris Incorporated (1981) 148 CLR 170, 176-7. In my judgment the claimant has failed to establish error and this Court is not entitled to interfere and re-exercise the discretion.

17 Hodgson JA considers that more beneficial costs orders should now be made in favour of Magnate but the failure of the primary Judge to make these orders does not bespeak error. It is common ground that the Judge was not asked to make such orders, and he may have made them if he been asked to do so.

18 After Nicholas J set aside the Master’s judgment Youma applied for security for costs. Mr Horsely said that Youma would be satisfied with an order that required Mr Luu to accept personal responsibility for any costs orders against Magnate and an order to that effect may possibly be appropriate. The history of this litigation demonstrates that any other order for security would be totally inappropriate. Youma did not apply for security before the trial. Its application to set aside the ex parte judgment required it to submit to appropriate terms. If it had foreshadowed an application for monetary security it would have been required to forego any such right. If any such intention had then been informed it should have been disclosed to Nicholas J, with the inevitable result. Youma cannot be in a better position because it only thought of this matter later. However this question can only arise for this Court if the Judge’s exercise of discretion miscarried and this Court is entitled to interfere. In the events that have happened the question of security is a matter for a judge sitting in the Commercial List.

19 In my opinion the summons should be dismissed with costs.

20 HODGSON JA: On 23 March 2005, Master Macready gave judgment in proceedings in the Commercial List in which the claimant (Magnate) had sued the opponent (Youma) for amounts said to be due under an agreement concerning the marketing by Magnate of apartments at Chippendale, namely a “selling fee” amounting to $431,644.00 and an indemnity for commission of $718,036.23. Youma had put on a defence to these claims, and also a cross-claim seeking rectification and damages for breaches of the agreement.

21 The matter was fixed for final hearing on 21 March 2005, but Youma did not appear and the matter proceeded in its absence. The Master found that Magnate was entitled to $696,165.23 by way of indemnity, and to a selling fee of $3,077,695.89; and he dismissed the cross-claim. He gave judgment for $3,773,861.12 and for interest and costs.

22 On 23 June 2004, Nicholas J heard an application commenced by Notice of Motion filed 7 June 2005 to set aside this judgment; and he made an order to that effect. On 4 July 2005, Nicholas J ordered that Youma’s solicitor, Paul Christopher Marsh, pay on an indemnity basis Magnate’s costs (a) thrown away by reason of the judgment made on 23 March 2005 being set aside, and (b) the costs of the Notice of Motion filed 7 June 2005.

23 Magnate has applied for leave to appeal from the decision of 24 June 2005. The application for leave has been heard on the basis that, if leave is granted, the appeal will be determined without further argument.

PROCEDURAL CIRCUMSTANCES

24 On 8 October 2004, the matter was listed for hearing on 8 March 2005, and directions were given for inspection of documents and service of evidence.

25 Late in October 2004, Youma’s current solicitor Paul Marsh took over conduct of its case, and a Notice of Change of Solicitor was filed on about 4 November 2004.

26 It appears Magnate was about five weeks late in serving its evidence, and on 4 February 2005 Counsel appearing for Youma applied to vacate the hearing date. On that day, the hearing date of 8 March 2005 was vacated and the matter was listed for hearing on 21 March 2005. Youma was directed to serve its affidavits by 5 March 2005.

27 Mr. Marsh was told of these matters, but did not inform Youma and did nothing to advance the preparation of the matter. It was for that reason that Youma did not appear on 21 March 2005.

28 It appears that Master Macready’s judgment was received by Youma’s previous solicitors, who shared the same address as Mr. Marsh; and the principal of Youma Siad Nassif became aware of it when at the office of those solicitors in early April 2005. He had been overseas from about 21 December 2004 to 10 February 2005, and had not previously heard that the matter had been listed for hearing in March 2005.

29 A Notice of Motion to set aside the judgment was filed on 7 June 2005. After the primary judge made his orders in June 2005, Youma filed a Notice of Motion on 20 July 2005 seeking security for costs from Magnate in the sum of $124,460.00.

