Maxwell Richard Rhys and Co Pty Ltd (in liquidation) v Downes
[2012] VCC 1336
•21 September 2012
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-10-05607
| MAXWELL RICHARD RHYS & CO PTY LTD (In Liquidation) (ACN 068 897 558) | Plaintiff |
| v | |
| JOHN DESMOND DOWNES | First Defendant |
| and | |
| BERNARD HUGH DOWNES | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 June, 26 July 2012 | |
DATE OF JUDGMENT: | 21 September 2012 | |
CASE MAY BE CITED AS: | Maxwell Richard Rhys & Co Pty Ltd (in liquidation) v Downes & Anor | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1336 | |
REASONS FOR JUDGMENT
PRACTICE - default judgment - application to set aside - explanation for delay - whether arguable defence – plaintiff in liquidation – defensive application - default judgement set aside – Corporations Act 2001 s 500(2), County Court Civil Procedure Rules; R 21.07
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Lapirow | Davies Moloney |
| For the Defendants | Mr R Moore | Logie-Smith Lanyon |
HIS HONOUR:
1 The defendants, who are brothers, apply to set aside default judgments entered against them on 9 February 2011.The judgment against the first defendant, Mr John Downes, was in default of a defence and that against the second defendant Mr Bernard Downes, was in default of an appearance.
2 The default judgments were for recovery of possession of the land contained in six titles situated at Litchfield and Donald (the properties). Since the default judgments were entered, a mortgagee has taken possession of one of the properties, Mr Brian Downes has become the registered owner of another property and GJJ Cole Pty Ltd has become the registered proprietor of three of the other properties.
3 The Court is given a discretion under Rule 21.07 of the County Court Civil Procedure Rules to set aside default judgments.
4 In this judgment, when I refer to Mr Downes, it is a reference to Mr John Downes. When I intend to refer to Mr Bernard Downes, I will refer to him by that name.
5 The defendants have been farmers for 30 years, cultivating and harvesting wheat and barley.
6 The plaintiff’s claim was based on a written Deed dated 21 December 2007, entered into with the defendants by which, they agreed to pay to the plaintiff the sum of $698,520 previously advanced by the plaintiff to them, plus interest and costs, and that they would grant to the plaintiff a mortgage over their property to secure the payment. The indebted sum was to be repaid by the defendants in instalments.
7 The defendants executed a Deed and a mortgage on 21 December 2007, over the properties. The sums were not repaid and the plaintiff entered default judgment for possession of the six properties.
8 The plaintiff was placed into liquidation on 12 August 2011 and Mr Neil Robert Cussen was appointed liquidator.
9 The defence upon which the defendants they wish to rely is that the mortgage and the Deed were signed on the basis of the plaintiff’s assurance and representations to Mr Downes, by Mr Colin Curran which he later conveyed to Mr Bernard Downes, that they would not be enforced and were provided for the comfort of the plaintiff. This assurance, and these representations are said to be false or misleading conduct. The defendants argue that they are entitled to orders under the Trade Practices Act 1974[1] or the Fair Trading Act 1999 that the Deed and mortgage are unenforceable. To understand this defence, it is necessary to set out some of the matters described in the many affidavits, that were filed in connection with this application.
[1]See also the Australian Consumer Law
The defendants’ account
10 Mr John Downes states that in about 2000, the prices for wheat and barley were severely depressed and he and his brother were having difficulties keeping the farm afloat. They saw an advertisement offering farmers the opportunity to lease their farm land to Agricultural Grains Fund Limited (AGF) as part of an agricultural investment scheme. They attended a meeting about that scheme and met Mr Faulkner-Dick and Mr Colin Curran, who was formerly a director of the plaintiff and who represented AGF and operated a superannuation advice business. A scheme for the investment of money in their farm for the investors’ tax advantage was explained to them. They were interested in it, but it did not proceed.
