Mulpara Pty Ltd v Thunder Enterprises Limited - [2008] SASC 94

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MULPARA PTY LTD & ANOR v THUNDER ENTERPRISES LIMITED & ORS
[2008] SASC 94
Reasons of Judge Burley a Master of the Supreme Court
21 April 2008
PROCEDURE
Application to set aside interlocutory judgment - failure to file and serve notice of address for service after service of counterclaim - default judgment obtained - whether judgment should be set aside - reason for failure to file notice - delay in applying to set aside judgment - pleading of counterclaim grossly inadequate - counterclaim issued three days after time set for filing of counterclaim - whether default judgment irregularly obtained - late filing did not constitute irregularity - inadequacy of counterclaim constituted irregularity - applicable rules - judgment set aside.
SUPREME COURT RULES 1987 RR 23.04 and 84.12, referred to.
Watson v Anderson (1976) 13 SASR 329; Hill v Parke Davis & Co Limited (1986) 41 SASR 349 at 353; Grimshaw v Dunbar [1953] 1 QB 408; Murray Villa Pty Ltd v Nitschke Earthmovers Pty Ltd (1989) 153 LSJS 45; Battiste v Mulvaney (unreported) Judgment No s 6419, delivered 7 November 1997; S & V Rignanese Nominees Pty Ltd v Rignanese [2006] SASC 138; Fort v Gray (1988)50 SASR 425; Daly v Silley; Kitson v Mason [1926] VLR 419, considered.

MULPARA PTY LTD & ANOR v THUNDER ENTERPRISES LIMITED & ORS
[2008] SASC 94

JUDGE BURLEY: These proceedings originally consisted of a claim by the plaintiffs and a counterclaim by the first defendant against various defendants by counterclaim. The claim by the plaintiffs has been settled, as has the counterclaim against the plaintiffs. What remains of the proceedings is the first defendant’s counterclaim against Mr and Mrs Fleming, who are respectively the third and fourth defendants by counterclaim. I will refer to the parties respectively as the plaintiff and the defendants for ease of reference.
I mention that, at one stage, the plaintiffs may have regarded Mr and Mrs Fleming as having been joined as defendants to the claim. Whether or not they were properly so joined is not material to the present proceedings. However, for the sake of completeness, if the original plaintiffs relied upon the order of Debelle J made on 7 December 2005 as constituting the granting of leave to join Mr and Mrs Fleming as defendants to the claim, such a belief is erroneous as his Honour made no such order on that day.
It is common ground that the 1987 Supreme Court Rules apply to these proceedings.
The defence and counterclaim was filed on 15 December 2005, three days after the time appointed by Debelle J for the filing of same when he made orders on 7 December 2005. The counterclaim was subsequently served on Mr and Mrs Fleming. This is apparent from the affidavit of Mr Peter Ellery, licensed process server, sworn on 10 January 2006 (FDN 35). The defendants do not contest the correctness of Mr Ellery’s affidavit. Mr Ellery said that on 15 December 2005 he attended at an address at West Lakes and there had a conversation with Mr and Mrs Fleming in order to identify each of them. He then served on each of them the defence and counterclaim and an application for directions.
The defendants did not file a notice of address for service in response to the counterclaim within the time limited by the Rules or at all, and on 16 March 2006 the plaintiffs obtained interlocutory judgment against the defendants for damages to be assessed.
By paragraph 4 of a notice for specific directions dated 1 May 2007 (FDN 108), the defendants have applied to set aside the default interlocutory judgment. They have also sought, to the extent necessary, an extension of time within which to apply to have the judgment set aside. No point was taken by the plaintiff as to whether or not the defendants were within time in the making of their application. Consequently, I propose to grant them an extension of time if the same is necessary.
