Prime Capital Securities v Khaled El Hawli
[2024] VCC 162
•28 February 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-23-02386
| Prime Capital Securities Pty Ltd (ACN 623 195 871) | Plaintiff |
| v | |
| Khaled El Hawli | Defendant |
JUDGE: | Her Honour Judge Kirton | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 November 2023 | |
DATE OF RULING: | 28 February 2024 | |
CASE MAY BE CITED AS: | Prime Capital Securities v Khaled El Hawli | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 162 | |
REASONS FOR RULING
---
Subject:Application to set aside default judgment
Catchwords: Judgment in default of appearance –Application to set aside default judgment – Whether irregularly or regularly obtained -Proposed defences of Unconscionable conduct – Estoppel - Unfair Conduct - Test for leave to defend — Merits of proposed defence — Reasons for default — Timeliness of application
Legislation Cited: County Court Civil Procedure Rules 2008 (Vic); Contracts Review Act 1980 (NSW);
Cases Cited:Perpetual TrusteesVictoria Ltd v Pilcher [2005] VSC 244; Microscience (International) Pty Ltd v Total Peripherals Pty Ltd [1998] VSC 50; Geotech Pty Ltd v Premier Developments Pty Ltd [2017] VCC 874; Hogg v J Isherwood-Kicks (1992) 108 FLR 263; Miles v Sydney Meatpreserving Co (Ltd) [1912] 16 CLR 50; French v Triple M Melbourne Pty Ltd [2006] VSC 36; Kostakanellis v Allen [1974] VR 596; Lubura v Nezirevi (2013) 42 VR 43; Evans v Bartlam [1937] AC 473; Lau v Citic Australia Commodity Trading Pty Ltd, [1999] VSCA 215; Stubbings v Jams 2 Pty Ltd [2022] 399 ALR 409; Custom Credit v Lynch [1993] VR 469; Steele-Smith v Liberty Financial Pty Ltd [2005] NSWSC 398;
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Carew | Mr T Cunningham |
| For the Defendant | Mr S Prendergast | Mr M Dilawar Khan |
HER HONOUR:
Background
1On 6 June 2023 the plaintiff obtained judgment in default of appearance against the defendant pursuant to Order 21, Rule 21.01 of the County Court Civil Procedure Rules 2008 (the Rules). It then obtained a warrant of possession based on that order, dated 11 July 2023.
2The defendant applied[1] under rule 21.07 to set aside the judgment and consequentially, the warrant of possession.
[1] By summons dated 30 October 2023.
3The application was heard on 30 November 2023 and the decision was reserved until after the parties attended mediation, at their request. They have since advised the Court that the dispute has not resolved and asked for the application to be determined.
4The defendant relied upon affidavits affirmed by him dated 30 October 2023, 21 November 2023 and 29 November 2023 (respectively, the First, Second and Third El Hawli Affidavits) and the documents exhibited to those affidavits. The plaintiff filed an affidavit from Mr Paul James Scanlon affirmed 14 November 2023 (the Scanlon Affidavit) and two affidavits from Mr Jason Kean Quah sworn 28 November 2023 and 30 November 2023 (respectively, the First, and Second Quah Affidavits). The parties also filed written submissions and authorities.
The legal principles
5There is no dispute about the relevant legal principles, which were summarised by the defendant as follows.
6First, if a judgment in default is irregular or was obtained in breach of good faith, it ought to be set aside, irrespective of whether the defendant has a defence on the merits or has delayed in making the application to set aside. In Perpetual Trustees Victoria Ltd v Pilcher,[2] Cummins J held that a default judgment was irregularly obtained and should be set aside because, in the circumstances of that case, “it was inappropriate for the plaintiff’s solicitor to enter judgment.”[3] In Microscience (International) Pty Ltd v Total Peripherals Pty Ltd,[4] Beach J did not make a finding to the effect that conduct by the plaintiff in “snapping on”[5] a default judgment without warning to the defendant meant that the judgment was “irregular”,[6] however in those circumstances, his Honour dispensed with any requirement for the defendant to demonstrate an arguable defence before finding that the default judgment should be set aside.
2 [2005] VSC 244.