11 In around late 2002, Mr Curran told Mr Downes of a new scheme that he was proposing. The details were:
(a) the Downes farm would form part of an ‘investment package’, as an agricultural investment, along with a range of investments in Hervey Bay and Airlie Beach, that Mr Curran was promoting through his superannuation advice business;
(b) the investors were current clients and staff of Mr Curran who invested through an entity known as “Super Online”;
(c) investors would then become share farmers with the Downes brothers; and
(d) investors would receive a 100% tax deduction on the amount they invested in the new scheme on the basis that they were primary producers carrying on a business.
12 Mr Curran told Mr Downes that if they “came on board” and offered their farm, they would be “first on board” as farm managers and there would be great opportunity for them to manage other farms, which Mr Curran said he would buy, or lease, for new scheme investments. Mr Downes said that he and his brother were very excited about this scheme, as grain prices were still very low and they needed to generate another income stream.
13 Mr Curran told Mr Downes that he would set up a company, which turned out to be J & B Downes Pty Ltd, from which payments for grain, fertilizer and other costs, associated with the cultivation of the crop would be paid and, into which, the proceeds of the crop harvest would also be paid.
14 On 23 June 2003, Mr Curran and the Downes brothers, as Trustee of the Downes Family Unit Trust, entered into a share farming agreement. Under the agreement, each month, Mr Curran was obliged to pay the crop costs to the Downes brothers in order for them to farm the land and sell the crop. At the end of each harvest, the Downes brothers sold the crop and the proceeds were paid into the company’s bank account.
15 Under the share farming agreement, Mr Curran paid the sum of $40,000 to the Downes brothers in order to purchase the initial wheat and barley seed crop and set up the farm. The Downes, at Mr Curran’s request, gave a personal guarantee, of the repayment of the $40,000 crop costs to him. Mr Curran told them that the guarantee was to give his client/investors comfort that the crop proceeds would be paid by the Downes brothers.
16 The defendants then allege that between about August 2003 and April 2004, Mr Curran asked them to enter into several more personal guarantees in relation to monies advanced by him to them under the Share Farming Agreement on account of crop costs, in order to give his investor clients comfort that the crop proceeds would be paid by the defendants. Mr Downes and his brother trusted Mr Curran.
17 Mr Curran told him that unless he and his brother signed the guarantees he would not pay for the costs of the 2004 crop.
18 Mr Downes states that despite the terms of the guarantees, at no stage were he or his brother advised that they were being loaned money from different entities associated with the Plaintiff.
19 The defendants then allege that in about late 2004 and early 2005, Mr Curran requested them to manage a similar agricultural scheme for his investor clients on land at Tintinara in South Australia. There was no written share farming agreement for the Tintinara scheme but Mr Downes agreed with Mr Curran, that it would be on the same terms as the first Agreement.
20 The Tintinara scheme had the following features. Mr Curran provided crop costs to the defendants on behalf of his investor clients from time to time. They managed the cultivation, harvesting and sale of various types of crops, including barley and lentils and the defendants paid the crop proceeds into the J & B Downes NAB account.
21 Mr Downes suggested to Mr Curran that they should run goats on the land prior to cultivation so that they would eat the weeds growing on it. This proposal was implemented.
22 In 2006, Mr Curran told Mr Downes that his superannuation business was virtually wiped out because of the collapse of the Westpoint Group and that the Tintinara property would have to be sold and the scheme would no longer continue after 2007. Mr Curran was desperate for payment of the 2006 crop proceeds, which were due in about December 2006/January 2007. Discussions between them continued and the Downes’ brothers continued to manage the properties.
The Deed and the mortgage
23 On or about 1 October 2007, the defendants received a letter of demand from Gadens Lawyers demanding the sum of $678,032 pursuant to an alleged loan agreement made between the plaintiff and the defendants. They denied owing the money and Mr Downes stated that Mr Curran informed him not to worry. Gadens had contacted them because an agreement would need to be drawn up to reassure his investors, who were still waiting for the proceeds from the sale of the crop, which was due to be harvested in late 2007.
24 Mr Downes states that shortly prior to 18 December 2007, he spoke to Mr Curran and found his attitude had changed. He started threatening legal proceedings for the payment of money under the guarantees. Mr Downes told him that he and his brother had not borrowed any money from him. Mr Curran told Mr Downes not to worry, that he was getting a lot of pressure from his clients to get money from their investments in the schemes, that they needed some reassurance that they would be paid and that he would have to work something out with him.
