Melbourne Used Vehicles Pty Ltd v Cars and Co Pty Ltd

[2019] NSWDC 698

District Court

New South Wales

Medium Neutral Citation:	Melbourne Used Vehicles Pty Ltd v Cars & Co Pty Ltd [2019] NSWDC 698
Hearing dates:	15 November 2019
Date of orders:	25 November 2019
Decision date:	25 November 2019
Jurisdiction:	Civil
Before:	Scotting DCJ
Decision:	(1)   The default judgment entered against the first and fourth defendants is varied. (2)   I direct that the parties bring in Short Minutes of Order within seven days setting out the correct amount of the default                    judgment to be entered against the first and fourth defendants. (3)   The default judgment against the second and third defendants is set aside. (4)   I direct that the second and third defendants file a Defence to the Statement of Claim within 14 days. (5)   I order that the plaintiff pay the second and third defendants’ costs of the motion relating to the setting aside of the default            judgment. (6)   I order that the plaintiff and the first and fourth defendants pay their own costs of the remainder of the Notice of Motion.
Catchwords:	CIVIL PROCEDURE — Default judgment – setting aside
Legislation Cited:	Contracts Review Act 1980
Cases Cited:	Dai v Zhu [2013] NSWCA 412 Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974 unreported)
Category:	Procedural and other rulings
Parties:	Melbourne Used Vehicles Pty Ltd (Plaintiff/Respondent) Cars & Co Pty Ltd (First Defendant) Mahan Kalimi Chadorchi (Second Defendant/Applicant) Natasha Finlay (Third Defendant/Applicant) Shervin Kalimi Chadorchi (Fourth Defendant/Applicant)
Representation:	Counsel: J Adamopoulos (Plaintiff/Respondent) T Rogan (Defendants/Applicants)     Solicitors: Zervos Lawyers (Plaintiff/Respondent) Citilawyers (Defendant/Applicant)
File Number(s):	2019/134309
Publication restriction:	None

Judgment

Introduction

1. By Notice of Motion filed 30 October 2019, the second and third defendants seek an order setting aside default judgment entered against them on 24 June 2019.

2. The first and fourth defendants seek an order that the judgment entered be varied in relation to the amount of legal costs awarded in it and that the judgment be stayed on condition that it is paid by instalments in the sum of $10,000 per month.

3. I have referred to the relevant individuals in the proceedings by their first names because the familial relationships involved in the case may lead to confusion. I intend no disrespect by doing so.

Evidence on the Notice of Motion

4. The defendants read the following affidavits:

1. Mahan Kalimi Chadorchi affirmed 29 October 2019.

2. Natasha Finlay affirmed 29 October 2019.

3. Shervin Kalimi Chadorchi affirmed 29 October 2019.

5. The plaintiff read the following affidavits:

1. Christian de Palma sworn 14 November 2019.

2. Stefan de Palma sworn 14 November 2019.

Factual Background

6. The first defendant, Cars & Co Pty Ltd (C&C) operated a business as a used car dealer in Sydney. At all material times, the fourth defendant, Shervin Chadorchi (Shervin) was a sales consultant for C&C. From an analysis of the correspondence it appears that he was the directing mind of C&C.

7. The third defendant, Natasha Finlay (aka Natasha Molyneaux) (Natasha) is the partner of Shervin. Natasha was the secretary of C&C until 15 November 2018. At all material times Natasha was the director of Financing & Co Pty Ltd that operated a business providing finance from the same premises as C&C.

8. The second defendant, Mahan Chadorchi (Mahan) is the sister of Shervin. Mahan was the director of C&C until 26 June 2019.

9. The plaintiff, Melbourne Used Vehicles Pty Ltd (MUV), operated a business as a used car dealer in Melbourne. Christian de Palma (Christian) is a director of MUV. Stefan de Palma (Stefan) is the brother of Christian and is acting as solicitor on the record for MUV and is a Senior Associate of Zervos Lawyers.

10. In about late 2018 C&C and MUV entered into a number of transactions relating to the transfer of a number of vehicles between them, which resulted in C&C owing MUV the sum of $148,903.96.

11. In or about late January 2019, Christian arranged for Stefan to draft an agreement in writing to record the position of the parties.

12. In or about early February 2019, Christian and Shervin exchanged a number of emails regarding the exchange of vehicles and payments made between C&C and MUV. Those emails were usually copied to Natasha and Stefan. It should be noted that none of these ‘negotiations’ suggested the provision of personal guarantees and/or security by the proposed guarantors.

13. On 13 February 2019 Stefan sent a draft deed to Christian by email. Christian forwarded it to Shervin. The draft deed provided for the provision of personal guarantees by Mahan, Natasha and Shervin, secured by a charge over ‘all of their rights title and interest’ in any property that they hold or may hold in the future supported by an authorisation to lodge a caveat. The guarantee also required each of Mahan, Natasha and Shervin to indemnify MUV from any costs that may arise from the recovery of any sum owed to MUV.

