Perpetual Nominees Ltd v Mharina Rossi P/L
[2012] QMC 25
•26 June 2012
MAGISTRATES COURTS OF QUEENSLAND
CITATION:
Perpetual Nominees Ltd v Mharina Rossi P/L & Others [2012] QMC 25
PARTIES:
PERPETUAL NOMINEES LTD ACN 000733700
(Plaintiff)
v
ROSS WILLIAM LLOYD
(first defendant)
MARINO ADARAYAN TEPACE-LLOYD
(second defendant)
FILE NO/S:
1932/12
PARTIES:
PERPETUAL NOMINEES LTD ACN 000733700
(Plaintiff)
v
MHARINA ROSSI PTY LTD ACN 129 933 008
(first defendant)
ROSS WILLIAM LLOYD
(second defendant)
MARINO ADARAYAN TEPACE-LLOYD
(third defendant)
FILE NO/S:
1630/12
DIVISION:
Magistrates Courts
PROCEEDING:
Claim – Application for judgment under rule 292
ORIGINATING COURT:
Magistrates Court at Brisbane
DELIVERED ON:
26 June 2012
DELIVERED AT:
Brisbane
HEARING DATE:
14 May 2012
MAGISTRATE:
Springer BL
ORDER:
Application dismissed.
CATCHWORDS:
CIVIL LAW – PRACTICE AND PROCEDURE - application to set aside judgment by default — whether the defendant had a reason for failing to file a defence - whether the defendant raised a prima facie defence on the merits – the default judgment is related to a Queensland Civil and Administrative Tribunal (QCAT) order that is under appeal
COUNSEL:
SOLICITORS:
Background
The plaintiff, Perpetual Nominees Limited (Perpetual) is the lessor of property in a shopping centre at Calamvale. Mharina Rossi Pty Ltd (the company) is the lessee of premises at which a hairdressing salon operates. Issues have arisen concerning the effectiveness of the air-conditioning system. The company commenced proceedings against the plaintiff in the Queensland Civil and Administrative Tribunal (QCAT).
The issues that QCAT answered were:
(a) Is the operation of the Centre air conditioning capable of being a “defect” within the meaning of s 43(1)(d)(ii) of the Retail Shop Leases Act 1994 (the RSL Act)
(b) If it is capable of being a defect, was it, in fact, defective?
The company was unsuccessful in that proceeding with findings that the air conditioning could be a defect within s 43(1)(d)(ii) RSL Act but the Tribunal was not satisfied that the air conditioning was defective within the meaning of that section. The Tribunal made an order that the company pay the plaintiff the sum of $96,064.79 for rent and outgoings.
That order has been registered in this Court and by virtue of the Queensland Civil and Administrative Tribunal Act 2009 (the QCAT Act) has become a judgment in this court (s 131 QCAT Act). There is no application to stay that proceeding in this court.
The plaintiff has commenced two proceedings in this court, in addition to the registration of the QCAT judgment in its favour. File 1630/12 relates to a claim for rent and outgoings for a period later than was raised in the QCAT proceeding. The company and Mr Ross Lloyd and Ms Marino Tepace-Lloyd, as guarantors under the lease, are the defendants in that proceeding.
In file 1932/12 the plaintiff sues Mr Ross Lloyd and Ms Marino Tepace-Lloyd as guarantors under the lease for the amount of the QCAT order.
Judgments by default were entered in the two proceedings: 1630/12 and 1932/12 (the subject proceedings). In file 1630/12, the third defendant Ms Tepace-Lloyd has applied to have the judgment against her set aside. I cannot see on that court file any other application by either the company or Mr Lloyd seeking to have the judgment entered against them on 4 April 2012 set aside. However, in an affidavit by Ms Smith on behalf of Perpetual, she deposes that Mharina Rossi Pty Ltd and Ross Lloyd have applied to have the judgment dated 4 April 2012 set aside. Given that there are multiple copies of Ms Tepace-Lloyd’s application on the court file but none for either the company or Mr Ross Lloyd, there may have been an error in the registry in what documents were returned to the Lloyds.