25 Mr Downes states that, soon after that conversation, he was contacted by Gaden’s Lawyers and asked to attend a meeting with them to discuss “the situation” with Mr Curran.
26 Mr Downes met with a lawyer, whose name he cannot recall, at the offices of Gadens Lawyers on 18 December 2007. During the meeting, Mr Curran was on the telephone and spoke to Mr Downes. The lawyer told Mr Downes that he owed a lot of money and that Mr Curran would “sell us up” if they didn’t agree to repay it. Either Mr Curran, or the lawyer, said that the Downes brothers had signed guarantees and had agreed to mortgage the properties and that they would pay heavily if they did not agree to an arrangement with Mr Curran.
27 Mr Downes says that Mr Curran told him on the phone that his investors wanted some further security that they would be paid, that the Deed was just another form of comfort to them and they should not worry about signing it. He states that Mr Curran was “hot” and “cold”, one minute threatening legal action and the next minute telling him not to worry. The lawyer gave him a Deed and a Mortgage to sign. Mr Downes said that he was very intimidated by Gadens conduct and scared that somehow, he and his brother, could lose their properties. He states that they signed the Deed and Mortgage without reading them properly. He was led to believe by Mr Curran that he shouldn’t worry about signing the Deed as it was just for his investors, but that if he didn’t sign it, he and his brother would be facing legal action based on the guarantees. He says that based on what Mr Curran said, he did not believe that the Deed and mortgage would be used against him or, against his brother. He did not receive any legal advice on the documents and felt extremely pressured into signing them. He believes that he and his brother were misled into signing the Deed and Mortgage. He accuses Mr Curran of sharp practice.
28 He says that Mr Curran is an undischarged bankrupt and in 2010 was banned by ASIC from managing corporations for three years. Mr Curran has explained that his financial difficulties and current status were caused by the Westpoint insolvency. I do not consider that these matters have any bearing on the current application.
29 Mr Downes denies the plaintiff’s suggestion that money was loaned to them through the plaintiff for a goat business. Mr Downes denies that he, or his brother, owe the plaintiff any money, or that they entered into any agreement whereby the plaintiff agreed to loan them money, or provide financial accommodation as stipulated in Clause A of the Background to the Deed. He says that the only agreements, that he and his brother entered into, were the Share Farming Agreements.
30 Clauses A-H of the Background section of the Deed state:
“A. In or about March 2004, the parties entered into an oral agreement whereby the Lender agreed to loan monies and grant financial accommodation to the Debtors on terms and conditions agreed between the parties (“Loan Agreement”).
B. The purpose of the Loan Agreement was to assist the Debtors in their farming operations.
C. As security for the Loan Agreement, the Debtors granted the Lender security by way of a mortgage over the Debtors’ Properties (Original Lender Security).
D. In or about July 2005 the Lender registered a caveat..over the Debtors’ Properties pursuant to the Original Lender Security (Caveat)
E. During the course of March 2004 and July 2007, the Lender, either directly or through its agents J & B Downes Pty Ltd or China Dog Pty Ltd, made a number of advances and granted financial accommodation to the Debtors ( Monetary Advances).
F. Albeit that the Debtors have repaid some of the Monetary Advances, the Debtors are jointly and severally in default of their obligations to the Lender and are jointly and severally indebted to the Lender for the Indebted Sum being moneys owed by the Debtors to the Lender in respect of the Monetary Advances.
G. Despite a number of requests for repayment made by or on behalf of the Lender to the Debtors, the Indebted Sums remain unpaid.
H. The Lender and the Debtors have agreed that the Debtors will repay the Indebted Sum to the Lender in accordance with the terms and conditions set out herein.”
31 The “Indebted Sum” was $698,529 as at 30 November 2007, plus the Lender’s costs, plus interest. The Deed provided for the repayment of the Indebted Sum by instalments by 7 December 2007.