14. Shervin gave a copy of the draft deed to Natasha. Natasha deposed that after reading it that she telephoned Christian and told him that she would not be guaranteeing the debt because it had nothing to do with her.

15. On 15 February 2019 Stefan provided a further amended draft deed to Christian. The deed was amended to reflect that Natasha was no longer the secretary of C&C. Stefan asserted in the email providing the amended draft deed that it was still appropriate to include Natasha as a guarantor because she was a co-owner of property with Shervin.

16. On 16 February 2019 Christian sent the amended draft deed to Shervin by email.

17. On or about 19 February 2019 Christian attended the premises of C&C for the purpose of having the deed signed by each of Mahan, Natasha and Shervin.

18. Natasha and Mahan both deposed that Christian represented to them at the time that when they signed the deed that it would not be relied on or enforced. Christian denied making those representations and that the terms of the deed had been put forward by Stefan for his ‘peace of mind’.

19. The deed incorrectly dated 14 February 2019, was signed by Mahan, Natasha and Shervin in the presence of an employee of C&C (the Deed). Mahan neglected to sign the Deed on behalf of C&C.

20. The Deed required payment of the sum owed by C&C to MUV on or before 14 March 2019.

21. On 28 February 2019 Stefan sent a copy of the Deed to Mahan, Natasha and Shervin by email. He requested that Mahan execute the document on behalf of the company where indicated.

22. On 4 March 2019 Mahan returned the execution page of the Deed signed by her on behalf of the company as requested to Stefan.

23. C&C did not pay the debt in accordance with the terms of the Deed.

24. On 27 March 2019 Stefan sent a letter of demand as the solicitor for MUV addressed to the defendants.

25. In or about early April 2019 Natasha entered into some discussions with Stefan about paying the debt, prior to engaging a solicitor. Stefan’s evidence about this contact with Natasha was incomplete in that it did not disclose all of his notes about the telephone conversation of 11 April 2019 or her email of 15 April 2019. I am left with the impression that his evidence about those contacts with Natasha was selective and is not an independent version that the Court could expect from a disinterested legal practitioner. This is supported by the evidence that Stefan was copied on many of the email communications between the parties relating to the business transactions between them, for reasons that have not been adequately explained.

26. These proceedings were commenced on 30 April 2019. The Statement of Claim was served on the last defendant on 23 May 2019. Default judgment was entered on 24 June 2019.

27. The default judgment included a claim for $12,750 in legal costs incurred by MUV in enforcing the Deed. No evidence was provided to support a claim for that amount at the time when the default judgment was entered.

28. Between about June and July 2019 Natasha and Shervin made attempts to obtain finance to pay the debt, but it remains unpaid.

29. On 3 July 2019 a Bankruptcy Notice was sent to Mahan by express post. On 5 August 2019 a Creditor’s Petition was filed against Mahan. It was served on her on 16 August 2019.

30. On 30 October 2019 the defendants filed the present Notice of Motion. The bankruptcy proceedings have ben stayed pending the outcome of the Notice of Motion.

31. At all material times, Mahan has been the full-time carer for her mother who is suffering from chronic obstructive pulmonary disease (COPD) and her younger sister who has Down’s Syndrome. Her mother’s condition has required her hospitalisation on an average of 10 times per year since about 2015. During hospital admissions, Mahan stays with her mother to reduce her anxiety and fear of being left alone. Mahan’s mother was hospitalised between the following dates, 6 June 2019 to 11 June 2019, 1 July 2019 to 4 July 2019, 27 August 2019 to 4 September 2019.

32. On 8 September 2019 Mahan’s mother was admitted to Concord Hospital with pneumonia and discharged on 15 September 2019. On her discharge Mahan continued to care for her mother at home. On 6 October 2019 Mahan’s mother was readmitted to hospital after a fall in which she suffered spinal and rib fracture. She was discharged on 19 October 2019 but readmitted on 20 October 2019.

Relevant Law

33. In Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24, McColl JA at [44] summarised the principles as follows:

The court’s jurisdiction to set aside the default judgment is found in the bald terms of Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) 36.16(2)(a), providing the “court may set aside or vary a judgment or order after it has been entered if … (a) it is a default judgment) other than a default judgment given in open court)”. The fundamental (but not the only) principles guiding a court asked to exercise the unfettered discretion UCPR 36.16(2)(a) confers, are whether the applicant has a bona fide ground of defence, an adequate explanation for the failure to defend and the length of any delay: Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 (at 506) per Hope JA (Glass JA agreeing). In the final analysis, it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974 unreported) cited with approval by Sackville AJA (Barrett and Leeming JJA agreeing) in Dai v Zhu [2013] NSWCA 412 (at [83]).

34. The Second and Third defendants each need to establish that they have a bona fide defence, there is an adequate explanation for failing to file a Defence on time and the length of delay in bringing the application to set aside the default judgment.

35. The Court must be satisfied that the defence is “fairly arguable in law or fact” and that the applicant is bona fide in seeking to rely upon that defence”: Dunwoodie (at [45]), citing Reinehr Industrial Lease & Finance Pty Ltd v Jordan per Street ACJ.