[3] Ibid, 13-15.
[4] [1998] VSC 50.
[5] Ibid, 13-17.
[6] Ibid.
7I also note in Geotech Pty Ltd v Premier Developments Pty Ltd,[7] JR Burchell (as she then was) stated that, “the default judgment regime exists as a vehicle for the production of judgments in which a defendant is not participating in the litigation.”[8] In Hogg v J Isherwood-Kicks,[9] Kearney J noted that “the practice of “snapping on a judgment” without notice immediately upon the expiration of a period prescribed by the rules should be strongly discouraged. It serves no real purpose. It increases the costs of litigation unnecessarily.”[10]
[7] [2017] VCC 874.
[8] Ibid, 32.
[9] (1992) 108 FLR 263.
[10] Ibid, 264
8In Miles v Sydney Meatpreserving Co (Ltd),[11] the High Court said:
A solicitor is bound to do all he can to win his client’s cause — yet he (sic) is not bound to resort to unfair means, or sharp practice, or to snap a judgment, or to do more than an honourable fair-minded man would think right; but he must not sacrifice any substantial advantage which the law gives his client. [12]
[11] [1912] 16 CLR 50.
[12] Ibid, 84.
9In French v Triple M Melbourne Pty Ltd, [13] (French) Bongiorno J said:
Litigation is not a … race where a fall can determine the outcome. As the High Court made clear in Queensland v J L Holdings Pty Ltd “… the ultimate aim of a Court is the attainment of justice…[14]
[13] [2006] VSC 36, 22.
[14] (1997) 189 CLR 146 at 154 (Dawson, Gaudron and McHugh JJ).
10Further, in French, Justice Bongiorno found that entry of a default judgment at the earliest opportunity, even if regular, was relevant to the exercise of the Court’s discretion to set aside and the question of costs. The judgment was set aside and the proceeding was reinstated.
11Second, where the default judgment was regularly obtained, the Court has a broad discretion to be exercised according to the circumstances of the particular case, when considering an application to set aside the judgment. The application must show grounds why the court’s discretion should be exercised in the defendant’s favour.[15]
[15] See Kostakanellis v Allen [1974] VR 596, 603-605.
12In the decision of the Court of Appeal in Lubura v Nezirevi,[16] (Lubura) Warren CJ described the test for setting aside a default judgment as follows:
The test for setting aside a default judgment is set out in Kostakanellis v Allen… where the Full Court held that a court should assess:
· Whether there is a defence on the merits;
· The reasons for the default;
· Whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the [defendant]; and
· Whether, if the judgment is set aside, a suitable award of costs and the giving of security would be adequate to cover the prejudice to the plaintiff in having the judgment set aside.
[16] (2013) 42 VR 43, 3.
13Of these four factors, the primary consideration is whether the defendant has merits to which the court should pay heed: if merits are shown the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.[17]
[17] Evans v Bartlam [1937] AC 473, 489 as applied in Kostakanellis v Allen [1974] VR 596 and Lubura v Nezirevi [2013] VSCA 215, 4.
14The defendant’s primary submission was that the default judgment in this case ought to be set aside because it was obtained irregularly and in breach of good faith, having regard to the circumstances in which judgment was entered. Alternatively, the defendant submitted that the Court should exercise its discretion to set aside the judgment having regard to the four factors identified in Lubura above.
15The plaintiff denied that the judgment was irregular. It submitted that the central issue is whether the defendant’s filed material evidences a defence to which the Court should pay heed.
16As it is the defendant’s application, the material filed with the court must disclose the particulars, relevant sections, and material facts that the defendant relies on in their defence and counterclaim. It must meet the onus of proof that the applicant bears in such applications. It is not for the respondent or the Court to have to guess at or search for what the possible defence and counterclaim may be.[18]
[18] Williams et al, Civil Procedure Victoria, (LexisNexis), 21.07.20.
