Moon v Mun

[2013] NSWCA 217

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Moon v Mun [2013] NSWCA 217

Hearing dates:

10 July 2013

Decision date:

10 July 2013

Before:

Basten JA (at [1]); Barrett JA (at [12]); Ward JA (at [61]

Decision:

1. (a) Allow the appeal.

(b) Set aside the orders made by Schmidt J on 24 August 2012.

(c) In place thereof:

(i) allow the appeal to the Supreme Court;

(ii) set aside the orders made in the Local Court on 7 March 2012;

(iii) order that the application by the plaintiff in the Local Court be dismissed;

(iv) order that the plaintiff pay the costs of the defendants in the Local Court.

(d) Order the defendants to pay the plaintiff's costs in the Common Law Division.

2. Return the matter to the Local Court to be determined according to law.

3. Order that the respondent pay the applicants' costs in this Court.

4. Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW) with respect to the costs of the appeal to the Common Law Division and the proceedings in this Court.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

PROCEDURE - orders of the Local Court in its civil jurisdiction striking out defence and directing judgment for the plaintiff - appeal to the Supreme Court - appeal dismissed - further appeal (by leave) to the Court of Appeal - no clear explanation by the magistrate why the orders were made - the primary judge addressed the possibilities of judgment in default of defence and judgment on admissions - the primary judge rejected the first possibility and concluded that the judgment was a judgment on admissions - no sufficient basis for that conclusion - rationale for the magistrate's decision was unexplained - the defence showed that significant parts of the claim were in dispute - no occasion for judgment on admissions or any other form of judgment precluding trial on the merits - observations on the need for precise identification of the relevant question of law where appeal on a question of law only is permitted and to identify what material can properly be relied upon in answering that question.

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 55-60,
Local Court Act 2007 (NSW), ss 39(1), 40
Supreme Court Act 1970 (NSW), ss 75A, 101(2)(r)
Uniform Civil Procedure Rules 2005 (NSW), rules 16.6, 16.7, 17.7

Cases Cited:

Arnold v Forsythe [2012] NSWCA 18
Ash v Hutchinson & Co (Publishers) Ltd [1936] Ch 489
Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164
Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69
Ellis v Allen [1914] 1 Ch 904
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Gregory's Transport Pty Ltd v Ray's Haulage Pty Ltd [2008] NSWCA 333
Jaycar Pty Ltd v Lombardo [2011] NSWCA 284
Moon v Mun [2012] NSWSC 973
Re the Trade Marks Act 1955-1958 and the Registered Trade Marks "Certina" and "Certina DS" (1970) 44 ALJR 191
Termijtelen v Van Arkel [1974] 1 NSWLR 525
Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56

Category:

Principal judgment

Parties:

Young Soo Moon - First Applicant
Sung Shim Lim - Second ApplicantSoon Sil Mun - Respondent

Representation:

Mr J C Hewitt - Applicants
Mr M W Young SC - Respondent
Dahan Lawyers - Applicants
KDL Legal - Respondent

File Number(s):

2012/286045

 Decision under appeal 

Citation:

Moon v Mun [2012] NSWSC 973

Date of Decision:

2012-08-24 00:00:00

Before:

Schmidt J

File Number(s):

2012/99913

Judgment

1. BASTEN JA: There can be little doubt, for the reasons explained by Barrett JA, that the proceedings in this matter in the Local Court miscarried. Accordingly, on the completion of the hearing in this Court, orders were made granting leave to appeal, allowing the appeal and setting aside the orders made in the Local Court. I gratefully adopt the reasoning of Barrett JA, with the following additional considerations.

Grant of leave to appeal

1. The matter for hearing before this Court was an appeal: leave had already been granted. Leave was required because the amount in dispute was less than $30,000 and well under the prescribed amount of $100,000: Supreme Court Act 1970 (NSW), s 101(2)(r). This was properly categorised as a "small appeal" in the sense that there was a real interest in "early finality in determination of [such] litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute": Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56 at [22], Campbell JA, paraphrasing Cole JA in Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69. The importance of seeking to maintain proportionality between the amount in dispute and the likely costs to the parties is now required by s 60 of the Civil Procedure Act 2005 (NSW). As I indicated in Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [39]:

"This direction has an important operation in respect of leave applications involving amounts below the statutory threshold. Where, as in the present case, the costs of the trial are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will be a factor weighing heavily against a grant of leave. Particularly is that so where there is a real prospect that, if successful, an appeal will not resolve the matter but will require a new trial."