32 Mr Bernard Downes in his affidavit says that his brother John was more active in relation to the Schemes, which appears to be a reference to the share farming agreements, and updated him about them. He admits that he signed the share farming agreement. He states that before signing the guarantees he spoke to Mr Curran, who told him not to worry about them, and that they were simply an acknowledgement by him and John to Mr Curran’s investors that they would pay the crop proceeds. Those clients needed comfort that the proceeds would be paid as they did not know who the Downes were.
33 Mr Bernard Downes states that he “categorically den[ies] that Curran or any of his clients lent John and I any money for any farming operation.”
34 Mr Bernard Downes states that, after the receipt of the letter of demand in October 2007, John told him that he had spoken to Mr Curran, who was getting pressure from his clients to receive the crop proceeds from the 2007 harvest. Mr Curran told him to contact Gadens and everything would be worked out. He contacted Gadens several times to try and arrange a meeting with them and Mr Curran.
35 He was unable to attend the meeting at Gadens on 18 December 2007. John Downes returned from that meeting and told him that he had spoken to Mr Curran on the telephone and that he had told him that he was under enormous pressure from his clients concerning the 2007 crop proceeds and about when they would be paid. Mr Curran had told him that his clients wanted a Deed, to replace the guarantees, and that Deed would not be relied on by him and was just for his investors. He states that he relied on what Mr Curran told his brother John and that he signed the Deed.
36 Mr John Downes’ evidence is that following the meeting on 18 December 2007, he drove back to Donald with the Deed and informed Mr Bernard Downes of the representations made by Mr Curran. He says that relying on those representations, he and his brother signed the Deed and the mortgage. They deny that they owe the plaintiff any money as alleged.
37 If the judgments are set aside, the defendants intend to rely on a defence that they do not owe the plaintiff the money alleged and also on a defence and counterclaim based on allegations of false and/or misleading conduct. They would allege that the representations made by Mr Curran at the meeting at Gadens induced them to sign the Deed and Mortgage. Those representations were:
(a) Mr Curran’s client investors wanted some reassurance from the defendants that the 2007 crop proceeds from the Tintinara land would be paid;
(b) that the purpose for the Deed was to take the place of the personal guarantees namely, to show his investor clients that the defendants had promised to pay the 2007 crop proceeds; and
(c) that he (the Plaintiff) wouldn’t rely on and enforce the Deed against the Defendants
38 Mr Downes swears that he was served with the writ and statement of claim on 13 December 2010. He did not have the money to engage lawyers to advise him about their effect. Mr Bernard Downes was recovering from a heart attack, which he had suffered in July 2010. His doctor had requested that his stress levels be kept as low as possible. Mr Downes attempted to deal with the plaintiff’s claim on both their behalf and during that period, he undertook the day to day running of the farms.
39 He attended the Court’s registry and was advised that he needed to file a Notice of Appearance and the Court would list the proceeding for an Administrative Mention. He filed a Notice of Appearance on his own behalf. He did not know that his brother needed to file an appearance or, that he had to file a defence. Just before Christmas 2010, he received notification from the Court that the matter had been listed for an Administrative Mention on 14 February 2011.
40 Around 11 February 2011, Mr Bernard Downes contacted Logie-Smith Lanyon, Lawyers, who had previously assisted them, in order to have them deal with the Administrative Mention. That firm advised them that the plaintiff had already obtained judgments. Mr Bernard Downes was not notified that the plaintiff intended to apply to the Court for judgments.
The plaintiff’s account
41 The plaintiff’s affidavits portray a different picture of Mr Curran’s dealings with the defendants.
42 Mr Curran states that the Downes brothers are successful business owners, who have run varied and profitable businesses with initiative and skill over many years.
43 Mr Curran states that his companies entered into two ventures with the Downes brothers: one in relation to cropping and the other in relation to the acquisition, raising and selling of goats. He first met them in late 2003, or early 2004, when they were looking for finance for various ventures. He states that their personal guarantees were to ensure that they actually planted the crops required under the schemes and did not merely take the moneys advanced, $40,000, and not proceed with the agreement.