The facts relied on by the defendant
17The judgment obtained by the plaintiff is for possession of land at 129 O’Hea Street, Coburg and 135 O’Hea Street, Coburg (the Judgment Properties). These properties were provided as security for a loan provided by the plaintiff on 18 February 2022 to Khaleds Clothing & Accessories Pty Ltd (the Company) as the borrower and to the defendant personally as the guarantor. The loan and guarantee were documented in writing (the Prime Capital Loan Deed) which had been signed by the defendant after receiving independent legal, but not financial, advice.
18The defendant gave evidence about his financial situation between 2000 and today. He confirmed that he had purchased the Judgment Properties using a mortgage loan from a recognised bank. In or about 2019, he began dealing with a broker, Mark Ellis of Lending HQ. At the time, he had begun to fall behind in his bank loan and he said he needed to borrow more money to repay that loan. The defendant said that Mr Ellis provided him with business advice, including suggesting he incorporate the Company, and arranged a number of loans for him and the Company over the next few years.
19By late 2021 the defendant was again falling behind in payments in relation to the existing loans. Mr Ellis suggested that he refinance and took steps to arrange refinancing. On 24 November 2021 Mr Ellis procured a letter of offer from Marway Capital Pty Ltd (Marway Capital) to lend the Company $2,030,000, with the defendant as guarantor. Marway Capital was a mortgage management company that the plaintiff had engaged to provide services to the plaintiff. It was Mr Ellis who had provided all financial information about the Company and the defendant to Marway Capital.
20The plaintiff and defendant executed the Prime Capital Loan Deed on 18 February 2022. Mr Ellis also arranged two further loans to the Company at around that time which were guaranteed by the defendant.
21The defendant drew down on the Prime Capital loan of $2,020,000 on 16 March 2022. He said that not long afterwards he realised that the Company would not be able to generate income to service the loans. He said that Mr Ellis suggested refinancing again, applying for more loans to pay off the existing loans. Instead, the defendant decided to try to sell the Judgment Properties.
22He said that during the period from around late-2022 to mid-2023, he had attempted to sell the Judgment Properties. Contracts of sale had been signed for both properties. The plaintiff had consented to the sale of 129 O’Hea Street but had refused to consent to the sale of 135 O’Hea Street. Neither property settled on the proposed settlement dates (being 28 February 2023 and 14 May 2023 respectively) and each of the sales eventually failed. The defendant said there were attempts to reschedule both sales, but the agent told him that the plaintiff was not cooperating with settlement of the sales.
23On or about 27 April 2023, the defendant received a letter from the plaintiff’s solicitors (QBM Lawyers) with an attached “Notice of Termination, Default and Demand to Borrower” (the Default Notice).
24He said that then on or about 24 May 2023, his daughter gave him a letter from the plaintiff’s solicitors (SLF Lawyers acting as local agent for QBM Lawyers) dated 19 May 2013 enclosing the writ and statement of claim for this proceeding. She told him that someone had knocked on the front door and then given it to her when she answered.
25On 24 May 2023, the defendant telephoned Mr Jason Quah of SLF Lawyers. He said that he had received the letter from SLF Lawyers dated 19 May 2023 but that he had not been served with the letter and its enclosures by a process server. He followed up that call with an email dated 24 May 2023 at 12:04pm. In that email, the defendant stated that he had negotiated new sales of the Properties for a total amount of $2.020 million and was seeking Prime Capital's consent to the sales.
26Mr Quah replied to the defendant’s email on 24 May 2023 by email sent at 3:16pm stating, among other things:
Thanks for your email below, which has been referred to the plaintiff for its instructions …
As a condition of entering into negotiations regarding the potential sales of the properties, the plaintiff requires you to first make yourself available to accept personal direct delivery of a hardcopy of the attached documents from the plaintiff’s process server.[19]
[19] First Affidavit of Khaled El Hawli, affirmed 30 October 2023, pg 429.
27Mr Quah sent a second email on 24 May 2023 at 3:54pm stating, among other things:
We now understand that you already accepted personal service of the documents at 7:31pm on Monday 22 May 2023. Accordingly, there is no need for you to make contact with the process server.
We will provide a response to your email after we receive instructions from the plaintiff.