1. Despite the relatively small amount in dispute, it may be proper to grant leave to appeal if there is a question of general public importance raised by the litigation, "or an injustice which is reasonably clear, in the sense of going beyond [that which is] merely arguable": Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46], Campbell JA paraphrasing Kirby P in Carolan. This case fell into the latter category and, accordingly, a grant of leave was appropriate.

Nature of appeal

1. The proceedings were commenced in the General Division of the Local Court. The only appeal available as of right from a judgment or order of the Local Court sitting in its General Division is to the Supreme Court on a question of law: Local Court Act 2007 (NSW), s 39(1). There is a right of appeal with leave "on a ground that involves a question of mixed law and fact": Local Court Act, s 40(1). There is no indication that s 40 was invoked in the present proceedings as the orders made in the Common Law Division do not reveal a grant of leave to appeal. That is confirmed by the indication in the judgment below that leave had been sought, but only on the basis that the judgment or order was interlocutory, for the purposes of s 40(2)(a) of the Local Court Act and the parties were satisfied that the judgment was final: Moon v Mun [2012] NSWSC 973 at [3].

1. The papers put before this Court on the appeal from the decision in the Common Law Division included not merely the pleadings, judgment and order made in the Local Court, but the transcript of the [brief] hearing before the Magistrate, and extensive evidential material contained in affidavits and statements filed, but not read or tendered in the Local Court. It was said that that material had been put in evidence before the primary judge, although little if any reliance was placed upon it in her judgment.

1. When pressed as to its relevance on this appeal, counsel for the appellant stated that the appeal below had been conducted pursuant to Part 50 of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), and was therefore an appeal by way of rehearing, in accordance with r 50.16(1), there having been a hearing in the court below. However, that rule cannot override the specific provision of the Local Court Act identifying the nature of the appeal. The statement as to the nature of an appeal to this Court is to be found in s 75A(5) of the Supreme Court Act, which section is expressly stated to have effect "subject to any Act": s 75A(4). The rule relied on has no such express qualification, but the result must be the same. Accordingly, the proceeding before the trial judge was an appeal on a question of law.

1. This conclusion should have led to two consequences, neither of which occurred. The first should have been to identify with precision the question or questions of law arising. The second should have been to identify what material could properly be relied upon in answering that question or those questions.

1. As no reliance was ultimately placed upon the evidence filed in the Local Court, but not proffered to the Magistrate, it should have been rejected by the primary judge. The point may have been of little consequence in the present case, but the irrelevant material constituted well over half the appeal papers in this Court and could have led to disregard of the constraints on the subject matter of the appeal.

Questions of law

1. Barrett JA has identified at [24] below the grounds relied upon before the primary judge. Of the 13 grounds there set out, some, including (a)-(d), (f), (i) and (m) do not appear to have been relied upon before the Magistrate. There is at least serious doubt as to whether a question of law can arise from a decision or judgment of the Local Court when the issue was not raised for determination at trial.

1. On the other hand, it should be accepted, in the absence of any submission to the contrary, that a question as to the construction and operation of a pleading involves a question of law, as do the power of the Magistrate to give summary judgment on a claim where there is no affidavit or other evidence supporting the allegations and the power to rely on admissions made in a pleading which has been struck out. Matters going to absence of power usually raise questions of law.

1. So far as the hearing before the trial judge was concerned, whatever the powers of a judge hearing an appeal under s 39 of the Local Court Act, they do not extend to making orders in relation to issues which could have been, but were not, addressed by the Magistrate, on a procedural basis which was not before the Magistrate. No doubt there is a natural inclination, reinforced by ss 56-60 of the Civil Procedure Act, to take all possible steps to promote the just, quick and cheap resolution of disputes. That consideration does not, however, permit the Court to exercise powers which it does not have.

1. BARRETT JA: The appellants appealed by leave from a judgment and orders of a judge of the Common Law Division (Schmidt J) dismissing an appeal from a decision of the Local Court in its General Division (Magistrate Bradd) ordering judgment in the sum of $31,878.61 against the present appellants and in favour of the present respondent.

1. On 10 July 2013, at the conclusion of the hearing of the appeal, this Court made orders and reserved its reasons. The orders were that the appeal be allowed with costs, that the orders made in the Common Law Division and the Local Court be set aside, that the present respondent pay the appellants' costs of both the Common Law Division and Local Court proceedings and that the matter be remitted to the Local Court to be determined according to law.