EVIDENCE BEFORE PRIMARY JUDGE

30 Youma put on evidence of the circumstances set out above, and an affidavit of Mr. Nassif also contained the assertions “I believe that the Defence and Cross-claim filed by Youma … have merit” and “I believe that Youma’s cross-claim against Magnate is valid”. The latter was objected to on relevance, but was allowed. Youma’s filed Defence and Cross-claim were quite detailed and were verified by an affidavit of Mr. Nassif in the usual form; but that affidavit was not read or otherwise put into evidence. Mr. Nassif was cross-examined, but not concerning the merits of Youma’s defence and cross-claim.

31 The principal of Magnate Mr. Luu also put on evidence, including evidence of financial hardship to Magnate and to himself if the judgment was set aside. Mr. Luu was cross-examined; and when a question was put to him going to the merits of the case, the primary judge rejected the question and indicated that he was ruling out questions going to the merits of the substantive case.

32 Magnate also put into evidence the deed on the basis of which it brought its claim, and documentary material which was said to support its entitlement to the judgment amount. That material included the following matters.

33 There was a letter dated 28 July 2001 from Magnate to Youma concerning an offer to purchase the entire development at 1-35 Pirra Street, Chippendale for $22 million, subject to conditions relating to implementation of the agreement.

34 There was in evidence a deed dated 11 February 2002 between Youma and Magnate, entitled “Marketing Deed”, under which Magnate (called in the deed “the Marketer”) guaranteed to Youma (called in the deed “the Developer”) the sale of each of the lots in the development for “the Minimum Unit Price as set out for each lot in Schedule 1” to the deed.

35 The deed identified an “Exclusive Period” which, in the events that happened, extended from 11 February 2002 to 1 April 2003. It contained the following definitions of “Marketer’s GST Contribution”, “Selling Fee” and “Total Minimum Unit Price”:

1.2.14 “Marketer’s GST Contribution” means contribution by the Marketer to the Developer's liability for GST in respect of the sale of each Lot calculated by the following formula:
Contract Price - Minimum Unit Price x 1/11th = Marketer's GST contribution.


1.2.15 "Security Deposit" the security deposit to be provided to the Developer by the Marketer in accordance with clause 10.

1.2.16 "Selling Fee" means the fee plus GST payable to the Marketer by the Developer in relation to each Lot and is calculated by the following formula:
Contract Price - (Minimum Unit Price + Marketer's GST contribution) = Selling Fee

1.2.17 “Total Minimum Unit Price” means the total stipulated in Schedule 1 hereto.

36 Clauses 2.1 and 2.2 of the deed were as follows:

2.1 Subject to the covenants and agreement made herein and to be performed by the Marketer the Developer grants to the Marketer exclusive selling rights to each of the Lots during the Exclusive Period.

2.2 The Developer consents to the Marketer marketing the Lots during the exclusive period with or without its appointed agent or agents.

37 Clauses 3.1 and 3.1.1 were as follows:

3.1 The Marketer covenants with and in favour of the Developer as follows:
3.1.1 to procure, within the Exclusive Period, the sale of each of the Lots for not less than the Minimum Unit Price applicable to each Lot (not counting the adjustments provided for and payable under each of the Contracts)

Clause 3.1.2 provided that where any Lot was not the subject of an unconditional exchange contract by 5pm on the last day of the Exclusive Period, the Marketer or its appointed nominee must at the written request of the Developer exchange contracts for the purchase of such Lot at its Minimum Unit Price.

38 Clauses 5.1.1 and 5.2 were as follows:

5.1.1 The "Vendor's Agent" particulars on the front page of the Contract shall be noted with the Marketer's nominated agent.

5.2 The Marketer is not liable to the Developer for any commission, advertising or marketing expenses claimed by or payable to any Real Estate Agent or to any other person in respect of the Lots, and any payment or settlement of any such claims by any Real Estate Agent is the responsibility of the Developer and the Developer will pay such commission, advertising and marketing expenses without reference to or claim upon the Marketer and the Developer hereby indemnifies the Marketer against any such claim.

39 Clauses 9.3 and 9.4 were as follows:

9.3 Subject to the Developer receiving the total Minimum Unit Prices, the Marketer's GST Contribution and any other moneys due from the Marketer then immediately on completion of the sale of each Lot the Developer will pay to the Marketer any accrued Selling Fees together with the Selling Fees on each lot less any outstanding Marketer's GST Contribution which has not been received on the sale of each Lot.