On file 1932/12 there is an application by Mr Lloyd as first defendant to have the judgment in that matter of 4 April 2012 set aside; there is also a copy application by the second defendant (Ms Tepace-Lloyd) to set aside the judgement but no original application. Given that Mr Lloyd and Ms Tepace-Lloyd are not legally represented, and noting the confusion over what are applications are before the court, I proceed as if there were applications by each defendant in each of the 2 subject proceedings for the judgments against them to be set aside. Given the material filed and submissions made on behalf of Perpetual, I do not consider they are disadvantaged in that approach.
The regularity of the judgments entered
There is no submission that the judgments were entered irregularly. However, as the defendants were not legally represented I considered it appropriate to peruse the documents before the Registrar at the time that the default was entered. In relation to service on the company Mharina Rossi Pty Ltd, there is an affidavit of service of Ross Williams sworn 5 March 2012. That affidavit states as follows:
1.On Monday the 5th day of March 2011[1] at 8.10am I duly served Mharina Rossi Pty Ltd ACN 129 933 008 with sealed copies of a Magistrates Court Claim, filed at Brisbane on 20 February 2012 numbered M1630/12
[1] The reference to 2011 is clearly incorrect given that the proceeding was not commenced until 2012.
(a)by leaving a copy thereof with Marion Lloyd at Unit 1, 51 Botanical Drive, LABRADOR 4215 which I verily believe to be the registered office of the Defendant company.
2.I identified the person served by asking: “Is this the registered office of Mharina Rossi Pty Ltd ACN 129 933 008? the female replied, “Yes”. I then asked: Are you authorised to accept these documents on behalf of Mharina Rossi Pty Ltd ACN 129 933 008? the female replied “Yes”.
The Botanical Drive address was not the registered office which, according to an historical ASIC search, since 4 May 2010, has been at 10 High Peak Crescent, Springfield. It seems that Mr Williams misunderstood that he was serving a director of the company pursuant to section 109X(1)(b) of the Corporations Act; he was not attempting personal service at the registered office of the company, as deposed to in an affidavit by Kathleen Frances Smith sworn and filed 4 April 2012. His expressed belief was clearly misplaced. The manner in which service was effected was authorised by legislation. The fact that unnecessary questions were asked (based on a misunderstanding) does not in my view alter the regularity of the judgment being entered in reliance on Mr Williams’ affidavit of service.
Setting aside a judgment
Rule 290 of the UCPR permits a court to “set aside or amend a judgment by default under this division, and any enforcement of it, on terms, including terms about costs and the giving of security, the court considers appropriate”.
Where a judgment in default of appearance has been regularly entered, the Court, on application to set aside the judgment, would generally consider the following matters:
1.Whether or not the defendant has given a satisfactory explanation for its failure to appear;
2. Whether or not there has been any delay in making the application;
3. Whether or not the defendant has a prima facie defence on the merits to the claim on which the judgment is founded (Aboyne Pty Ltd v Dixon Homes Pty Ltd [1980] Qd R 142, Kelly J).
McPherson J in National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 at p 449 said that the issue whether the applicant defendant had a prima facie defence on the merits “is the most cogent” of the three matters referred to by Kelly J in Aboyne Pty Ltd v Dixon Homes Pty Ltd.