The application was heard on 8 April 2008 when Mr Spinks appeared for the plaintiff and Mr Robert Sallis for the defendants. Various affidavits were received on the application without objection. Those tendered by the defendants were the affidavits of Mr Fleming, sworn on 18 April 2007, 22 April 2007, 1 May 2007 and 14 May 2007. The affidavits of Mrs Fleming, sworn on 22 April 2007 and 14 May 2007 were also tendered by the defendants. The plaintiff tendered the affidavit of Mr Spinks, sworn on 2 April 2007 and exhibits “BQ13” and “BQ 14” to the affidavit of Mr Quarry, sworn on 18 January 2007. The defendants also tendered a Deed of Charge dated 23 March 2005 which became exhibit “R1”.
SCR 48.04 applies to counterclaims and provides that the rules apply to counterclaims as if they were an action proceeding on a statement of claim. SCR 23.04 provides that:
Any judgment obtained by default may be set aside or varied by the Court by application and on such terms as the Court thinks fit.
The defendants also relied on the provisions of R 84.12 which provides that:
The Court may vary or set aside a judgment or order at any time if the justice of the case so requires.
Most of the cases relating to the setting aside of default judgments are referred to in the commentary commencing at paragraph 23.04.1 of Civil Procedure (1987). The commentary deals with the setting aside of default judgments obtained regularly and irregularly.
The Rule confers an unfettered discretion upon the Court: Watson v Anderson (1976) 13 SASR 329. The defendants must establish a bona fide intention to defend the action and that there is some possibility of success: see Bollen J, Hill v Parke Davis & Co Limited (1986) 41 SASR 349 at 353. That decision is also authority for the proposition that the Court will look to the prejudice which is likely to be suffered by each party if the judgment is or is not set aside.
Where the default judgment has been regularly obtained, the Court will consider the sufficiency of the reason given for the default: Grimshaw v Dunbar [1953] 1 QB 408.
The factual basis of the proposed defence must be established by affidavit evidence sworn by a deponent who can prove the facts of their own knowledge. The particularity of the affidavit need not be more detailed than an adequate pleading: Murray Villa Pty Ltd v Nitschke Earthmovers Pty Ltd (1989) 153 LSJS 45.
A bare and unsupported claim of a defence is not sufficient: Battiste v Mulvaney, an unreported decision of Doyle CJ, Judgment No S 6419, delivered on 7 November 1997. In the absence of sufficient facts to show a bona fide and plausible defence, the application to set aside the default judgment will fail: S & V Nominees Pty Ltd v Rignanese [2006] SASC 138, an unreported decision of Lunn M, delivered on 12 May 2006.
Where the judgment has been irregularly obtained the Court will set aside the judgment ex debito iustitiae: Ford v Gray (1988) 50 SASR 425. This means that the applicant does not need to explain the reason for the default nor does the applicant have to show an arguable ground of defence: Daly v Silley; Khitty v Mason [1926] VLR 419.
In this matter, the defendants contended that because the counterclaim was issued three days beyond the time fixed for the filing of the counterclaim by Debelle J, the counterclaim was issued irregularly and that any default judgment obtained after service of the irregularly issued counterclaim would, in itself, be irregular. In my opinion, there is no substance to this submission because the counterclaim was filed only a few days after the time set by Debelle J and such a small irregularity could not in any way prejudice the defendants. I reject the defendants’ submission that any irregularity in the obtaining of the default judgment is sufficient. The non-compliance could easily have been corrected: see Armitage v Parsons [1908] 2KB 410. It is a question of degree and it is clear, in the circumstances of this case, that the non-observance of the direction given by Debelle J on 7 December 2005 was trifling.
The defendants also relied upon the alleged insufficiency of the counterclaim as constituting an irregularity in the process followed by the plaintiff leading to the default judgment. In essence, it was contended that the counterclaim was so badly pleaded and so obviously not in compliance with the rules relating to pleadings that the issue of same constituted an irregularity which would require the setting aside of any default judgment obtained as a consequence of the defendants’ failure to file an address for service in relation thereto. As part of this contention, it was also put that to allow the plaintiff to proceed to an assessment of damages on such a flawed pleading would be so prejudicial to the defendants that it should not be permitted. These contentions raise not only the ordinary authorities relating to the setting aside of default judgments but also bring into play the effect of SCR 84.12.