9.4 The Developer shall only be liable to pay any Selling Fee to the Marketer upon the Marketer furnishing a Tax Invoice to the Developer for its Selling Fee provided the Marketer furnishes a Tax Invoice to the Developer at or immediately prior to the due date for payment of the Selling Fee.

40 Clause 11.1 of the deed, as amended by an Amending Deed of 27 February 2002, identified 14 lots as having been pre-sold with minimum prices totalling $5,263,429.00, and 38 other lots with stated minimum prices totalling $16,056,571.00.

41 There were also in evidence (1) an agency agreement between Magnate and John Bungey Real Estate (Bungey) dated 22 February 2002 in respect of the development, providing for a commission of 3% and a marketing fee of $15,000.00; (2) a tax invoice to Magnate from Bungey in respect of 52 lots for commission totalling $703,030.83 and the selling fee of $15,000.00; (3) a consent judgment dated 17 November 2003 in the Consumer Trader & Tenancy Tribunal in favour of Bungey against Magnate for $696,165.23; (4) a letter from Youma’s solicitors dated 16 April 2003 to Magnate’s solicitors noting that the exclusive agency between the parties had expired, and advising that three identified lots remained unsold and that Youma would market them without further assistance from Magnate; (5) tax invoices from Magnate to Youma dated 23 July 2004 for “marketing services” $1,440,142.73 plus GST $140,014.73, and real estate agent’s commission $637,797.11 plus GST $64,779.71.

42 Finally, there were copies of front pages of contracts and copies of transfers concerning 52 lots which were said to show an excess of $2,772,699.00 over the total minimum price. However, in relation to 15 contracts, there was included in the documentation a special condition providing for a rebate to the purchaser, generally of 20% of the price, which if implemented would have reduced the total return to the vendor by about $1.65 million.

DECISION OF PRIMARY JUDGE

43 The primary judge recited the circumstances in which judgment came to be entered, and continued:

12. In opposition to the defendant's claim the plaintiff relied upon the evidence of Mr Luong Dinh Luu, the sole director and shareholder of the plaintiff. Mr Luu's affidavit of 22 June 2005 went principally to the issue of prejudice.

13. Shortly stated, his evidence was to the effect that if the judgment was set aside it would cause prejudice to the plaintiff and to himself and to his family to such a degree as to justify by the court the exercise of its discretion to refuse the claim. As I understand it the plaintiff's only asset is said to be its judgment in these proceedings. Apparently it is liable to John Bungey Real Estate in the amount of $696,165.23. By originating process dated 27 May 2005 Mr Bungey has applied for the winding up of the plaintiff on the ground of insolvency in respect of an unpaid debt in the sum of $18,050.57. Apparently the plaintiff has no means by which this or other debts can be paid.

14. Mr Luu also says that there are a number of substantial claims against him for amounts for which he is personally liable under several loan agreements. For example he is the respondent to a creditor's position dated 21 April 2005 in respect of a judgment debt in the sum of $648,352. I am bound to say that in my opinion the present financial situation of Mr Luu personally is not a relevant matter to be taken into account in the exercise of discretion under Pt 40, r 9.

15. I have had the benefit of extensive submissions on behalf of each of the parties and in the circumstances it is inappropriate to recite them in detail for the purposes of these reasons. They, of course, are recorded on the transcript.

16. In opposition to the relief claimed by the defendant the plaintiff relies upon the prejudice said to be occasioned if judgment is set aside, and has made weighty submissions as to the quality of the defendant's defence and cross-claim and the issues raised thereunder.

17. In my opinion the plaintiff has failed to establish any relevant prejudice or disadvantage to it if the judgment is set aside. In other words I am not persuaded that it has been shown that by reason of the delay since 21 March 2005 it is likely to be prejudiced in the conduct of any trial on the merits of the issues raised in the pleadings. If there is any prejudice at all it seems to me that it will be alleviated by arranging an early date for the trial.

18. In relation to the questions raised as to the, for want of a better term, the quality of the matters raised in defence and cross-claim, I think it's sufficient simply to say this. It is not the case in an application such as this to pronounce or rule in advance of the evidence as to whether the defence or cross-claim will ultimately succeed or fail at a trial. I am bound to say that having had the issues raised by the defence in cross-claim illuminated by the careful submissions of counsel on either side I am satisfied that the pleadings raise arguable defences and cross-claims. As I said I make no finding whatever as to the likely prospects of success of either of the defence or the cross-claim. However, it also seems to me relevant on this issue to note that these pleadings were filed on 1 July 2004 and no step has been taken to have them struck out as disclosing no reasonable defence or claim pursuant to Pt 13, r 5 or Pt 15, r 26 and thereby seek to demonstrate that these pleadings raise issues which are manifestly unarguable.