1. I now state my reasons for joining in the making of those orders.

The parties' dispute

1. The parties' dispute arose from an agreement for the sale and purchase of a business. The respondent was the vendor and the appellants were the purchasers. The respondent (as plaintiff) brought proceedings in the Local Court by a statement of claim dated 6 September 2011. An amended statement of claim was filed on 2 February 2012. The pleading and particulars in the amended statement of claim should be set out in full. They were as follows:

"1. On or about 6 June 2011, the plaintiff as vendor and the first and second defendants as purchasers entered into a contract ('the Contract') for the sale of a takeaway food business ('the Business') traded from [address] in Lidcombe NSW ('the Property').

Particulars

The Contract is in writing.

2. It was a term of the Contract that the price of the Business was $70,000.00 ('the Price').

3. It was a term of the Contract that the Price was to be paid by the first and/or second defendant in the following instalments:

a. $1,000.00 immediately upon entering the Contract,

b. $50,000.00 by 10 June 2011, and

c. $19,000.00 by 25 July 2011.

4. It was an implied term of the Contract that in addition to the payment referred to in paragraph 3c above, the first and/or second defendant would pay to the plaintiff an amount equal to rent the plaintiff had already paid to the landlord of the Property in respect of any time after 25 July 2011.

Particulars

Term:

(a) implied by conveyancing custom

(c) goes without saying.

5. The first and/or second defendant paid to the plaintiff the amount referred to in paragraph 3a above on or about immediately upon entering the Contract.

6. The first and second defendant failed to pay the amount referred to in paragraph 3b above by 10 June 2011.

7. On or about 18 June 2011 the first and/or second defendant paid to the plaintiff the sum of $40000.00, which resulted in the balance of the Price payable for the Business under the Contract being $29,000.00 ('the Remaining Sum').

8. The first and/or second defendants have failed to pay the plaintiff:

a. The payment referred to in paragraph 3c above, or

b. The Remaining Sum,

or any further amount at all and the Remaining Sum is due and payable by the first and second defendants as a debt.

9. On or about 6 July 2011, the plaintiff paid to the landlord of the Property rent of $2,500.00 in respect of the Property for the period 6 July 2011 to 5 August 2011.

10. In virtue of the matters pleaded in paragraphs 4 and 9 above, the plaintiff also claims from the first and second defendants the sum of $916.67, calculated as:

a. 11 days from and including 26 July 2011 - 5 August 2011, divided by

b. 30 days per month, times

c. $2,500.00 per month (rent).

11. And the plaintiff claims from each defendant:

a. Judgment in the sum of $19,916.67.

b. Interest pursuant to section 100 of the Civil Procedure Act 2005 accruing from 25 July 2011, which amount at 5 September 2011 has amounted to $294.04 and continues to accrue at the rate of $7.17 per day.

c. Costs."

1. The appellants, as defendants, filed a defence dated 28 September 2011. An amended defence dated 10 February 2012 stated grounds of defence as follows:

"1. The Defendants are not indebted as alleged.

2. The Defendants admit that they entered into a contract 'the Contract' as referred to in paragraph 1 of the Statement of Claim, but say that 'the Contract incorporated terms that were implied, oral and in writing.

3. The Defendants deny paragraph 1 of the Amended Statement of Claim and state that they purchased the business as a ongoing restaurant with all relevant approvals including Liquor Licence, equipment, stock, goodwill, clientele and other attributes to enable the business to continue as a "going concern".

4. The Defendants adit making payments totalling $41,000,00 to the Plaintiff.

5. The Defendants have refused to pay further funds to the Plaintiff as the Plaintiff has fundamentally breached the Contract, has failed to deliver to the Defendant the inventory of assets and utensils and has not complied with terms which the parties had agreed upon.

Particulars of Breach

a) Failure to provide equipment and implements as agreed.

b) Failure to provide Council Approval/DA for business to operate.

c) Failure to provide Liquor Licence and Transfer documentation.

d) Failure to provide any financial records of the business.

e) Failure to provide a formal Contract for Sale of Business.

f) Failure to maintain the working of the business and to maintain the goodwill of the business and to carry on the business in a proper and businesslike manner as a 'going concern'.

g) Closing the business unilaterally on the 16 July 2011.

h) Failing to provide a 2 week training period before Settlement.

i) Failure to provide a 2 week training period after Settlement.

j) Failure to provide a list of Suppliers and Contacts for the business to continue to operate.

k) Failure to provide a Greasetrap, Sewerage and Drainage in accordance with Council requirements.

l) Failure to maintain the equipment in the same state as at the Contract date.

m) Further particulars of breaches will be provided prior to the hearing.

6. As a consequence of the Defendants entering into occupation of the premises with the consent of the Landlord, the Defendants have been served with a Breach Notice by Auburn Council pursuant to Section 121H of the EPA Act relating to breaches concerning the non submission by the previous occupant of relevant certificates, fit out documentation, fire safety documentation, which the Plaintiff claimed had been implemented by him and the Defendants claim damages thereto, including but not limited to a $1,500.00 fine paid pursuant to Penalty Notice 3062332076 on the 12 September 2011.