44 Mr Curran states that the first guarantees related to the share cropping process and the later guarantees related to the goat husbandry business being conducted by the plaintiff. He states that he prepared the documents headed Personal Guarantees and, having had discussions with his solicitors, he notes that they may not actually be Personal Guarantees, in the legal sense, but are more in the style of an acknowledgement of a receipt of a loan. He gave those documents to the Downes brothers for the purpose of them providing a written acknowledgement of the loan being made and that they would repay it along with any interest on the due date.
45 Mr Curran disputes Mr Downes’ account of their first meetings. He states that he advanced the sum of $40,000 from his superannuation fund to provide for planting, fuel, fertilizer and the establishment of the crop. The personal guarantee from the Downes was to ensure that they actually planted the crop. He considers that the defendants complied with their obligations in that respect and, that as result, the personal guarantee was no longer enforceable. He states that he also provided to the Downes several other smaller amounts from his superannuation fund to help the planting of the crops. The guarantee was never meant to be ongoing and has never been called upon. No money is claimed in relation to the cropping venture.
46 Mr Curran states that the Downes brothers assisted him in setting up the company, J & B Downes Pty Ltd, and that it was agreed that:
(a) it would act as agent for the plaintiff and be a conduit of monies being paid to the Downes brothers and provide a tax invoice to his superannuation fund which would then allow the expenditure to become tax deductible;
(b) it could set up a bank account and the grain storage facility would pay the sale proceeds of the grain into that bank account;
(c) J & B Downes Pty Ltd would set up an account with the grain storage facility so that grain could be delivered and received by an entity owned by him.
47 He states that the defendants knew that the crops were being delivered into the company J & B Downes Pty Ltd and that that was where the proceeds of the sales were going.
48 Mr Curran also states that, shortly after this point, the defendants asked for loans to purchase wild, underfed or young goats which they were to resell at a profit. He agreed, on behalf of the plaintiff and various other parties, to loan money to the Downes to allow them to expand their business. As the defendants sought loan monies for this venture, they signed guarantees which referred to dates for repayment, interest payable and agreements to mortgage various properties owned by them with respect to these loans. He exhibits a sheet recording that amounts totalling $758,000 were lent to the plaintiff and from the plaintiff through its agent, J & B Downes Pty Ltd, to the defendants. These sums were used by them to increase the size of, and improve, their goat herd.
49 Mr Curran states that the Downes never repaid their loans, as and when they fell due, and were either late, or their cheques were dishonoured or, they did not pay at all. He had numerous discussions with them about the outstanding loans. They promised to pay and never disputed their obligation to repay. An agreement was made about repayment of the loans from the proceeds of the sale of goats, but it did not work. He exhibits bank statements showing some repayments and stated that at least $105,000 worth of the defendants’ cheques were dishonoured by their bank upon presentation for payment. Caveats were placed on the title of the properties to secure these loans and the defendants made no protest about their lodgment.
50 Mr Curran states that he attempted to resolve the matter with the Downes for a period of about six months between March 2007 and September 2007. He then instructed Gadens to assist him in obtaining repayment of the loans. Negotiations continued up till the signing of the Deed and the granting of the mortgage, providing a power of sale of the properties.
51 In about September 2007, he instructed Gadens to assist him in obtaining repayment. Negotiations to resolve this dispute continued for several more months and on 18 December 2007, the defendants signed a Deed agreeing to repay the debt by way of instalments and signed the mortgage.
52 Mr Curran disputes that the settlement of the loan agreements arose out of Mr Downes’ fear, or that he was scared, and states:
“The Defendants had acknowledged the monies that were owed for many months, had made many promises for repayment, had made many excuses for their broken promises. The agreement eventually made was a serious agreement made on a serious business occasion, and had been brought to a conclusion over several months.”
53 He says that to the best of his recollection he did not participate in any conversation by telephone with Mr Downes, when he was at the office of Gadens and denies that he said the things attributed to him by Mr Downes.