19. My conclusion is that the pleadings do demonstrate a defence which may properly be described as bona fide. I infer from the affidavit appended to the pleadings sworn 30 June 2004 that it was solemnly sworn and it should be given due weight. No challenge was made to the matter sworn in that affidavit of either the deponent, Mr Nassif, or of Mr Marsh. I am satisfied that application to set aside the judgment was made promptly once attention was drawn to the fact that judgment had been entered and in my view no reasonable criticism can be made of the progress on behalf of the defendant to bring the matter before the Court today.

20. I am satisfied that the defendant was ignorant of the requirements of the court made by the earlier orders of Justice Bergin to which I have referred and I am satisfied that it was ignorant of the date first fixed for mention, namely 8 March, and of the fresh date for hearing, namely 21 March 2005. As a consequence I think it is unarguable that it was therefore deprived of the opportunity to appear and to be represented.

21. I am, as I have already indicated, not persuaded that any relevant prejudice has been occasioned to the plaintiff if the judgment is set aside. I should make plain that the matter which in the exercise of my discretion I accord the greatest weight is the fact that the matter did proceed in the absence of the defendant which has been explained in the circumstances established on the evidence. It seems to me that in such circumstances the interests of justice require that the judgment be set aside so that the issues be determined at a trial on the merits and I propose to make that order in due course.

22. Of course it is, in the circumstances, just to require that the defendant, through its advisers, co-operate to the full in ensuring that this matter proceed to a hearing without any further delay. To that end I direct the defendant to file and serve any witness statements upon which it proposes to rely upon the plaintiff's solicitors on or before 4pm, Wednesday, 6 July 2005, and I direct that this matter be stood over for inclusion in the commercial list for directions at 9:45am on Friday, 8 July 2005 when it may be expected that a fresh date for hearing will be fixed.
GROUNDS OF APPEAL

44 Magnate seeks to rely on the following grounds of appeal:

1. His Honour erred in that he found that the respondent had a reasonable explanation for its absence from the ' hearing before Associate Justice Macready on 21 and 23 March 2005.
2. His Honour erred in that he applied the wrong test in exercising his discretion to set aside a judgment made after a hearing on the merits.
3. His Honour erred in setting aside the judgment in that there was no evidence of the merits of the respondent's defence or cross claim.
4. His Honour erred in that he did not separately consider the merits of each independent defence and claim in the defence and cross claim.
5. His Honour erred in finding that the setting aside of the judgment would not cause the appellant and those standing behind the appellant prejudice and therefore failed to consider these matters in exercising his discretion.

45 The case involves a substantial amount of money. In my opinion it is appropriate to consider the merits of the appeal, before deciding whether to grant leave.

WERE THERE ERRORS BY THE PRIMARY JUDGE?
Submissions

46 Mr. Allen for Magnate submitted that the onus on an applicant seeking to have set aside a judgment obtained after an undefended hearing on the merits was similar to that on a person seeking a new trial on the basis of fresh evidence, that is, that the fresh evidence was likely to produce a different result. He also submitted there was no evidence led by Youma to show it had a defence on the merits; and if it were said that its defence on the merits did not require evidence, Youma’s rights of appeal were sufficient for it to raise those matters. He also submitted that the primary judge erred in finding that Youma had explained its absence, and in disregarding prejudice to Magnate and its principal.

47 Mr. Horsley for Youma submitted that Youma had defences on the merits that did not depend on evidence; so that even if there were errors by the primary judge, those errors were immaterial.