I note also the statement of principle from the Court of Appeal in relation to applications of this nature in Cook v DA Manufacturing and Anor [2004] QCA 52. The judgment of Williams JJA, with whom Chief Justice de Jersey and McPherson JA concurred, said at paragraph [16] (in referring to the three matters above):
It is not the law that the applicant seeking to have a default judgment set aside must establish each of those three matters before the discretion to set aside the judgment can be exercised …
At paragraph [19] of his reasons Williams JA in Cook said:
… of more importance for present purposes is the significance which Courts in recent times have placed on the fact that the applicant is able to demonstrate an arguable defence on the merits. McPherson J in National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd … said that the issue whether the applicant defendant had a prima facia case on the merits “is the most cogent” of the three matters referred to by Kelly J in Aboyne Pty Ltd v Dixon Homes Pty Ltd … McPherson J went on to say “It is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending, even though a lengthy interval of time had elapsed provided that no irreparable prejudice is thereby done to the plaintiff”. That passage has received the express approval of this Court (Davies, McPherson and Pincus JJA) in National Australia Bank Ltd v Singh ([1995] 1 Qd R 377 at 380) …
Other factors identified to be considered are the good faith of the defendant and the conduct of the defendant before and after the judgment (Unique Produce Marketing Pty Ltd v Bortek Sales Pty Ltd [2000] QDC 314 at paragraph [28].
I now deal with those issues.
Has the applicant given a satisfactory explanation for failing to defend the claim initially?
In Yankee Doodles Pty Ltd v Blenvale Pty Ltd [1999] QSC 134 Atkinson J said “An affidavit in support of an application to set aside judgment entered into in default of appearance must demonstrate “a very compelling reason” for the failure to appear”(para [13]).
Mr Lloyd and Ms Tepace-Lloyd in their affidavits in support of the application deposed to the judgment in the subject proceedings in this court as being served on Ms Tepace-Lloyd on the day he was “admitted to hospital in a critical condition”. I have read the reference to “judgment” as meaning the Claim and Statement of Claim. Further, the material filed on behalf of the defendants refers to Ms Tepace-Lloyd as being a ‘new Australian’ and she was unaware of the implications of the documents. The fact that someone is not Australian born, but where they have a reasonably good grasp of the English language, does not automatically mean they would not necessarily understand the implications of legal documents. There was no evidence about any limitations of Ms Tepace-Lloyd’s language or cognitive skills.
Mr de Jersey, counsel for the plaintiff, submitted that after Mr Lloyd’s release from hospital there was still an opportunity for Mr Lloyd or Ms Tepace-Lloyd to have reacted to the Claim but they had not done so after its service on 5 March 2012. This submission seems to be based in part on the email relied on by Perpetual of 6 March 2012.[2] The email’s reference to a “Letter of Demand” was possibly intended to refer to the Claim and Statement claim which had been served on Ms Tepace-Lloyd.
[2] The email addressed has its subject “RSL011-010” and is marked Attn: Ms Scott. The email reads:
Although there is no medical evidence or sworn evidence from Mr Lloyd as to his medical condition, I noted that he appeared before the court wearing a nasal tube connected to a cylinder; a motorised pump was operating. I assume he was breathing oxygen through the tube. He was in a motorised buggy. From the bar table, he referred to his being on ‘life support’ at home following his discharge from hospital; he stated that he is awaiting a lung transplant. He presented as a man in poor health.
For the purposes of the present application, I am prepared to accept that he was, and is still, seriously physically disabled and this made his and his partner’s ability to focus on legal matters problematic at the time of Ms Tepace-Lloyd being served, and during Mr Lloyd’s hospitalisation and for some weeks after discharge from hospital.
Was there a delay in making the application?
Mr de Jersey did not press the point about there being any unreasonable delay in bringing the current application after the defendants became aware of the judgments against them. I accept that there was no unreasonable delay in making the current applications.
The good faith of the defendants
The defendants are taking vigorous steps to attempt to enforce or protect their legal rights. There is nothing which suggests bad faith on their respective parts.
Will the plaintiff suffer any irreparable prejudice?
There is nothing in the material that suggests that the plaintiff would be irreparably prejudiced if the judgment were set aside. It seems an order for interest would compensate the plaintiff for being kept out of its money, if the judgments were set aside.
Has the applicant demonstrated a prima facie defence on the merits?
Mr Lloyd deposes to an application to co-join him to the QCAT matter as being dismissed; that the judgment was served on him the day he was admitted to hospital in a critical condition and the matter is subject to an appeal in QCAT.