54 Mr R Hinton, a partner at Gadens, made an affidavit disputing that the Downes were scared or intimidated into signing the Deed and the mortgage. He states that they were given ample opportunity to read and understand the documents. Neither he, nor to the best of his knowledge, any of his employees, made any statement to the defendants to the effect that by signing the security documents they would be protected from being sold up, or that the security documents would not be used against them. Neither his firm, nor any of its employees, “pressured” the defendants to execute the security documents.
55 Mr Hinton sets out the actions he took for Mr Curran in connection with the recovery of the loan. He states that, the day after he sent the letter of demand, Mr Bernard Downes telephoned and left a message with a solicitor Mr Carnell. He states that the Downes brothers regularly telephoned his office leaving messages, discussing matters, attempting to resolve the dispute and seeking to make appointments.
56 He states that on or about 18 December 2007, a Deed of Settlement was agreed upon, prepared and signed by the defendants. To the best of his knowledge, the document was posted to the defendants signed and returned. The Downes’ signatures were witnessed by Kathleen T Downes. The defendants commenced making repayments in accordance with the terms of settlement.. His firm continued to receive calls and correspondence from the defendants in 2008. Mr Hinton exhibits a list of the repayments, but says that they were never made on time and never met the terms of the agreement.
57 The liquidator of the plaintiff, Mr Neil Cussen, made an affidavit expressing the opinion that the defendants were indebted to the plaintiff for the amount claimed.
Affidavits in reply
58 In his affidavit in reply, Mr Downes states that Mr Curran was interested in exploring a goat slaughtering/husbandry business and asked him to purchase goats to put on the Tintinara property and manage them for him, in the same way as they were doing with the crops. The goats were the property of Mr Curran and his investors and not of the Downes brothers. Mr Downes states that Mr Curran told him, in or about mid 2005, that he was intending to set up a goat husbandry program for his superannuation investors and that he provided him with information about his goat operations. Once Mr Curran lost the Tintinara property, the goats were moved to the Downes’ farm and they continued to manage them, sell them and return the proceeds to Mr Curran. He denies that Mr Curran lent them any money to increase their goat herd.
59 Mr Downes denies that he and his brother borrowed any money from the plaintiff for the payment of rent on any land, or that they borrowed the sum of $758,000 for any purpose.
60 In respect of the meeting at Gadens on 18 December 2007, he states that Mr Curran told him on the phone that the Deed was simply a document that would take the place of the guarantees, that it was for his investors, that he would not rely on it and that it would not be used against them.
61 In an affidavit in reply, Mr Curran, as previously stated, denied the account of the conversation given by Mr Downes and denies that he had any communication with the Downes about their execution of the Deed.
Consideration of the issues
62 The two issues that the Court has to determine are: first whether the defendants have shown an explanation for their delay in filing their application to set aside the judgment; and secondly, whether the defendants have established that they have an arguable defence.
63 The plaintiff did not dispute that the defendants had provided a satisfactory explanation for not filing a defence and an appearance respectively.
Delay
64 Mr John Downes gave the following reasons for delay in bringing this application.
65 Mr Downes swears that once they discovered the default judgment they asked their lawyers to write to the plaintiff’s lawyers and request that they agree to set aside the default judgment. The plaintiff’s lawyers refused, but stated that because the warrant for possession that it had obtained was third in line behind the first and second mortgagees, it would not be acted upon until the first and second mortgagees solicitors gave them written permission to do so.
66 Thereafter, the defendants negotiated with the first mortgagee, and on 18 July 2011, entered into a Deed of Arrangement with it.
67 Mr John Downes’ principal affidavit, which has been referred to at length above, was sworn on 30 August 2011, however the summons to set aside the default judgements was not issued until 12 April 2012.
68 The defendants’ explanation for that delay is contained in an affidavit of Ms Kathleena Smith, a solicitor with Logie-Smith Lanyon. She states that the defendants were unable to comply with the Deed of Arrangement with the first mortgagee and it scheduled the properties for sale in September 2011. The defendants therefore dedicated their resources to negotiating with the first mortgagee and the second mortgagee and the plaintiff as third registered mortgagee.