In the meantime, and as discussed, the 10 day timeframe referred to in the writ has started and continues to run unless otherwise advised in writing by us. Amongst other things, we note that a notice of appearance is required to be filed and served by Friday 2 June 2023 failing which the plaintiff may without further notice apply for default judgment against you.[20]
[20] Affidavit of Jason Kean Quah, sworn 28 November 2023, 38.
28Surprisingly the second email from Mr Quah sent at 3:54pm was not included in the defendant’s evidence. His explanation for this omission is discussed further below.
29The defendant said that he received a call from the process server on or about 25 May 2023 and met with the process server the following day. He accepted service of the writ and statement of claim.
30On 6 June 2023 at approximately 12.50 pm, the defendant called Jason Quah again and said to him that he “had not been contacted by anyone from his firm or the lawyer in Queensland. [Mr Quah] said that he thought that the lawyers in Queensland would have gotten back to [him] directly and that it was ‘strange’ that they had not. [The defendant] asked whether [he] should contact them [him]self. [Mr Quah] said not to worry and that he would get back to [him]. He did not mention anything in relation to default judgment.”[21] Mr Quah disputed he would have used the language alleged, but agreed that he would not have mentioned anything in relation to default judgment.
[21] Third El Hawli Affidavit, affirmed 29 November 2023, 2.
31The defendant said that he heard nothing further until 29 June 2023, when he received an email from SLF Lawyers which stated, among other things, that the plaintiff had obtained default judgment against him. The defendant said he was shocked when he received notice of the default judgment on 29 June 2023, as after receiving the email on 24 May 2023 from Mr Quah, he had been waiting to hear from SLF Lawyers as to whether the plaintiff would agree to the sale of the Judgment Properties that he thought he had negotiated. He was hoping that the plaintiff would agree to let him sell the Judgment Properties and expected that the plaintiff or SLF Lawyers would at least communicate with him further in relation to that proposal before taking further action in the proceeding. Upon receiving the 29 June 2023 email from SLF Lawyers, he realised that the plaintiff had apparently not consented to the sales but had instead proceeded to obtain a default judgment without any further warning or communication.
32The defendant said he sought advice from his family as to what to do upon receiving the 29 June 2023 email. His family urged him to get legal advice, however, he said he did not have money to obtain legal advice or fund this application until his brother offered him financial support in mid-August 2023.
33On 30 August 2023, he received notices to vacate the Judgment Properties requiring him to vacate the properties by 28 September 2023.
34He then engaged solicitors and in September and October 2023, his solicitors communicated with the plaintiff’s solicitors with respect to the potential sale of 129 O’Hea Street to his brother, Khoder.
35On 18 October 2023, the defendant received a letter from the Sheriff’s Office of Victoria, informing him that a warrant of possession had been issued in relation to the Judgment Properties and would be executed on 1 November 2023 or shortly afterwards. His proposal to sell 129 O’Hea Street to Khoder was rejected by email on 25 October 2023.
36The plaintiff’s application to set aside the judgment was filed on Monday 30 October 2023.
37In around October 2022 the defendant had a mental breakdown due to the stress and pressure of his marriage breakdown and his financial problems. He had obtained a referral to a psychiatrist but still had not seen them during the period when this proceeding was commenced and a default judgment was entered. He said that he continued to suffer from significant stress and mental health issues. Further, he did not have sufficient money to obtain legal advice with respect to the plaintiff’s claims or the proceeding commenced against him.
Was the judgment entered irregularly?
38I do not accept that the judgment was entered irregularly, or ”snapped on”. I do not accept that the plaintiff, through its solicitors, led the defendant to believe that he would not need to act in the proceeding in May and June 2023.
39Surprisingly, the defendant gave no evidence about the conversation that he said led him to this belief until his Third Affidavit. Also surprisingly, he did not exhibit the second email sent by Mr Quah on 24 May 2023 at 3:54pm at all. This was the email in which Mr Quah reminded the defendant his appearance was due by 2 June 2023. After the email was exhibited by Mr Quah, the defendant responded in his Third Affidavit. He gave further evidence as follows:
I do recall receiving that email however, I did not believe that I needed to do anything during the 10-day period because of what Jason had said to me about that period during our phone call earlier that day. In that phone call, I had said to Jason that I had negotiated new sales for the two properties and asked whether Prime Capital would consent to the sales. Jason asked me to put my request in an email to him (which I later did as per paragraph 58 of my first affidavit) and that he would pass it on to Prime Capital’s lawyers in Queensland for instructions. I said to him “but you have given me a deadline of 10 days” and asked “what do I need to do?”. He had said that I did not need to do anything until he gets back to me. I understood that to mean that I did not need to do anything in relation to the proceeding until he got back to me in relation to whether Prime Capital would consent to the sales.[22]
[22] Third El Hawli Affidavit, affirmed 29 November 2023, 1.