Ms Tepace-Lloyd deposes in similar terms, referring to the QCAT decision being for Mharina Rossi Pty Ltd to pay the respondent certain sums, and going into more detail about Mr Lloyd’s medical condition including that he was not expected to survive so she was in no physical or mental state to understand or defend herself.
It is not clear whether the references to ‘judgment’ are intended to mean the QCAT judgments or the Claims and Statements of Claim in the 2 proceedings.
Mr Lloyd and Ms Tepace-Lloyd depose to there being an appeal pending in the QCAT proceeding. A Directions Hearing was scheduled for 24 May 2012. It was submitted that the judgments in this court should be set aside pending the appeal decision from QCAT. As I understood Mr Lloyd (who spoke on his own behalf and on behalf of Ms Tepace-Lloyd, whom he described as his partner), they view their likelihoods of success on appeal before QCAT as good.
Since the hearing of the application before me, Mr Lloyd has sworn and filed an affidavit deposing that on 24 May 2012, Senior Member Oliver of QCAT approved the application to appeal the decision in QCAT matter RSL010-11 and the appeal hearing is set for 10 August 2012. There is no corroborative material from QCAT confirming the appeal date. I accept for present purposes that the appeal is scheduled as deposed.
Clause 8.2 of the Lease is relevant to the applications in the two subject proceedings. Paragraph 5(i) of the statement of claim in proceeding 1630/12 pleads the existence of clause 8.2 in the Lease to the effect that the company must pay without set-off, counter-claim, withholding or deduction, so that even if there were issues about the effectiveness of the air-conditioning (as distinct from the claim for payment of the rent and outgoings) that does not constitute a defence. The provision as pleaded is that the company:
… must pay money payable to the plaintiff under the Lease on or before the date that the payment is due or, if this Lease does not specify a particular date for payment, within 5 business days of demand, without set-off, counter-claim, withholding or deduction.
It is not clear whether that includes the precise wording of the clause with ‘plaintiff’ being substituted for ‘lessor’ or some other similar word. The pleading appears to paraphrase the clause. No challenge was made to the accuracy of the pleading; nor did I understand the applicants to dispute the effect of the Lease clauses as pleaded. For present purposes, I accept that the Lease and the Guarantee and Indemnity have the meaning that the statement of claim pleads.
Proceeding 1932/12
In this proceeding, the defendants are the guarantors under the Lease.
It is unclear whether the QCAT appeal will revisit the money order against the company. The plaintiff submits that the likelihood of success in the QCAT appeal is not relevant because of the highly improbable result that the lease would be determined to have been void from its purported commencement.
I note that the reasons for decision of QCAT include at paragraph [36]:
It was never open to the tribunal to allow Mharina Rossi to occupy the salon rent free for the whole period of the lease when the clear evidence from Mr Rossi was that the problem of excessive temperature was limited to the summer months. At best, the tribunal may have been prepared to allow compensation for four months per year. In her decision of 17 February 2011, the learned Member did not give Mharina Rossi leave to amend its claim to add the summer of 2010/11. Therefore, the maximum claim was only $32,800 for 2008/09 and 2009/10.
At paragraph [44] of the Tribunal’s reasons, they state:
If the air conditioning had been defective, and Perpetual had not rectified the defect as soon as was practicable, Mharina Rossi’s right to compensation would have been no more than $32,800 being one third of the rent payable for each of the first two years.
The plaintiff submits (at paragraph 24 of the written submissions) that the company is precluded by clause 8.2 of the lease from reducing any liability under the lease by relying on any right of set-off and Mr Lloyd ‘is similarly precluded as principal obligor for [the company’s] obligations under the lease (RL having given a guarantee and indemnity for MR’s obligations)’ [italics in the original]. Counsel for Perpetual relies on the approach taken by Holmes J (as she then was) in Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122 and the cases therein referred to, at paragraphs [13] to [16].[3]
[3] At paragraph [13] and following, Holmes J referred, among other cases, to The Fedora, where the guarantees under consideration provided that amounts payable by the guarantor were to be paid “in full, free of set off or counter-claim”. The guarantors sought to raise cross-claims for damages in respect of the creditor bank’s alleged negligence in realisation of securities. The English Court of Appeal held that claims in negligence were not exempt from the operation of the clause, pointing out:
The plaintiff submits that clause 8.2 relevant here is ‘unambiguous’ and its effect is to preclude Mr Lloyd and the company from setting off any claim for damages against their liability for rent under the lease and monies guaranteed. A right to set-off may be expressly excluded by agreement.[4] That is the situation here.