69 They made offers to the liquidator of the plaintiff on 11 September 2011. The liquidator recommended their offer be accepted, but that was not agreed to by the creditors’ meeting held on 19 October 2011.
70 During late November and in early December 2011, the solicitors on behalf of the defendants discussed with the solicitors for the liquidator the merits of the plaintiff’s claim and the defendants’ proposed application and options for resolving the matter commercially. On about 5 December 2011, they made another offer to the liquidator. That was not considered by a creditors’ meeting until 15 February 2012 and the offer was not then approved. Ms Smith states that:
“following the meeting, the creditors requested that our clients increase their offer for consideration at a Creditors’ Meeting to be held on 22 March 2012.”
71 At that meeting the defendants did not make any settlement offers and similarly the creditor did not submit an offer to the defendants for their consideration. Thereafter, on 12 April 2012, the defendants issued their summons to set aside the default judgments.
72 The plaintiff argued that Ms Smith had not stated for how long she had had the care and conduct of the matter and therefore could not explain the delay. The plaintiff submitted that the defendants had decided deliberately to delay and had not applied to set aside the judgment until after a liquidator had been appointed. Mr Downes had sworn to discussions with the liquidator before the liquidator’s appointment.
73 The plaintiff argued that it would suffer prejudice if the judgement was set aside. There were doubts about the ability of the defendants to pay costs, and that there is the possibility of witnesses’ memory of events deteriorating. In addition it was relevant that the liquidator was suing on behalf of creditors of the plaintiff.
74 The defendants argued in reply that no particular prejudice was proved and that general prejudice was insufficient.[2]
[2]Davies v Pagett (1986) 70 ALR 793 at 799 [15]
Significance of the liquidation of the plaintiff
75 I raised with the parties the question whether s 500 (2) of the Corporations Act 2001 prevented this application being brought because it involved proceeding with a civil proceeding against the plaintiff company, which was now in liquidation. Neither party suggested that s 500(2) prevented the application being heard and determined. I consider that the application can be regarded as a defensive proceeding and therefore is excluded from the operation of s 500(2): see Doran Constructions Pty Ltd (in liquidation) v Beresfield Aluminium Pty Ltd[3] and Skinner v Jeogla Pty Ltd[4].
[3][2002] NSWCA 95 at [6]-[7]
[4][2001] NSWCA 15 at [16]-[17]
Consideration of evidence and submissions
76 The defendants have delayed for a very considerable period of fourteen months in bringing their application to set aside the default judgments. They knew of the default judgments by about 11 February 2011, but their summons to set aside the judgements was not issued until 12 April 2012. Mr Downes, initial, and principal, affidavit in support of the application was sworn on 30 August 2011, seven and a half months before the summons was issued.
77 However, I am satisfied that the defendants have provided an explanation for their delay in bringing the application. The period between February and July 2011 was taken up with negotiating with the first mortgagee and creditors and thereafter negotiations were conducted with the liquidator. The reasons given for the failure to bring an application during that period are plausible, if not necessarily wise.
78 In Linkenholt Pty Ltd v Quirk[5], Gillard J said:
“ The authorities establish that the court should be informed of the reason why the defendant failed to enter an appearance. However, in the absence of any prejudice to the other side which could not be overcome, I do not see how a court could refuse an application to set aside a judgment because there has not been sufficient explanation given for failing to enter an appearance.[6]
…
In my opinion a delay in bringing the application is a factor to take into account but must be accorded very little weight in the absence of prejudice which cannot be overcome and in the presence of a defence on the merits. In my view no court doing justice between the parties could deny a litigant’s right to contest a claim against him on the ground that he has delayed in bringing an application to set aside a default judgment where there was no prejudice that could not be overcome by a suitable order.”[7]
[5][2000] VSC 166 [17]
[6]Supra[17]
[7]Supra [46]
79 While each exercise of the discretion to set aside a default judgment must depend on the facts of the particular case, the statement by Gillard J is of relevance in the case of a judgment entered in default of defence, as well as a judgment entered in default of appearance.