7. The Defendants claim damages against the Plaintiff for rectification work required by Council to comply with their standards, including but not limited to provide the Grease Trap facilities for a price of $12,650.00 and necessary electrical work for $1,991.00.

8. The Defendants claim damages against the Plaintiff."

The course of proceedings before the Local Court

1. The matter came before Magistrate Bradd on 7 March 2012. The transcript records that a number of affidavits had been filed and that witnesses were in attendance with a view to giving evidence. Mr Chee, counsel for the respondent, said that interpreters were expected to arrive at 11.30 and that there were some preliminary matters to be dealt with in the meantime. He then submitted that "on the pleadings alone there ought to be judgment for the plaintiff and that there is noting else to consider in terms of the way the pleadings are framed". The magistrate said that he would "deal with the pleadings first".

1. Mr Chee then submitted that the amended defence admitted "that there was a contract entered into of a type that's referred to in the statement of claim" and an admission of the payment of $41,000; also that "one doesn't avoid payment of contractual obligations simply by alleging that another party has committed some breach of the contract as well". He noted that there was no allegation in the amended defence that the contract had been terminated and submitted that the allegations in paragraph 5 regarding particular terms and breach by the respondent were "simply not appropriate for a defence" and might ground a cross-claim, there being no allegation of set-off.

1. Mr Chee concluded by submitting that the respondent had to "succeed at this preliminary stage" and that "the balance of the defence should just be ignored". The reference to "the balance of the defence" was apparently a reference to the parts beyond those admitting the contract and the payment of $41,000.

1. After hearing from counsel for the appellants as to why he should proceed to a hearing on the merits, the magistrate retired briefly and then gave a short judgment, as follows:

In the matter of Soon Sil Mun, M-U-N, and first defendant, Young Soo Moon, and the second defendant, Sung Shim Lim. I have read the amended statement of claim which is that on about 6 June 2011, the plaintiff as vendor and the first and second defendants as purchasers entered into a contract for the sale of a business at 10 Bridge Street, Lidcombe. The particulars being the price of $70,000 and the payment schedule, and the term of the contract relating to payment of rent from 25 July 2011. The statement of claim alleges that the first and second defendant failed to pay the amount, and there was a balance owing at 18 June 2011 of $29,000, and also there is an amount owing of $916.67 in relation to rent payable for the eleven days including 26 July to 5 August.

In answer to that amended statement of claim, the amended defence states that the defendants are not indebted as alleged. The defendants admit that they entered into a contract. The contract, as referred to in para 1 of the statement of claim, says that the contract incorporated terms that were implied, oral and in writing. The defence does not go on to stipulate what those terms are alleged to be. The defendant in para 3 denies that the contract was for a takeaway business but says it was for an ongoing restaurant with relevant approvals. The defendants admit making payments totalling 41,000 and state that they have refused to pay further funds to the plaintiff as one plaintiff has fundamentally breached the contract. The particulars for the fundamental breach are not set out. Paragraph 7, the defendants claim damages against the plaintiff for rectification work required by council. And para 6, the defendants claim damages in relation to a breach of council rules relating to the EPA Act. In the defence, the defendants claim damages against the plaintiff. No cross-claim has been served and filed.

So the defence is deficient in a number of respects. Firstly, that the terms or the oral terms that were implied, oral and in writing are not stipulated, the fundamental breach is not stipulated, and there is no provision in - or the defendants to claim damages within a defence. There is no pleading as to the defence discharging its obligations to pay the moneys under the contract. There is no pleading as to any termination of contract. So the defence is deficient in a number of significant ways.

It has been put to me that this is the Local Court. The Uniform Civil Procedure Act applies to all courts. And failure of the defendants to properly plead their case has led to a lack of procedural fairness, so the plaintiff has not been properly put on notice of the defence, and as such there is no pleadings which the plaintiff is required the answer."

1. The magistrate then ordered that the defence be struck out and that there be verdict and judgment for the respondent in the sum of $29,916.67.

The appeal to the Supreme Court

1. The appellants appealed to the Supreme Court under s 39(1) of the Local Court Act 2007 on a question of law.

1. The summons by which that appeal was brought stated grounds of appeal as follows:

"1. His Honour erred in striking out the defence of the plaintiffs.

2. His Honour erred in not affording an opportunity for the plaintiffs to rely at trial upon an amended defence and cross-claim.