[4] See, for example, Hongkong & Shanghai Banking Corp v. Kloeckner & Co. AG [1989] 3 All ER 513 at 517-519 and Batiste v. Lenin [2002] NSWSC 233
If the lease were found to be void from its commencement, Perpetual would not be able to rely on clause 8.2 of the Lease. While it is not possible to guess what might be the outcome of the appeal of the QCAT decision, a determination that the lease was void from the beginning, seems unlikely given the evidence from Mr Lloyd which was accepted by the tribunal that the problem of excessive temperature was limited to the summer months. Even if on appeal, the complaints about the air-conditioning as it affected the hair-dressing salon were found to justify some sort of compensation or reduction, in my view that does not alter the obligation to pay rent without deduction.
Further, in this proceeding where Mr Lloyd and Ms Tepace-Lloyd are sued as guarantors, paragraph 5 of the statement of claim pleads, among other matters:
(a) …
(b) By clause 20.1(b), the First Defendant and the Second Defendant are liable to the Plaintiff if the Tenant breaches the Lease and must pay the Plaintiff any money for the Plaintiff’s loss arising from the Tenant’s breach of the Lease;
(c) By clause 20.1(c), the First Defendant and Second Defendant agreed, as a separate undertaking, to indemnify the Plaintiff against the Plaintiff’s loss arising from the Tenant’s breach of the Lease.
The company was the only party to the QCAT proceeding. The QCAT order as registered in this court (at least at the time of the hearing) was not the subject of an application to stay that proceeding in this court. In my view, in considering the current application, it is appropriate to consider the position at the current time, namely that there remains an order against a company whose performance the defendants guaranteed. Further, Mr Lloyd and Ms Tepace-Lloyd have indemnified Perpetual against loss arising from the company’s breach.
Proceeding 1630/12
In proceeding 1630/12 it is clear from the claim that the proceeding relates to unpaid rent for the period 5 October 2011 to 1 March 2012 comprising $17,310.19. Those were not matters considered by QCAT. In the QCAT proceeding, the Tribunal considered rent and outgoings for the period including the summer 2009-10, there having been a previous refusal of leave to amend the company’s claim to add the summer of 2010/11 (see paragraph [36] on page 8 of the QCAT decision comprising exhibit KFS 01 to affidavit of Kathleen Frances Smith affirmed 10 May 2012).
There is nothing in the material before me to suggest that the company’s obligation under the Lease and the 2 directors’ obligations under the Guarantee and Indemnity were not ongoing for the period relevant to this proceeding. Clauses 7 and 8 of the statement of claim in this proceeding refer to clause 20 of the Lease containing the Guarantee and Indemnity.[5]
[5] The statement of claim pleads relevantly at clause 8: 8(a) By clause 20.1(a), the Second Defendant and Third Defendant agreed that the Plaintiff had entered into the Lease at the request of the Second Defendant and Third Defendant; 8(b) By clause 20.1(b), the Second Defendant and Third Defendant are liable to the Plaintiff if the First Defendant breaches the Lease and must pay the Plaintiff any money for the Plaintiff’s loss arising from the First Defendant’s breach of the lease; 8(c) By clause 20.1(c), the Second Defendant and Third Defendant agreed, as a separate undertaking, to indemnify the Plaintiff against the Plaintiff’s loss arising from the First Defendant’s breach of the Lease.