80 There can be valid criticisms of the delay and it may well have been preferable to bring the application and seek to adjourn it while negotiations were going on. However, an explanation has been provided for the delay and that explanation is plausible.
81 I do not consider that the prejudice relied on by the plaintiff has been established to be of sufficient substance, by itself, to refuse the defendants’ applications.
Whether a prima facie defence on the merits
82 The next question is whether the defendants have established that their proposed defences are prima facie defences on the merits.
83 The Downes brothers deny that they were loaned the moneys that are claimed by the plaintiff. They have provided an explanation for the payments that they made ie. the payment into the bank account of the crop proceeds.
84 The second aspect of the proposed defences concerns the statements alleged to have been made by Mr Curran by telephone to Mr Downes, during the meeting at Gadens on 18 December 2007.
85 If those statements were found to have been made, it is arguable that they might provide the basis for a claim in false, misleading or deceptive conduct by the plaintiff which induced both defendants to sign the Deed and mortgage. Such a finding in turn might lead, in theory, to the grant of an order that the security documents were not enforceable[8].
[8]See eg the provisions of s 87 of the Trade Practices Act 1974
86 In the case of Mr Bernard Downes, the defendants’ case is that Mr Downes conveyed Mr Curran’s representations to him and that Mr Curran knew or ought to have known, that that was what he would do.
87 The Downes’ proposed defence is based on two propositions of fact: first that they were not loaned the money that the Deed states that they were loaned; and, secondly, that Mr Downes was told on 18 December 2007 that the Deed and mortgage was for the comfort of investors and would not be relied on.
88 The plaintiff, understandably, drew attention to matters affecting the credibility of Mr Downes’ account of the meeting of 18 December 2007. The plaintiff’s case is that such a meeting did not occur. Counsel for the plaintiff pointed out that the security documents were not signed at Gadens on 18 December 2007, but were taken home with the resulting opportunity for consideration and signed in front of a person with the same surname as the defendants. Counsel also pointed to differences in the account of the events of 18 December 2007 in the various affidavits that Mr Downes has made. The plaintiff also pointed to the terms of the Deed and to the payments made to the defendants.
89 Whether the facts proposed by the defendants would be found at trial will depend on the character of evidence led and the Court’s determination of the credibility of witnesses and of the evidence. Where there are contested questions of fact, in the normal course, the Court should not determine them based only on its assessment of the contents of affidavits.
90 There is some attraction in identifying the apparent improbabilities in the defendants’ accounts of their dealings with the plaintiff. But as they have sworn that they do not owe money to the plaintiff and have provided an explanation for the moneys they paid, I do not consider that the probabilities of those matters being proved should be determined on a contest of affidavits. I hold a similar view in respect of the alleged misleading or deceptive representations.
91 The approach to deciding contested matters of fact on affidavits was discussed by Winneke P in Lau v Citic Australia Commodity Trading Pty Ltd[9] in the following terms:
“It may well be that there is a fine line between a finding that there is no material at all before the Court to support a critical finding of fact and a finding that the material will not support that fact because, in the judge's view, it lacks sufficient weight or credibility.
In the vast majority of cases that line, in my view, will have been impermissibly crossed where the judge has come to the latter view because of an assessment that he has made of the credibility of the testimony of the person alleging that he has an arguable defence.”
[9][1999] VSCA 34 at [7]-[8]
92 In Rosing v Ben Shemesh[10] the Full Court of the Supreme Court stated:
“…[the defendant] has taken his oath upon the matter and has sworn that he does not owe the plaintiff one penny of the moneys claimed. Until the issue is tried, the parties and witnesses examined and cross-examined, it is impossible to say where the truth lies. It is difficult to see what more the defendant could do to establish at this stage, that there is a bona fide issue to be tried.”
[10][1960] VR 173,176
93 I consider that the defendants have established on the material filed that they have a prima facie arguable defence based on the two propositions of fact that I have described.
94 I consider that the justice of the matter requires that the default judgment be set aside and that it is appropriate to exercise the discretion to do so.
95 I therefore order that the default judgments entered against the defendants on 9 February 2011 be set aside.
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