3. His Honour erred in entering a verdict and judgment for the defendant."

The decision of the primary judge

1. The appeal was heard by the primary judge on 12 July 2012. In her judgment of 24 August 2012 (Moon v Mun [2012] NSWSC 973), her Honour made it clear that the appeal was pressed on a number of bases, including arguments not advanced in the Local Court. Her recitation of those bases elucidated the true content of the grounds stated in the summons. The matters referred to were:

(a) that the application for judgment ought not to have been made at the commencement of the hearing without a notice of motion and supporting affidavit;

(b) that the respondent's amended statement of claim was deficient because it did not plead that the respondent had fulfilled her promise to transfer the business to the appellants;

(c) that the respondent was not entitled to summary judgment because the test in see General Steel Industries Inc v Commissioner for Railways(NSW) [1964] HCA 69; (1964) 112 CLR 125) had not been satisfied;

(d) that the magistrate, having decided to strike out the defence, should have separately addressed the question whether the appellants had a reasonably arguable defence that should have been allowed to go to trial;

(e) that the appellants should not have been deprived of the opportunity to have a hearing of the questions raised by their defence;

(f) that the amended statement of claim did not properly plead a claim in debt, because it did not plead the material facts demonstrating an entitlement to $70,000 and, as framed, could not support a judgment in the respondent's favour (reference was made to Arnold v Forsythe [2012] NSWCA 18 at [57]);

(g) that it had not been admitted that the balance of the purchase price was due and payable;

(h) that the appellants were not obliged to plead matters such as the discharge of their obligation to pay money under the contract, or as to the termination of the contract, given their defence that the respondents had fundamentally breached the agreement on which they relied;

(i) that the respondent had not pleaded that she had provided the quid pro quo for the payment of the purchase price;

(j) that there was no compliance (or no substantial compliance) with the obligations under the contract;

(k) that there was no power to enter judgment under Part 16 of the Uniform Civil Procedure Rules 2005, because the application was not supported by an affidavit;

(l) that the magistrate had erred in concluding that the amended defence did not adequately plead the terms relied on by the appellants and did not specify particulars of the alleged fundamental breach of the agreement;

(m) that the respondent had not been given adequate notice of the grounds of defence.

1. The parties and the primary judge were significantly hampered by the absence of any real explanation by the magistrate of his reasons for taking the particular course he took. The primary judge addressed two possibilities: first, that the judgment was in reality a default judgment under rule 16.6 of the Uniform Civil Procedure Rules following striking out of the amended defence; and, second, that it was a judgment on admissions under rule 17.7. In identifying those possibilities, the judge necessarily resorted to speculation since the magistrate, in the course of his short judgment, had not mentioned either of these bases (or any basis) for the judgment he awarded.

1. The primary judge held that the judgment was not a default judgment under rule 16.6. This was because there was no explicit application for judgment on that basis, no affidavit in support as required by the rule and no order dispensing with the requirement for such an affidavit. Her Honour also said that it was "not clear" why the magistrate had struck out the defence.

1. The judge then addressed the remaining basis on which the respondent sought to uphold the judgment, that is, that it was a judgment on admissions pursuant to rule 17.7. She was of the opinion that the course of proceedings before the magistrate showed that there had been an application by the respondent for judgment on admissions made in the pleadings and that this was so despite the absence of any explicit reference to rule 17.7.

1. Turning to the respondents' amended defence and the question of admissions, the primary judge said (at [39], [40]):

"39. The written contract for the sale of the business was admitted. The pleaded defence and the submissions advanced below made it clear that it was not in issue that the agreed price was $70,000; that the contract required payment of parts of the sale price on specified dates; that Mr Moon and Ms Lim had entered into occupation of the premises and later conducted a restaurant business there; that part of the purchase price had been paid; and that the amount claimed remained outstanding; Mr Moon and Ms Lim having refused to make the payments due."

40. The defence claimed that Ms Mun had breached implied and oral terms of the contract. It did not plead that those breaches amounted to a repudiation of the contract, which Mr Moon and Ms Lim had accepted, thereby bringing the contract to an end. Instead, what was pursued was damages for alleged breaches of unspecified implied and oral terms. By that claim it was conceded that the contract remained on foot."