I shall return to these matters, but first it is appropriate to set out the relevant parts of the counterclaim against Mr and Mrs Fleming:
37    On or about 23 March 2005 thunder did pursuant to a Loan Agreement (“The Loan Agreement”) loan to Elan Trading Pty. Limited (“Elan”) the sum of $2,541,579.00 (the Advance”) and Thunder repeats and relies on the Loan Agreement as if same were set out in full herein.
38    Pursuant to the Loan Agreement, the Advance was to be repaid:-
(a)12 months from the 23 March 2005; or
(b)In the event that Elan defaulted in payment of any sum due under the Agreement (including interest payments) and such default continued for a period of 5 business days then immediately thereafter.
And Thunder repeats and relies on the terms of the Loan Agreement.
39    Pursuant to the Loan Agreement, Elan agreed to pay Thunder interest in accordance with clause 4.1 of the Loan Agreement, which in all the circumstances totals $486,431.30 (as at 21 December 2005) a (sic) continues to accrue at the default rate as set out in the loan agreement.
40    By Deed dated 23 March 2004 (“the Guarantee”), the First Defendant by Counter Claim (“Mulpara”), the Second Defendant by Counter Claim (“Dandenong”), the Third Defendant by Counter Claim (”Don”), the Fourth Defendant by Counter Claim (“Dee”), agreed, inter alia, to guarantee the repayment by Elan of the “secured moneys” as defined therein.
41    The Advance and any interest payable under the loan forms part of the secured money (and Thunder repeats and relies on the Guarantee as if same were set out in full herein).
42    Pursuant to the Guarantee the Guarantors agreed inter alia to indemnify Thunder against any loss caused by another guarantor not paying the secured moneys or Elan not paying the secured moneys (and Thunder repeats and relies on clause 2.8 of the guarantee as if same were set out in full herein).
43    Elan has failed to make any interest payment pursuant to the Loan Agreement and is and has been since 1 April 2005 been in default of the Loan Agreement.
44    Despite demand, and in breach of the Loan Agreement, Elan has not repaid to Thunder the Advance and has not paid the interest payable under the Loan.
45    Furthermore, in addition to the advance, Elan is liable to Thunder as either principal debtor or guarantor (pursuant to various agreements) in the sum of $16,722,485.00 (as at 21 December 2005).
(hereinafter referred to and the “other loans”)
The other loans are all due for repayment and have not been repaid.
46    Interest on the other loans continues to accrue in accordance with the terms of the various loan agreements.
(Full particulars of the amount outstanding under the other loans have already been provided to the Defendants and copies of the agreement will be provided upon request).
47    By the Guarantee the Guarantors guaranteed Elan’s obligations to repay the other loans and any interest which became payable on the other loans and despite demand have not paid same.
48    The amount payable under the other Loan Agreements formed part of the secured moneys within the meaning of that term as defined in the Guarantee.
49`   Ant eh Guarantors have, by not paying the amount outstanding on the other loans have breached the terms of the guarantee in particular clause 2.1 and 2.2 and clause 2.8.
Estoppel
50    In the alternative to the extent that the Guarantee is not enforceable at the suit of Thunder (which is denied) Thunder repeats and relies on paragraphs 26-31 of the Defence filed in proceedings and claims from the Guarantors the sum of at least $2,541,579.00 plus interest which would have accrued pursuant to the Loan Agreement.
Paragraph 50 refers to paragraphs 26-31 of the defence. It is apparent from the defence that estoppel is raised in paragraphs 28-33 of the defence. In addition, the alleged estoppel only relates to an estoppel applying to the original plaintiffs, the companies Mulpara and Dandenong. In addition, paragraph 31 of the defence pleads that if the guarantee is not enforceable, the first defendant (Thunder Enterprises Limited) has suffered detriment which is not particularised.