Decision

48 In my opinion, the following passage from the judgment of Jordan CJ in Vacuum Oil Pty. Co. Limited v. Stockdale (1942) 42 SR(NSW) 239 at 243 sets out the principles applicable to this case:

The present is not a case in which judgment was signed by default through some procedural omission on the part of the defendant or his legal advisers. The action followed the ordinary course, except that its coming on for trial was delayed through dilatoriness on the part of the defendant. It is one in which, the action coming on for trial in its ordinary place in the list, no one was present in Court to conduct it for the defendant, and it therefore proceeded in his absence. In such a case, when the plaintiff is in no respect in default, a new trial will not be granted save in very special circumstances: Chitty's Archbold, 10th ed., 1457; 12th ed., 1526. In every such case the Court has an inherent and unfettered, though judicial, discretion, in the exercise of which it will, however, necessarily consider (a) whether any useful purpose would be served by setting aside the judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained: Evans v. Bartlam [1937]AC 473 at 482 . As a general rule (although not necessarily in every case, if some reason exists for departing from it: Collins' Book Depot Pty Ltd. v. Bretherton [1938] VLR 49; Austn. Digest (1934-1939) 1859, the Court requires an affidavit showing prima facie that the defendant has a good defence on the merits: Evans v. Bartlam [1937] AC 473 at 480, 488-9, and also an explanation of his absence which shows that justice requires that in the circumstances it should be excused. And if there has been gross negligence on the defendant's part, the Court will be the more disposed to require at least a reasonably clear case of merits to be shown, to incline it to interfere: Nash v. Swinburne 3 M&G 630 at 632; Weitzel v. Friedenreich 14 WN 7; Austn. Digest 376 .

49 I do not read the cases of Taylor v. Taylor (1979) 143 CLR 1 and Allesch v. Maunz (2000) 203 CLR 172 as materially affecting the principles stated by Jordan CJ in Vacuum Oil.

50 In Taylor, orders were made in the absence of a party because of neglect of his solicitor, and this party applied to have it set aside, having “filed affidavit material which showed that the facts of the case were seriously in contest” (143 CLR at 8-9); and the various statements made by the judges of the High Court in that case have to be read in the light of that circumstance. Similarly, in Allesch, the party seeking to set aside a property settlement order made in his absence filed an affidavit that made claims “as to the value and extent of the property owned by him and his former wife and as to his reduced earning capacity” (203 CLR at 176), which was accepted by the primary judge in that case to be such that, if it was accepted even in part, “the result of [the wife’s property settlement] application may well be substantially different” (203 CLR at 177).

51 In Allesch, it was stated in the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ (at 182-3, after reference to Taylor) that “a court will, ordinarily, be satisfied that there has been a miscarriage of justice if a person has suffered an adverse order in circumstances where his or her failure to appear is adequately explained unless it also appears that no different result would be reached on a rehearing or that a rehearing would work an irremediable injustice to the other side”. Having regard to the circumstances of that case and of Taylor, I do not read that sentence as intended, by implication, to do away with the long-established requirement that a person applying to set aside an order, regularly made in his or her absence, ordinarily bears an onus of showing an arguable case on the merits, that is, a case that might reasonably bring about a different result, as well as an explanation for his or her absence: cf. Allesch at 188-9 per Kirby J.

52 In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require “a reasonably clear case of merits to be shown”; that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant’s default, and hardship to the respondent.

53 In the present case, in my opinion there was no evidence from Youma going to its defence on the merits, except to the extent that evidence supporting its defence appeared in documentary material relied on by Magnate.

54 Although Youma’s verified Defence and Cross-claim were part of the record of the Court, and did not need to be tendered on the question of what issues they raised, in my opinion they could not function as evidence on any issues unless appropriately put into evidence, for example, by the reading of the affidavit verifying them. If Youma had sought to read that affidavit, its evidentiary value could have been ruled on in response to objections taken; and then it would have been clear to what extent, if at all, that affidavit stood as evidentiary support for the defence and/or the cross-claim. As I have said, nothing like that happened.

55 Assertions in the affidavit of Mr. Nassif that was read, to the effect that he believed that the defence and cross-claim “have merit” or that the cross-claim is “valid”, do not in my opinion appropriately support any assertions of fact so as to amount to evidence supporting a defence on the merits or a cross-claim.