1. Her Honour later said (at [44], [45]):

"44 . . . There was here no issue between the parties that Ms Mun claimed the balance outstanding of the $70,000 purchase price, which was due to be paid on dates fixed in the written contract. There were no steps taken by Mr Moon and Ms Lim to terminate the contract, notwithstanding Ms Mun's alleged fundamental breaches of the agreement. Instead, on their own admissions, Mr Moon and Ms Lim went into possession and conducted a restaurant business there. In the circumstances there is no question that Ms Mun's claim was for a liquidated sum. Contrary to the circumstances dealt with in Arnold, the claim advanced in the statement of claim here in question was clearly a claim that Mr Moon and Ms Lim had a binding obligation to pay Ms Mun a total of some $29,916.67 under the express and implied terms of the written contract, as to the final part of the purchase price, on a specified date and in relation to the rent, in respect of the period that Mr Moon and Ms Lim went into occupation of the premises. By their defence and the submissions advanced at the hearing, they admitted that the payments had not been made, even though they had gone into occupation and operated the business.

45 As was explained below for Mr Moon and Ms Lim, what they sought to do by their defence was to avoid the payment of all of the amount in issue, by advancing other claims for unspecified damages in respect of alleged breaches of other oral and implied terms of the agreement. The defence did not allege that there had been a total failure of consideration, nor was that advanced below. It was only in oral submissions in reply on appeal, that it was submitted for the first time that there had been such a failure and that the defence should be so understood."

1. The judge rejected the appellants' argument that the amended statement of claim did not properly plead a claim in debt because it failed to allege performance by the respondent of the obligations to be performed by her in order that she should become entitled to the price. The judge also held that the appellants could only advance their claims for breach of contract by cross-claim.

The grounds of appeal

1. The appellants contended in this Court that the primary judge had erred in

(a) holding that there had been an application for judgment on admissions under rule 17.7 and that the circumstances were such as to warrant judgment on admissions; and

(b) not recognising that the application before the magistrate was advanced under rule 16.6 and that the judgment could not be supported on that basis; and

(c) rejecting the appellants' contention that that the amended statement of claim did not properly plead all material facts for the respondent's claim and finding that the appellants could not advance their claims for breach of contract by way of defence.

Assessment of the Local Court pleadings

1. In reaching their respective conclusions in favour of the respondent, the magistrate and the primary judge had regard to the content of the pleadings only. There was no suggestion of admissions outside those pleadings. The proceedings before the magistrate never reached a point where evidence was tendered, so that there was no available source of admissions beyond the pleadings. It is therefore appropriate to look more closely at the structure of the pleadings.

1. Paragraph 1 of the amended statement of claim pleaded a written contract for the sale of a "takeaway food business" operating at a specified address. The appellants, in their amended defence, said three things about that paragraph 1: first, they admitted (in paragraph 2) that they entered into "a contract 'the Contract' [sic] as referred to in paragraph 1"; second, they said (also in paragraph 2) that "the Contract" incorporated terms that were "implied, oral and in writing" without specifying precisely what those terms were; and, third, they said (in paragraph 3) that they denied paragraph 1 of the amended statement of claim and that they purchased the business "as an ongoing restaurant" with all approvals, equipment, stock and goodwill.

1. There was thus acceptance by the appellants of the proposition that a contract had been made but no acceptance of the proposition that its subject matter was a "takeaway food business" (as distinct from "an ongoing restaurant") or the proposition that the terms of the contract were confined to those pleaded by the respondent. It is true that the appellants did not, in paragraph 2, identify the "terms that were implied, oral and in writing" for which they contended, but they did so, in a somewhat indirect yet sufficiently clear way, in paragraphs 3 and 5. Paragraph 3 identified the subject matter of the contract as "an ongoing restaurant" with all relevant approvals, equipment, stock, goodwill and other elements and paragraph 5 said that "terms which the parties had agreed upon" included terms requiring the respondent to deliver to the appellants the inventory of assets and utensils. The particulars of breach stated in paragraph 5 identified as breaches failure to maintain the business and goodwill and "closing the business unilaterally on the 16 July 2011".

1. The only other admission made by the appellants in the amended defence was payment by them of sums totalling $41,000.

1. On my reading, the pleadings made it plain that the appellants, as defendants:

(a) did not accept that the subject matter of the contract was a "takeaway food business" (as distinct from "an ongoing restaurant");

(b) did not accept that the terms of the contract were confined to those identified in the amended statement of claim;

(c) alleged that there was a contract for the sale of "an ongoing restaurant" with relevant approvals, equipment, stock and goodwill;

(d) alleged that the terms of the contract were such as to require the respondent to keep the business in operation and to maintain the goodwill pending payment of the balance of the price;

(e) alleged that the respondent had failed to keep the business in operation and to maintain the goodwill pending such payment;

(f) alleged that they were not required to pay the balance of the price because of that "fundamental breach" by the respondent; and

(g) denied that they were indebted to the respondent (I refer here to paragraph 1 of the amended defence).