The defendants, in their proposed defence to the counterclaim, roundly criticise the sufficiency of the counterclaim. There are numerous assertions that the counterclaim lacked particularity. There is some substance in the defendants’ complaints.
It is sufficient to go to paragraph 45 of the counterclaim. In a few lines the plaintiff asserts that nearly $17 million is owed by a company to the plaintiff “pursuant to various agreements”.
Paragraph 46 specifies that interest continues to accrue on those amounts, “in accordance with the terms of the various loan agreements”. It is then asserted that full particulars of the amounts outstanding under these agreements have already been provided to the defendants.
The claim for nearly $17 million plus interest forms a major part of the “damages” which the plaintiff seeks to recover from the defendants.
It is difficult to imagine a pleading more at variance with the requirements of the Rules and the case law. The assertion that full particulars have already been given does not remedy the defect in the pleadings because that assertion itself is completely unparticularised.
In my opinion, it would be grossly unfair to the defendants to permit the plaintiff to proceed to an assessment of damages based on such a flawed pleading. Mr Spinks argued to the contrary. He said that it was open to the defendants to obtain particulars of the counterclaim so that they could properly meet the case to be presented by the plaintiff. However, this makes no allowance for the fact that the defendants would be unable to contest the plaintiff’s contention that the “various agreements” impose upon the defendants the obligation to pay nearly $17 million (as at 21 December 2005) together with interest thereon.
In my opinion, the counterclaim is fundamentally flawed for want of particularity and that defect constitutes an irregularity in the process leading to a default judgment such that the default judgment should be set aside ex debito iustitiae.
Independently of the discretion conferred by SCR 23.04 to set aside a default judgment, there exists, in my opinion, a discretion conferred by SCR 84.12 which may be brought into play either in addition, or in the alternative, to the discretion conferred by SCR 23.04. In my opinion, the unfairness to the defendants of permitting the plaintiff to proceed to an assessment of damages based on the current counterclaim is such that “the justice of the case”, as contemplated by SCR 84.12, requires the default judgment to be set aside.
Given this conclusion it is not strictly necessary to deal with the arguments presented by counsel in relation to the exercise of the discretion specifically by reference to SCR 23.04. However, in deference to the arguments that were put, it is appropriate to state briefly my conclusions relating to those arguments.
On the question of whether or not the defendants have provided a satisfactory explanation for their failure to respond to the counterclaim and for the delays which occurred between the service of the counterclaim and the application to set the default judgment aside, the sequence of events needs to be examined. The counterclaim was issued and served in December 2005. The default judgment was obtained on 16 March 2006 and the application to set aside the default judgment was filed on 1 May 2007. There was thus a delay of some 16 months from the time of the service of the counterclaim. Mr Fleming said that he could not remember being served with the counterclaim but he accepted that he was not in a position to dispute the affidavit of the process server, Mr Ellery (FDN 35), who stated that he served the counterclaim on both Mr Fleming and Mrs Fleming on 15 December 2005. Mrs Fleming, in her affidavit evidence, says nothing about the occasion of the service of the counterclaim.
I accept Mr Ellery’s evidence that it was served on both of them by him on 15 December 2005.
The counterclaim bears the endorsement:
TAKE NOTICE
The defendant by counterclaim who is not a plaintiff in the action must file a notice of address for service in the Registry of the Supreme Court of South Australia within the time frame limited by Rule 8 of the Supreme Court Rules and also file a defence to the counterclaim within 28 days of service of the counterclaim.
If a notice of address for service is not filed within the time stated, orders may be made in your absence.
The next directions hearing is listed before the Honourable Justice Debelle at 2.15 pm on 21 December 2005.