40That is crucial evidence in the context of whether the plaintiff acted improperly in entering the judgment. It is surprising it was not given in the First or Second El Hawli Affidavits.
41The defendant’s recollection of what was said in the telephone conversation was expressly disputed by Mr Quah. Mr Quah did not recall telling the defendant that he “did not need to do anything until [I] got back to [him],”[23] and said that such an allegation is expressly contrary to his practice of never granting an indulgence on behalf of the plaintiff without explicit instructions. He did not receive any such instructions and accordingly believed that he would not have granted the defendant an indulgence in respect of the filing of a notice of appearance.
[23] Affidavit of Jason Quah, sworn 30 November 2023, 1.
42I prefer Mr Quah’s evidence to the defendant’s on this point. The defendant did not provide a complete version of the events in his First or Second Affidavits. Although the matters he alleged in his Third Affidavit are directly relevant to his contention that he was misled, he only mentioned these for the first time after Mr Quah had served his First Affidavit.
43Further, the defendant’s evidence about the conversation with Mr Quah, which was given for the first time in his Third Affidavit, is inconsistent with the contemporaneous documents. The defendant’s recollection was that Mr Quah told him over the telephone that there was no need to file a notice of appearance by 2 June 2023. That is wholly inconsistent with Mr Quah’s email sent at 3:54pm, following that alleged conversation.
44Instead, I consider that the more likely version of events is that the defendant knew he had to repay the loan, but was focussed on selling the properties rather than the Court proceeding. This is consistent with his conduct since almost the commencement of the loan. From the time he knew he could not service the loan he had tried to sell the properties, and was still focussed on that outcome even after learning of the default judgment. It seems more likely that the defendant thought if he could sell the properties, the litigation would end. He did not turn his mind to, or get legal advice about, the litigation itself.
45I also note his evidence in his First Affidavit that in or around October 2022, he suffered from a mental breakdown and that he continued to suffer from significant stress and mental health issues. Crucially, he stated that, “[f]urther, [he] did not have sufficient money to obtain legal advice with respect to the plaintiff’s claims or the proceeding commenced against [him].”[24]
[24] First El Hawli Affidavit, affirmed 30 October 2023, 54.
46In those circumstances, especially noting the express warning given by Mr Quah in the email of 24 May 2023 of the possibility of a default judgment if a notice of appearance was not filed by 2 June 2023, and the fact that the defendant did not disclose this email in his evidence, I do not accept that Mr Quah told the defendant on 24 May 2023 that there was no need to file a notice of appearance by 2 June 2023.
47Further, the plaintiff had given the defendant its consent to sell at least one of the Judgment Properties since late 2022. Neither property had settled on their proposed settlement dates of 28 February 2023 and 14 May 2023 respectively. The plaintiff was therefore entitled to enter default judgment on 6 June 2023 without any further warning to the defendant.
48As I have found that the judgment was not irregular, to have it set aside the defendant must satisfy the test in Lubura set out above, namely:
(a) whether there is a reasonably arguable defence on the merits of the case;
(b) the reason for the defendant’s default consequent on which the judgment was obtained;
(c) how promptly the application to set aside was made after default judgment came to the notice of the applicant; and
(d) whether if the judgment were set aside the plaintiff would be prejudiced in any respect with could not be adequately compensated for by a suitable award of costs and the giving of security.
Does the defendant have an arguable defence?