1. The amended defence also made it clear that the appellants considered themselves to have an action for damages against the respondent for the "fundamental breach" and on other grounds. The debate as to whether those damages claims were properly put forward as matters of defence or should have been advanced by cross-claim need not be pursued. The important point, for present purposes is that the amended defence showed that the appellants denied their liability to pay the sum claimed and set out with sufficient clarity the reasons for that denial.

Judgment on admissions

1. Rule 17.7 of the Uniform Civil Procedure Rules is in these terms:

"(1) If admissions are made by a party, whether by his or her pleadings or otherwise, the court may, on the application of any other party, give any judgment or make any order to which the other party is entitled on the admissions.

(2) The court may exercise its powers under this rule even if the other questions in the proceedings have not been determined."

1. Rule 14.26, so far as relevant, provides:

"(1) An allegation of fact made by a party in a pleading is taken to be admitted by any opposite party required to plead in response unless:

(a) in the pleading in response, the opposite party traverses the allegation, or

(b) a joinder of issues under rule 14.27 operates as a denial of the allegation.

(2) A traverse may be made by denial or by a statement of non-admission, either expressly or by necessary implication, and either generally or as to any particular allegation."

1. Two key points must be made about the court's power to order judgment on admissions contained in pleadings: first, the admissions must be clear and unambiguous; and, second, the power is discretionary.

1. As to the first matter, it was said in Ellis v Allen [1914] 1 Ch 904 at 909 that judgment on admissions is permissible where "there is a clear admission of facts in the face of which it is impossible for the party making it to succeed". The matter was put thus in Ash v Hutchinson & Co (Publishers) Ltd [1936] Ch 489 at 503:

"A plaintiff who relies for the proof of a substantial part of his case upon admissions in the defence must, in my judgment, show that the matters in question are clearly pleaded and as clearly admitted; he is not entitled to ask the Court to read meanings into his pleading which upon a fair construction do not clearly appear in order to fix the defendants with an admission."

1. The discretionary nature of the power was referred to by this Court in Termijtelen v Van Arkel [1974] 1 NSWLR 525 and is consistent with the purpose of the power as explained by Barwick CJ in Re the Trade Marks Act 1955-1958 and the Registered Trade Marks "Certina" and "Certina DS" (1970) 44 ALJR 191 at 192:

"The power which the rule gives to a Justice in chambers must be exercised with great caution. . . . But in a clear case a proper exercise of the power will obviate the delay involved in a hearing and will save unnecessary expense."

1. The power to award judgment on admissions on the pleadings is properly exercisable only where the court can see that a clear and unanswerable case is advanced on the pleadings, with the position so decisively depicted and the correct outcome so unambiguously obvious that there is simply no need for any issue to go to trial. The evaluative question relevant to exercise of the discretion is whether it is just to award judgment without regard to the merits of the parties' contentions.

1. In this case, the position emerging from the pleadings was as described at [36] above. That being so, there was no sound basis for a conclusion, on the strength of the pleadings alone, that the respondent had a clear and unanswerable case against the appellants. The pleadings, taken in isolation, did not show such a case in relation to the terms of the contract, the subject matter of the contract or the indebtedness of the appellants to the respondent. Far from indicating a firm foundation for a judgment without a trial on the merits, the pleadings demonstrated that important issues were in dispute.

1. In any event and for reasons about to be stated, the magistrate was not justified as regarding any admissions by the appellants as being extant and operative at the time he ordered judgment for the respondent.

The striking out of the defence

1. The magistrate made two orders. He ordered that the amended defence be struck out. He then ordered judgment for the respondent in the sum of $29,916.67.

1. The magistrate's stated reason for ordering that the amended defence be struck out was that the appellants had failed to plead their case properly and that had led to a lack of procedural fairness because the respondents were not properly put on notice of the defence. Perhaps the magistrate was of the opinion that the defence as a whole had a tendency to cause prejudice or embarrassment for the purposes of rule 14.28(1) - and that the position was irretrievable, in the sense that the defect could not be cured by repleading. Whether that was in fact the opinion that the magistrate formed is impossible to say.

1. Two things flowed from the striking out of the defence. First, the content of the amended defence no longer formed part of the record and such admissions as may have been contained in the amended defence were no longer before the court. That being so, there was no subsisting basis for any judgment founded solely on admissions in the pleadings when the magistrate ordered judgment for the respondent as plaintiff.

1. The second consequence of the striking out of the defence was that the appellants, as defendants, became "in default" by virtue of the following part of rule 16.2(1):

A defendant is "in default" for the purposes of this Part:

. . .

(c) if, the defendant having duly filed a defence, the court orders the defence to be struck out."