56 In my opinion, there were errors in the primary judge’s judgment which could possibly justify appellate intervention.

57 First, in my opinion financial hardship to Magnate and to Mr. Luu, at least to the extent that they would result from delay in determining Magnate’s claim and from difficulty in continuing to finance the litigation, were relevant to the exercise of discretion whether or not to set aside the judgment, and not merely to the conditions to be imposed if judgment were set aside. If Youma showed it had a “reasonably clear case of merits”, as well as explaining its absence, then it is unlikely that this hardship would be sufficient to prevent the Court setting the judgment aside; but in cases of hardship, the Court may look for greater clarity in the demonstration that there is a defence on the merits, and it would have been appropriate to do so in this case.

58 Second, in my opinion the primary judge was in error in giving weight to the affidavit verifying the defence and cross-claim, and to the circumstance that the matter sworn in that affidavit was not challenged in cross-examination. As mentioned earlier, the affidavit was not it evidence, and it was not for Magnate to cross-examine into evidence material that Youma had not put into evidence.

59 Third, in circumstances where there was no evidence led by Youma in support of its defence and cross-claim, and where the onus was squarely on Youma to show it had a defence on the merits, in my opinion it was not of material relevance that Magnate had not applied to strike out the defence and cross-claim.

60 However, the judgment was given ex tempore, and there is a real question whether these errors were material in the sense of affecting the result. The primary judge had heard careful submissions on issues raised by the defence, and it will appear later that in my opinion, even without evidence apart from the documents, Youma does have an arguable defence.

61 With some hesitation, I think the errors of the primary judge were material. Nowhere does he squarely address the real question as to whether, in the absence of any evidence apart from the documents, Youma had a defence on the merits; and he does not address the other question that this approach would raise, namely whether the requirements of justice would be satisfied by Youma’s right to appeal from the Master’s judgment, as had been submitted by Magnate.

62 I do not think this is a case where the errors identified can be said to be immaterial, for the reason that the judgment has an alternative basis which is not affected by error, as discussed in Yates Property Corporation Pty. Ltd. v. Darling Harbour Authority (1991) 24 NSWLR 156 at 177. The basis on which I decide below that the judgment should be set aside was not addressed or decided by the primary judge; and so it does not, in my opinion, provide a reason for saying that the errors were immaterial.

WHAT SHOULD THIS COURT DO?

63 Subject to the question whether leave should be granted, if a material error is shown in a discretionary judgment, this Court could either send the matter back or determine for itself what order should be made. Neither party suggests that the Court should take the former course.

64 Considering the question of the defence on the merits on the basis I have indicated, in my opinion it is clear there is an arguable defence on the merits as to the “selling fee” component of the claim, on the basis of s.9(2) of the Property Stock & Business Agents Act 2002, which is in the following terms:

9 Corporations require corporation licence
(1) …
(2) A corporation is not entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service performed by the corporation as an agent unless the corporation was the holder of a corporation licence at the time of performing the service.

65 In my opinion, it is arguable that, simply from the terms of the deed, and in particular cl.3.1.1, it can be inferred that the selling fee was for services performed by Magnate as a real estate agent, within paragraph (b) and/or paragraph (c) of the definition of real estate agent in s.3(1) of that Act, which is as follows:

real estate agent means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent:
(a) for a real estate transaction, or
(b) for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or
(c) for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner, of land, or
(d) collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land, or
(e) for any other activity in connection with land that is prescribed by the regulations for the purposes of this definition.
but does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land unless the regulations otherwise provide.

66 It is arguable for Magnate that it was acting as a principal, and not as an agent for Youma, having guaranteed a return to Youma and being entitled to the excess of the prices it obtained; and that engagement in this one transaction did not amount to carrying on a business. However, in my opinion the contrary position is also arguable.

67 As to the indemnity component of the claim, on the evidence before the primary judge Magnate had not paid Bungey, so it was not entitled to a judgment for the amount of the indemnity. At most, it might have been entitled to an order that Youma indemnify it by paying Bungey direct.

68 On the question whether Youma’s rights would be sufficiently protected by its right of appeal from the Master’s judgment, in my opinion there are inferences available from the documentary material that indicate that justice to Youma would require further factual investigation. The special conditions concerning rebates suggest that the prices on the face of many contracts were not the effective prices. Youma should have put on evidence in its application that it only received the contract prices less the rebates, if that was indeed the case; but even in the absence of that evidence, I think this Court can take account of the absence of evidence from Magnate that Youma in fact received the full price, and can regard that as matter requiring factual investigation.