36. In Dai v Zhu [2013] NSWCA 412, Sackville AJA at [89] stated:

The second observation is that the authorities consistently state that, as a general rule, a defendant who seeks to set aside a judgment by default regularly obtained must show that he or she has a bona fide defence. This ordinarily requires the defendant to file an affidavit demonstrating a prima facie defence on the merits. The rationale for this requirement is that in the exercise of its "unfettered, though judicial, discretion" the Court will 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.

Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239, at 243, per Jordan CJ (with whom Davidson and Roper JJ concurred), citing Evans v Bartlam [1937] AC 473, at 482, per Lord Russell; Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331, at [48]-[51], per Hodgson JA (with whom MW Campbell AJA agreed) (holding that the principles stated in Vacuum Oil have not materially been affected by the reasoning of the High Court in Taylor v Taylor [1979] HCA 38; 143 CLR 1, and Allesch v Maunz [2000] HCA 40; 203 CLR 172).

Consideration

Variation of the Default Judgment

37. There is no evidence in the vast amount of material relied on by the plaintiff to justify the sum of $12,750 in legal costs included in the Statement of Claim. That part of the default judgment should be set aside pending the demonstration by the plaintiff of its entitlement to that sum.

38. The first and fourth defendants seek that the default judgment be varied by reducing it by the sum of $12,750 together with any interest claimed. That is an appropriate order in the circumstances.

39. I direct that the parties bring in Short Minutes of Order within seven days identifying the correct sum to which the default judgment should be varied.

Application to Set Aside the Judgment by the Second and Third Defendants

40. I am satisfied on the evidence that both the second and third defendants have a fairly arguable defence in law or fact and that they are both bona fide in seeking to rely on that defence.

41. The circumstances in which the Deed was executed give rise to a number of factual and legal questions as to its validity and enforceability against the second and third defendants. The evidence is capable of supporting an inference that both the second and third defendants objected to signing the document and incurring the personal liability contained in it for debts that had been incurred by C&C. No opportunity was given to the second and third defendants to negotiate the terms of the Deed or to get independent legal advice on it.

42. I am satisfied that the second and third defendants have an arguable defence based on unconscionable conduct, misrepresentation, undue influence and/or the provisions of the Contracts Review Act 1980.

43. I am not satisfied that the course of events after the execution of the Deed was sufficient to demonstrate that either the second and/or third defendant should be deprived of the arguable defences available to them.

44. I place very little weight on the evidence of Stefan because of his involvement in the negotiations as an interested party to them.

45. Overall, I do not think that the delay in bringing the application to set aside the default judgment was significant. In Mahan’s case she had the care of her mother and sister during the relevant period, which occupied much of her time. The evidence in general does not indicate that she had a significant involvement in the operation of C&C.

46. In Natasha’s case the evidence explaining the delay is not as convincing. She appears to have taken an interest in trying to organise payment of the debt, during the period after the proceedings were commenced. That explains part of the delay. Further, the enforcement action taken by the plaintiff seems to have been concentrated on Mahan through the bankruptcy proceedings rather than on Natasha. This also goes to provide some reason as to why she may not have acted as promptly as she could have. However, in normal circumstances, the factual and legal issues raised by the circumstances under which the Deed was signed are such that I am comfortably satisfied that default judgment against Natasha should be set aside.

Application to Pay by Instalments

47. The first and fourth defendants have made an application to pay the judgment sum by instalments in the sum of $10,000 per month. The first and fourth defendants seek an order that enforcement of the judgment sum be stayed whilst the instalment order is in place.

48. The evidence demonstrates a number of attempts to pay the debt owed by C&C throughout the course of 2019. It is fair to say that those promises have not come to fruition.

49. I am not satisfied on the evidence that C&C and/or Shervin have demonstrated a capacity to meet the instalment order for which they contend. The proposed order intended the first payment to be made on or before 30 November 2019.

50. I am not satisfied that it is appropriate to make the instalment order and accordingly, enforcement of the judgment against C&C and Shervin should not be stayed.

Costs

51. I am satisfied on the evidence that the plaintiff’s position on the setting aside of the default judgment against the second and third defendants and the amount of the default judgment was not a reasonable one to take, resulting in the need for the hearing on the basis of a relatively large volume of material which was for the most part irrelevant to the matters to be decided. The usual costs orders on setting aside a default judgment are not appropriate in this case.

Orders

52. The orders I make are as follows:

1. The default judgment entered against the first and fourth defendants is varied.

2. I direct that the parties bring in Short Minutes of Order within seven days setting out the correct amount of the default judgment to be entered against the first and fourth defendants.

3. The default judgment against the second and third defendants is set aside.

4. I direct that the second and third defendants file a Defence to the Statement of Claim within 14 days.

5. I order that the plaintiff pay the second and third defendants’ costs of the motion relating to the setting aside of the default judgment.

6. I order that the plaintiff and the first and fourth defendants pay their own costs of the remainder of the Notice of Motion.

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Decision last updated: 25 November 2019