49The defendant’s proposed defence and counterclaim is exhibited to his First Affidavit. There are three primary bases for the defence, being:
(a) First, that the plaintiff has engaged in unconscionable conduct in equity and/or within the meaning of the Australian Securities and Investments Act 2001 (Cth), having regard to:
(i)the terms of the Deed which is sought to be enforced by the plaintiff and the plaintiff’s conduct in entering into the Deed and advancing money pursuant to the Deed; and/or
(ii)the plaintiff’s conduct following the loaning of the money, including with respect to the charging of default interest and the purported termination of the loan facility;
(b) Second, that the Deed and the guarantee contained within it is unjust within the meaning of the Contracts Review Act 1980 (NSW); and
(c) Third, the defendant denies being in default as alleged by the plaintiff and/or that the plaintiff was entitled to terminate the loan facility.
50The defendant gave extensive evidence in his First and Second Affidavits about the nature of the loan and the circumstances in which he entered in to the Prime Capital Loan Deed. In summary, he contends that its (he says) onerous terms and conditions, together with the plaintiff’s conduct in entering into the Deed, entitle him to rely on these defences. The question is whether one or more of these defences are reasonably arguable, or that there are merits in the defences to which the Court should pay heed: per Lau v Citic Australia Commodity Trading Pty Ltd (Lau).[25]
[25] Lau v Citic Australia Commodity Trading Pty Ltd, [1999] VSCA 34, 5.
Unconscionable conduct
51The question of whether in a particular case a defendant has engaged in unconscionable conduct depends upon the facts and circumstances of that particular case. The defendant submitted that the circumstances of this case share a strong similarity with the facts and circumstances in the recent High Court decision of Stubbings v Jams 2 Pty Ltd.[26] In that case, the High Court held that the lender’s conduct was unconscionable in equity. In making that finding, Kiefel CJ, Keane and Gleeson JJ explained:
The appellant’s lack of commercial understanding coupled with his inability to repay the loans from his own income or other assets meant that default in repayment, and the consequent loss by the appellant of his equity in his properties by way of interest payments to the respondents, were inevitable as a matter of objective fact. The respondents, through their agent, sufficiently appreciated that reality that the exercise of their rights under the mortgages to turn the appellant’s disadvantages to their own profit was unconscionable. Equitable intervention was justified in this case “not merely to relieve the [appellant] from the consequences of his own foolishness … [but] to prevent his victimisation.[27]
[26] [2022] 399 ALR 409.
[27] Ibid, 5.
The defendant’s submissions
52In the present matter, the defendant relied on the following circumstances which he said support equitable intervention:
(a) The Company, being the borrower, had no assets and had never traded;
(b) The defendant had not obtained any independent financial advice with respect to the Deed or the advance of money pursuant to it;
(c) The defendant suffered from:
(i)a lack of commercial understanding with respect to the financial impact of the loans; and
(ii)an inability to repay the Initial Advance and other moneys payable under the Deed; and
(d) The plaintiff knew, or ought to have known, of the above matters.
53Further, he submitted that in relation to the plaintiff’s knowledge of the above matters, it is apparent that the plaintiff took no steps itself to enquire with the defendant in relation to the ability of the Company or himself to repay the loan or his understanding regarding the financial impact of the loan. Instead, the plaintiff relied solely upon Marway Capital to communicate with the defendant in relation to the loan. As noted above, Marway Capital is a mortgage management company that the plaintiff had engaged to provide services to the plaintiff.
54In response to the plaintiff’s contention that it was entitled to rely upon a credit proposal provided by Marway Capital stating that the Company had an income of $300,000 per annum and that the defendant had an annual income of $50,000, the defendant said that document had been prepared by Mark Ellis, who was a director of Marway Capital. Mr Ellis was aware that neither the Company nor the defendant had any such income, and he had not been provided with any information by the defendant to support the representations contained in that document regarding his or the Company’s financial position.
55As a director of Marway Capital, Mr Ellis’ knowledge is attributable to Marway Capital. Further, the plaintiff conceded that Marway Capital was acting as its agent in relation to all dealings in relation to the loan, including the letter of offer, pre-settlement phone calls, phone calls in relation to repayments, the issuing of loan statements and communications in relation to interest rate changes. The defendant submitted that therefore the knowledge of Marway Capital is attributable to the plaintiff.