69 One further matter that in my opinion supports setting aside of the judgment is the circumstance that Magnate’s claim was never amended to claim a selling fee of $2,772,699.00 (plus 10% GST) rather than the $431,644.00 specified in the summons.

70 It appears that on 18 March 2005, Magnate’s Counsel sent by facsimile to Mr. Marsh documents showing that it would be claiming a selling fee of $2,772,699.00 plus 10% GST. If Youma had appeared on 21 March 2005, that may have been sufficient to justify an amendment to increase the amount claimed. However, for such an amendment to be made in the absence of a party, normally one would require a Notice of Motion served in accordance with the Rules; and if there was no such Notice of Motion, one would expect evidence that the party was either given at least equivalent notice that an application to amend would be made or, to the extent that such notice was not given, that there was no prejudice to the party. I do not think service of documents on Friday 18 March before a hearing on Monday 21 March would be sufficient for this. Magnate also relies on the circumstance that draft orders were sent to Mr. Marsh on 21 March 2005, advising that orders would be made on 23 March if Youma did not appear on that date; but I am doubtful if that is sufficient in the absence of an amendment.

71 I see no reason to differ from the primary judge on the question of Youma’s explanation; and in the light of the available defences on the merits, I do not think financial hardship on Magnate and/or Mr. Luu justifies allowing the judgment to stand. However, it would need to be taken into account in relation to any conditions to be imposed if the judgment were to be set aside.

72 The primary judge ordered Mr. Marsh to pay the costs of Magnate of the application and also the costs thrown away by reason of the judgment being set aside, on an indemnity basis, and made orders to promote an early hearing of the case; and they were appropriate orders.

73 However, in my opinion in a few respects these orders did not go far enough. In my opinion Youma as well as Mr. Marsh should be made liable for costs, on an indemnity basis, albeit that, as between Youma and Mr. Marsh, Mr. Marsh should bear them. Also, in my opinion, the order setting aside the judgment should be conditional on a substantial amount being paid on account of these costs within 28 days: although in the Commercial List costs can be assessed and enforced when ordered, I do not think Magnate would be sufficiently protected from prejudice without an immediate payment on account, which I would assess at $20,000.00.

74 Finally, the subsequent application for security for costs has shown up another prejudice to Magnate against which it should be protected: on evidence concerning the financial position of Magnate and Mr. Luu, an order for security could stifle the litigation. Having regard to the defaults of Youma and its delay in applying for security for costs, in my opinion there should be a condition of setting aside the judgment that Youma not apply for any order for security other than an order that could be satisfied by Mr. Luu becoming personally liable for Magnate’s costs incurred after this date. I would leave open the possibility that Youma may obtain an order to that extent, because such an order would not make continuance of the litigation impossible: whether or not such an order should be made, having regard to Youma’s conduct and the delay in the application, I would leave to the judge in the Commercial List who deals with the application.

CONCLUSION

75 The result that would occur if leave is granted and this Court takes the course indicated would make a significant difference to Magnate’s position. In my opinion, having regard to the errors of the primary judge, the amounts involved, and the extent of the difference made by the additional conditions, it would be appropriate to grant leave to appeal and make the orders indicated.

76 For those reasons, I propose the following orders:

1. Leave to appeal granted, Notice of Appeal to be filed within 7 days.
2. Appeal allowed, and order of 24 June 2005 setting aside Master Macready’s judgment set aside.
3. In lieu thereof:
(a) Provided Youma and/or Mr. Marsh pay Magnate $20,000.00 on account of costs within 28 days as required by par.(c), Master Macready’s judgment set aside.
(b) It is a condition of this order that Youma not apply for security for costs against Magnate beyond an order that may be satisfied by Mr. Luu becoming personally liable for Magnate’s costs incurred after this date.
(c) Youma (as well as Mr. Marsh) to pay Magnate’s costs (i) thrown away by reason of the judgment made on 23 March 2005 being set aside, and (ii) the costs of the Notice of Motion filed on 7 June 2005, on an indemnity basis, such costs to be borne by Mr. Marsh as between himself and Youma, $20,000.00 to be paid on account of such costs within 28 days.
4. Youma to pay Magnate’s costs of the application and the appeal, and to have a Suitors’ Fund Act certificate if otherwise eligible.

77 M.W. CAMPBELL AJA: I agree with Hodgson JA.

**********