1. It is to that matter that I now turn.

Judgment by default

1. Once the amended defence was struck out and the appellants became defendants "in default", they were exposed to the possibility that they might suffer judgment by default under rule 16.6(1). But exercise of the court's discretionary power to give such judgment was conditional on the respondents providing an affidavit in accordance with rule 16.6(2) - and, of course, on the making of an application by the respondents for judgment by default.

1. This Court emphasised in Gregory's Transport Pty Ltd v Ray's Haulage Pty Ltd [2008] NSWCA 333 that satisfaction of these conditions precedent is more than a mere formality and that dispensation from them is not a matter than can be implied. Macfarlan JA said at [22] to [24] (with the concurrence of Allsop P and Campbell JA):

Rule 16.3 sets out the procedure applicable where a defendant is in default. Subrule (2) leaves no doubt that any application for judgment to be given under the relevant Part (being the Part in which r 16.6 falls) is to be accompanied by an "affidavit in support", "unless the Court orders otherwise". Rule 16.6 does not expressly refer to an application for judgment being made by the plaintiff but it is implicit that any judgment to be given by the Court under that subrule will be made upon an application, express or implied, of the plaintiff. Subrule (2) of r 16.6, as has been stated earlier, contemplates that there will be an "affidavit in support". This reflects the express requirement in r 16.3. This requirement was applicable but not met.

There being no "affidavit in support", my view is that the magistrate was not relevantly empowered by r 16.6, unless reliance can be placed upon the ability of the Court under subrule 16.3(2) to order "otherwise".

I do not consider that the respondent is entitled to rely upon that provision as the magistrate did not purport to do so and any proper reliance by him on it, if error of law were not to occur, would have required reference to the provision and an expression of reasons as to why he was prepared to exercise the discretion conferred by it. It can be inferred from the absence of reference to the provision that the magistrate did not turn his mind to it. In any event, it is difficult to identify circumstances that would have warranted an exercise of that discretion favourable to the respondent where no evidence at all had been admitted by the magistrate at the hearing, (although certain material had been filed at the Court prior to the hearing)."

1. In the present case, there was no application for judgment by default and no affidavit in support. Nor did the magistrate make any dispensing order.

1. It follows that, as the primary judge recognised, the judgment that the magistrate ordered cannot be upheld on the basis of ex post facto characterisation as a judgment under rule 16.6(1).

Conclusions

1. The magistrate did not identify any provision of the rules of court as the basis for his decision to give summary judgment for the respondent, as plaintiff. Nor was there any statement of reasons beyond reference to deficiencies in the defence and the "failure of the defendants to properly plead their case", which it was said meant that there was no pleading that the plaintiff was required to answer.

1. The primary judge was therefore left to speculate. That was a task that, if undertaken at all, should have been approached with great caution. In the ordinary course, any judicial act of significance for which the judicial officer gives either no reasons or supposed reasons that in reality contain no explanation should be taken to have been performed irregularly - unless, no doubt, the circumstances of the case are such as to make the reasons obvious. It is generally no part of the function of an appellate court to guess why and on what basis the court below did what it did.

1. But even the most astute speculation in search of a firm foundation for the magistrate's orders striking out the defence and for the entry of summary judgment should have been unproductive in this case. The judgment could not have been upheld as a judgment on admissions once it was recognised that the amended defence had been struck out. And even if the defence had not been struck out, the conditions necessary to permit principled exercise of the discretion to award judgment on admissions would have been seen not to be satisfied. Nor, as the primary judge recognised, was there satisfaction of the conditions necessary to permit judgment by default. As for the striking out of the defence, the position was that, if striking out was warranted at all, it was warranted only in company with a grant of leave to replead.

1. The order and judgment of the magistrate were simply unsupportable. There was no basis on which it was proper to bring the proceedings to a conclusion in the absence of a hearing on the merits. The appellants, as defendants, were given no opportunity to address the alleged deficiencies in their pleading identified for the first time at the start of the hearing.

1. The primary judge should have recognised that the Local Court judgment could not be sustained as a judgment on admissions, as a judgment by default or on any other basis. Her Honour should have allowed the appeal, set aside the judgment and orders below and remitted the matter to the Local Court to be determined according to law.

1. There is no need to deal with any of the other matters raised in this Court. In particular, there is no need to deal with the question whether the damages claims made by the appellants were appropriately pleaded in the amended defence rather than in a cross-claim.

1. WARD JA: My reasons for joining in the orders of 10 July 2013, allowing the appeal with costs and remitting the matter to the Local Court for determination according to law, accord with those of Barrett JA.

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Decision last updated: 18 July 2013