The plaintiff’s submissions
56In response, the plaintiff contended that it is clear on the material that there is no factual basis for saying the plaintiff knew, or even ought to have known, of the Company’s or the defendant’s vulnerability or financial situation. In that regard:
(a) The defendant, and the Company, had a long history with the broker, Mark Ellis;
(b) In applying for, and obtaining the loan, the Company and the defendant only dealt with their agent, Mr Ellis, not with the plaintiff.
57Mr Ellis was the broker for the borrower, being the Company, not the agent of the plaintiff. The usual position is that a broker is the borrower’s agent.[28] Further, in Steele-Smith v Liberty Financial Pty Ltd,[29] Palmer J observed that the fact that a broker approaches a lender for a loan for his client and, even, “assists in the execution of loan documentation,”[30] does not in itself make the broker an agent for the finance company. The Mandate to Act exhibited to the First El Hawli Affidavit[31] makes clear who Mr Ellis acted for and it is also clear that Mr Ellis was the broker for the Company and the defendant for many years, and was routinely engaged to broker loans on their behalf.
[28] See for example, Custom Credit v Lynch [1993] VR 469, 486-487.
[29] [2005] NSWSC 398, 104.
[30] Ibid.
[31] First El Hawli Affidavit, affirmed 30 October 2023, 69.
58Further, the defendant in his Second Affidavit has admitted that he misled the plaintiff about his ability to repay the loan, when he answered questions from Marway Capital in the pre-settlement phone call. He said he did this on the instructions of Mr Ellis.
59The defendant had obtained two sets of independent legal advice before signing the Loan Deed. He had received business advice from Mr Ellis in the past (at the least, in relation to setting up the company), so although he says he had not obtained financial advice about the loan and guarantee, this is disputed.
60The defendant also asserted that he did not know that certain fees were payable. The plaintiff disputed that, as the relevant fees are set out in clauses 6.3 (loan management fee) and 6.6 (termination fee) of the Loan, Security and Guarantee Deed.
61The plaintiff also denied that it had prevented or not co-operated with, any scheduled settlement. Its director said that the defendant has simply been unable to schedule any settlement on the basis of an ability to pay out the debt, in respect of which payout figures had been provided when requested.
62In those circumstances the plaintiff submitted that the defence of unconscionable conduct was not reasonably arguable.
Analysis and Conclusion on the proposed defence
63There is force in many of the points made by the plaintiff. The defendant’s complaints are largely about Mr Ellis’ knowledge, conduct and advice, not about the plaintiff. However there is at least one crucial matter that in my view satisfies me that an arguable defence on the merits has been shown. That is, that Marway Capital was acting as the plaintiff’s agent and Mr Ellis was a director of Marway Capital at the same time as he was acting as the defendant’s agent. It is arguable that the knowledge of Mr Ellis is attributable to Marway Capital and the knowledge of Marway Capital is attributable to the plaintiff. Further or alternatively, it is arguable that the plaintiff is bound by the conduct of its agent.
64I note the defendant’s credibility has been questioned, both in what he said in the pre-settlement phone call and in how he gave his evidence in this application. However, I would fall into error if I, “embarked upon a trial of facts, and more particularly the credibility of [the applicant], in coming to the conclusion that the defence was unarguable” [32]. As Winneke P said in Lau:
It may well be that there is a fine line between a finding that there is no material at all before the Court to support a critical finding of fact and a finding that the material will not support that fact because, in the judge's view, it lacks sufficient weight or credibility.
In the vast majority of cases that line, in my view, will have been impermissibly crossed where the judge has come to the latter view because of an assessment that he has made of the credibility of the testimony of the person alleging that he has an arguable defence.[33]
[32] As the trial judge did in Lau: op. cit. 5.
[33] Ibid, 8.
65I would have “impermissibly crossed” that line if I determined whether the defendant has an arguable defence based on questions about the credibility of his evidence.
66In any event, if the knowledge and conduct of Mr Ellis is as the defendant alleges, then his own credibility may not be a relevant factor in the determination of the proceeding.
67Accordingly, I am satisfied that, “there are merits in the defences to which the Court should pay heed.”[34]
Unjust within the meaning of the Contracts Review Act (NSW) 1980
[34] Ibid, 5.