At paragraph 23 of the plaintiff’s submissions in relation to this claim:
At best [the company] and Mr Lloyd might contend that the plaintiff was in breach of the lease (by allegedly failing to provide adequate air conditioning or in some other respect) and that the breach gave rise to a claim for damages by [the company] against the plaintiff, which would be a counterclaim, which [Mr Lloyd] as guarantor would seek to set-off against the debt so as to reduce the amount of his liability.
I refer to paragraphs [31], [32], [37, [38] and [39] above dealing with the effect of clauses such as clause 8.2 of the Lease and the need to make payments without deduction.
The success or otherwise of the QCAT appeal dealing with different issues, albeit arising out of the same lease, might be said to be completely irrelevant. If, however, QCAT were to make orders that had the effect of declaring the Lease to be void from the beginning, that would be relevant to these proceedings, and would raise the issue of whether such a decision would be binding on this court or whether it raises an issue estoppel.
Characterisation of order for compensation
While an order for compensation under the RSL Act may be made by QCAT on appeal, it is an order for compensation; it is not an order necessitating a set-off against unpaid rent. Indeed, contractually, the defendants are not entitled to set-off against the rent. The rights that the company may have under the RSL Act are not a defence, but rather a separate right. If, after the appeal, the plaintiff were ordered to pay compensation, that order would stand separate from the obligation of the lessee (the company) to pay rent and outgoings – and by virtue of the guarantee and indemnity – the second and third defendants to be liable for those. In my view, the obligation by the company to pay rent and outgoings – and by extension – Mr Lloyd and Ms Tepace-Lloyd – as guarantors will remain. The separate indemnity obligations also continue.
Conclusion
Rule 5 of the UCPR requires the Court to apply the rules with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules, namely to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.
The QCAT appeal is apparently listed for an August appeal hearing. There is no certainty when a decision on the appeal will be delivered. It is open to this Court to simply adjourn the current applications until after the QCAT appeal decision is handed down and to stay the enforcement of the judgment in this proceeding in the meantime. That, however, would have the effect of denying Perpetual the opportunity to pursue enforcement of 2 regularly entered judgments of this court.
If the QCAT appeal decision had the effect of declaring the Lease void from the beginning, one might argue that there would be a basis then for an application to set aside the judgment. However, at this time such an outcome is speculative. Given paragraph [36] of the reasons for decision from QCAT (see paragraph [35] of these reasons) in my view the outcome is also unlikely.
Despite the fact that there is unlikely to be irreparable prejudice to the plaintiff, that does not require an order that the judgments to be set aside; it is but one factor of several, the “most cogent” being a prima facie defence on the merits. The defendants’ affidavits do not outline a defence.
In the 2 subject proceedings, having regard to the lease provisions, including the guarantee and indemnity provisions, and for the reasons set out above, I am not satisfied that the defendants have demonstrated a prima facie defence on the merits. The applications to set aside the 2 default judgments entered in the subject proceedings file are dismissed. I will hear submissions on costs.
Orders
The applications filed on 13 April 2012 in proceedings 1932/12 and 1630/12 seeking the setting aside of judgments entered on 4 April 2012 in those proceedings be dismissed.
The Applicant has filed an appeal concerning the decision in the Subject Matter listed above.
In the morning of 5th March 2012 the representative was admitted to Wesley hospital emergency in a serious condition with blood clots in his lungs and on that same day a Letter of Demand was served on Marion Tepace by the respondent.
In the Appeal Application the Applicant requested a deferment of the decision until after the Appeal Application is heard and decided upon.
We further request QCAT issue a Direction the Respondent hold over any demands until the Appeal is decided.
“(1) that the commercial purpose of the transaction is that, upon default by the borrower the bank should be paid quickly, and (2) that the natural meaning of the words is that all set offs and counterclaims are excluded.” The guarantors were still able to prosecute their claims to judgment; they were: “merely prevented from holding up payments admittedly due under the guarantees while disputed cross-claims are litigated”. In that case, the bank was entitled to summary judgment. (footnote signifiers omitted).
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