That endorsement is clear notice to the defendants about the requirement to file a notice of address for service and a defence. When the counterclaim was served upon each of the defendants, one of two things must have occurred: either one or both of them read the document and was thereby put on notice as to the need to take action in relation to the counterclaim; or, neither of them read the document and thereby ascertained what steps could have been taken in relation to the counterclaim. If the former occurred and they did nothing, no satisfactory explanation has been provided by either of the defendants as to why they ignored the notice given to them at the end of the counterclaim. Mr Fleming merely said that he could not remember being served with the document. Mrs Fleming said nothing at all about the occasion of service. If neither of them read the document having been served with it, no satisfactory explanation has been provided as to why at least one of them did not read the document. Like Bray CJ in Watson v Anderson (1976) 13 SASR 329 (at 333), I do not consider that the defendants have adequately addressed this aspect of the matter. However, it is apparent from that decision that the inadequacy is not necessarily fatal to the defendant’s application. Other matters need to be considered.
It must also be said that another unsatisfactory aspect of the defendants’ affidavit evidence arises from the fact that there has been no clear statement from the defendants as to why they finally thought it necessary to get some legal advice.
I next turn to the second matter which requires explanation, namely the delay between the service of the counterclaim and the making of an application to set aside the default judgment. In this regard, I consider that the affidavit of Mr Fleming, sworn on 18 April 2007 (FDN 105), provides a sufficient explanation for the delay principally because of health concerns and the financial difficulties arising out of the collapse of his companies.

The next consideration is whether the defendants have filed a sufficient affidavit of merits. Whilst I accept Mr Spinks’ contention that much of what was said by Mr Fleming in his affidavits relating to proposed defences consisted of unsubstantiated assertion, I am also mindful that the case law is to the effect that the required detail is that which would be revealed in a pleading: Murray Villa Pty Ltd v Nitschke Earthmovers Pty Ltd (supra).
In the circumstances of this case it is also necessary to consider the inadequacy of the counterclaim. A plaintiff seeking to uphold a default judgment cannot seriously complain about the lack of evidence in support of defences contended for by the defendants where a considerable proportion of the plaintiff’s claim consists of a three-line assertion that money is owing under various agreements. It is impossible for the defendants to state with any particularity the extent to which, if any, they may be able to maintain a defence to such a pleading. In my view, the more vague the claim, the less specific are the defendants required to be. In those circumstances, I consider that the affidavit of merits based on Mr Fleming’s affidavits is sufficient.
Applications to set aside default judgments also involve a comparison of the relevant prejudices suffered by the parties. The prejudice to the defendants in not setting aside the default judgment is obvious. There is also to be considered against that, the prejudice to the plaintiff identified by Mr Spinks. As I said at the outset of these reasons, the parties have compromised the claim and the counterclaim but for the counterclaim of Thunder Enterprises Limited against Mr and Mrs Fleming. This compromise was achieved after the default judgment was obtained against Mr and Mrs Fleming. In other words, Thunder Enterprises Limited entered into the compromise bearing in mind, at least in part, that it had a default judgment against Mr and Mrs Fleming.
If that default judgment is to be set aside, Mr Spinks contended that Thunder Enterprises Limited would be prejudiced because the defendants would then be able to plead as a defence the fact of the compromise between Thunder Enterprises and others to the extent that the defendants argue that the compromise included the release of one co-guarantor which in turn released the other co-guarantors.
This is one of the defences relied upon by the defendants. It was submitted by Mr Spinks, on the question of whether or not it was an arguable defence, that the provisions of the guarantee specifically provided for such a situation and had the effect of preserving the creditor’s rights against the guarantors even though some of several guarantors had been released by the creditor. Thus the risk of the plaintiff being prejudiced if the defendants are able to mount such a defence is qualified by the plaintiff’s ability to rely upon the terms of the guarantee to refute such a defence. In my opinion, this limited form of prejudice to the plaintiff is far outweighed by the prejudice to the defendants involved in not setting aside the default judgment.
In those circumstances, even though the defendants have not offered a satisfactory explanation as to why they took no action to file an address for service, I am nevertheless of the opinion that the discretion conferred by SCR 23.04 should be exercised in favour of the defendants.
For these reasons, I propose to set the default judgment aside