68The Deed is governed by the law of New South Wales. The defendant submitted he has an arguable defence based on sections 7 and 9 of the Contracts Review Act 1980 (NSW).
69Section 7 of the Contracts Review Act 1980 (NSW) provides that where a Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of a number of things, including deciding to refuse to enforce any or all of the provisions of the contract or making an order declaring the contract void, in whole or part.
70Section 9(2) lists matters to which the Court shall have regard, including:
(a) A material inequality in bargaining power;
(b) The terms of the loan were not the subject of negotiation between the parties;
(c) It was not reasonably practicable for the defendant to negotiate for the alteration of or to reject any of the provisions of the Deed;
(d) the provisions of the Deed imposed conditions that were unreasonably difficult for the defendant to comply with and/or not reasonably necessary for the protection of the legitimate interests of the plaintiff
(e) there was undue influence, unfair pressure and unfair tactics which were exerted on the defendant by Mr Ellis and Marway Capital (through Mr Ellis), which is attributable to the plaintiff.
71As the merits of this proposed defence will involve similar questions as the unconscionable conduct defence discussed above, I consider that this is an arguable defence to which the Court should also pay heed.
What is the reason for the Defendant’s default in filing an appearance?
72As set out above, the reason given by the defendant for not filing an appearance in the proceeding was that SFL Lawyers, through their first email dated 24 May 2023, had created a reasonable expectation that they would provide a substantive response to the defendant’s email of 24 May 2023 before taking any action to obtain judgment.
73As discussed above, I do not accept that the plaintiff’s solicitors encouraged or led the defendant to form that belief. Accordingly, I do not accept the defendant’s submission that this is the reason why he failed to file an appearance.
74Instead, as discussed above, I consider it more likely that the defendant knew he had to repay the loan, but was focussed on selling the Judgment Properties rather than the Court proceeding. It seems more likely that the defendant thought if he could sell the properties, the litigation would end. He did not turn his mind to, or get legal advice about, the procedural steps in the litigation itself. I accept his evidence that this may have been for financial reasons or because of his mental health. However, he did not put his head in the sand. He was proactive in contacting the plaintiff’s solicitors both on 24 May and 6 June 2023. I accept that these are compelling reasons why the Court ought to set aside the default judgment in this case.
Was the application made promptly?
75Having regard to the steps taken by the defendant, as set out at paragraphs 311‑365 above, I am satisfied that his application to set aside the default judgment was made sufficiently promptly and there was not any unreasonable delay in making the application. In particular, he was notified of the judgment on 29 June 2023, he first met with his solicitors in mid-August 2023 after he obtained funds; in September and October 2023 his solicitors communicated with the plaintiff’s solicitors with respect to the potential sale of one of the properties; on 25 October 2023 he was told that his proposal was rejected, and this application was filed on 30 October 2023.
What is the prejudice to the Plaintiff?
76The plaintiff’s evidence does not identify any prejudice that it would suffer if the default judgment is set aside that could not adequately be addressed by an award of costs.
Conclusion and Orders
77As set out by Winneke J in Lau, “[i]f there are merits in one or more of those defences, the Court will ordinarily exercise its discretion in favour of allowing the matter to pass to final adjudication, provided that the applicant shows that he has an adequate explanation for his failure to file a defence.”[35] As discussed above, I am satisfied there are merits in the defences to which the Court should pay heed. I am also satisfied that the defendant has provided an adequate explanation for his failure to file a defence.
[35] Ibid, 5.
78I will make the following order:
1)The default judgment dated 6 June 2023 and the warrant of possession dated 11 July 2023 are set aside.
2)The defendant has leave to file and serve a defence by 21 March 2024 at 4.00pm.
3)The defendant pay the plaintiff’s costs thrown away to be taxed and determined by the Costs Court in default of any agreement between the parties.
- - -
Certificate
I certify that these 20 pages are a true copy of the ruling of her Honour Judge Kirton delivered on 29 February 2024.
Dated: 29 February 2024
Jessica Meaney
Associate to Her Honour Judge Kirton
0
6
0