Rozzi Franchising Pty Ltd v TWCP Pty Ltd
[2020] VCC 1573
•5 October 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-19-05399
| Rozzi Franchising Pty Ltd trading as Rozzi’s Italian Canteen as trustee of Rozzi Franchising Trust | Plaintiff |
| v | |
| TWCP Pty Ltd trading as Proficient Projects and Tai Cecil | Defendants |
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JUDGE: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers | |
DATE OF JUDGMENT: | 5 October 2020 | |
CASE MAY BE CITED AS: | Rozzi Franchising Pty Ltd v TWCP Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 1573 | |
REASONS FOR RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: Judgment in default of appearance – Setting aside judgment in default of appearance
Legislation Cited: County Court Civil Procedure Rules 2018 (Vic) r21.07
Cases Cited:Kostokanellis v Allen [1974] VR 596; Lubura v Nezirevic (2013) VR 593.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr G Lubofsky | B2B Lawyers |
| For the defendants | Mr S Eustace/Mr N Kalcic | Logie-Smith Lanyon and Stokes Lawyers |
JUDICIAL REGISTRAR:
1 This is an application to set aside a default judgment for damages to be assessed. The plaintiff (Rozzi) is the franchisor of the “Rozzi’s” Italian restaurant franchise. By a construction contract entered into in about July 2016, Rozzi engaged the first defendant (TWCP) to design and fit-out a Rozzi’s restaurant at 157 Swanston Street, Melbourne. In late October 2016, TWCP ceased performing the works under the contract. By email dated 9 December 2016, the second defendant (Mr Cecil), who was the sole director of TWCP, informed Rozzi that “With the complexities of this Project we just don’t have the resources to continue this project in Melbourne.”
2 Rozzi filed the writ and statement of claim in this proceeding on 13 November 2019. Four claims are made in the statement of claim:
a) a claim against TWCP for damages for breach of the construction contract by:[1]
[1] Paragraphs 6 and 9 of the Statement of Claim.
· failing to complete the works within a reasonable time;
· failing to perform the works in a proper and workmanlike manner; and
· failing to comply with its obligations as a building practitioner under the Building Act 1993 (Vic).
b) a claim against TWCP for repudiating the contract, with the repudiation said to be accepted by Rozzi on or about 12 December 2016;[2]
[2] Paragraphs 7-9 of the Statement of Claim.
c) a claim against TWCP for misleading and deceptive conduct in contravention of s18 of the Australian Consumer Law in relation to representations that:[3]
[3] Paragraphs 10-14 of the Statement of Claim.
· TWCP had and would comply with its obligations under the Building Act 1993 (Vic);
· Jason Gosney was a director of the TWCP; and
· Mr Gosney was a registered building practitioner for the works pursuant to ss 169, 169F and/or 169G of the Building Act 1993 (Vic) (‘the representation’); and
d) a claim against Mr Cecil personally on the ground that he was involved in the misleading and deceptive conduct of TWCP.[4]
[4] Paragraphs 15-16 of the Statement of Claim. See s236(1) of the Australian Consumer Law and the definition of involved in s2 of the Australian Consumer Law.
3 On 7 May 2020, the plaintiff (Rozzi) obtained interlocutory default judgment for damages to be assessed against the first defendant (TWCP) and the second defendant (Mr Cecil). By summons dated 2 September 2020, TWCP and Mr Cecil apply to set aside that judgment.
4 In determining whether to set aside a default judgment, I am required to assess the following factors:[5]
[5] Kostokanellis v Allen [1974] VR 596; Lubura v Nezirevic (2013) VR 593 [3] (Warren CJ).
a) whether there is a defence on the merits;
b) the reasons for the default;
c) whether the defendants made the application promptly upon becoming aware of the judgment; and
d) whether, if judgment were set aside, any prejudice to the plaintiff could be adequately compensated by costs or the giving of security.
5 The primary consideration is whether there is a defence on the merits,[6] by which is meant a prima facie defence on the merits, rather than a defence which is bound to succeed.[7]
[6] Lubura v Nezirevic (2013) 42 VR 593 [4] (Warren CJ); Evans v Bartlam [1937] AC 473, 489 (Wright LJ).
[7] Lubura v Nezirevic (2013) 42 VR 593 [4] (Warren CJ).
6 I will consider first whether the defendants have established a prima facie defence on the merits with respect to each of the claims made in this proceeding, before turning to the other relevant factors.
Claim for breach of contract
7 Paragraph 5 alleges that the contract included the following terms:
a) TWCP would complete the work within a reasonable time (“reasonable time term”);
b) TWCP would perform the work in a proper and workmanlike manner (“quality term”); and
c) TWCP would comply with its obligations as a building practitioner under the Building Act 1993 (Vic) (“statutory compliance term”).
8 Each of these terms is said to have been breached by TWCP.
Reasonable time term
9 A proposed defence is exhibited to the first affidavit of Mr Cecil. The proposed defence denies that the reasonable time term formed part of the contract and denies that it has been breached.
10 Mr Cecil states in his first affidavit[8] that while performing the works under the contract it became apparent that there was a significant problem with the structure of the building which required demolition and structural works to be undertaken which were outside the scope of the contract. He also gives evidence of delays in payment both of TWCP and of the contractor retained by TWCP to perform demolition works. In his second affidavit[9] he exhibits a copy of a purchase order dated 9 September 2016 from TWCP showing the demolition works. He states that delays due to these structural issues, demolition works and delays in payment, delayed the completion of the works.
[8] Affidavit of Tai Junior Cecil sworn 1 September 2020.
[9] Affidavit of Tai Junior Cecil sworn 25 September 2020.
11 By the particulars to paragraph 6(a) of the statement of claim, Rozzi alleges that the reasonable time to complete the works was 4 November 2016, which was the date for Practical Completion shown in the final revised program issued by TWCP on 26 August 2016. In its submissions, Rozzi contends that the evidence of Mr Cecil in relation to demolition and structural issues was “manifestly inadequate” and that TWCP “has not explained what the nature of the structural defects was, the extent of the delay caused by those works, or how those works otherwise impacted on its build program”.[10]
[10] Plaintiff’s submissions dated 18 September 2020, paragraph 22.
12 The reasonable time term does not appear to be an express term of the contract. Nevertheless, I am prepared to assume that the contract included an implied term that TWCP would complete the works within a reasonable time. However, I am not prepared to assume that this entailed an absolute obligation to complete the works by a particular date (alleged to be 4 November 2016).
13 In my view, TWCP has done enough to establish a prima facie defence to this claim on the grounds that issues with structural defects, demolition and payment had caused delay and that this delayed the reasonable time for completion, so that it was not reasonable to expect completion by 4 November 2016.
Quality term
14 The pleaded allegation in paragraph 6(b) of the statement of claim is that TWCP failed to perform works in a proper and workmanlike manner. This is particularised as follows:
“Fire services were removed from the building and not reinstated
Building works were undertaken without a building permit being issued
Structural works were undertaken by unqualified/unregistered practitioners”
15 The proposed defence denies that the alleged term existed and denies that it has been breached. However, TWCP does not provide any further evidence in support of its denial. It submits that it “is otherwise unable to otherwise deal with the merits of this claim without further particulars”.
16 I accept that it is difficult to establish by evidence, on an interlocutory application, the double negative that TWCP had not failed to perform the works in a proper and workmanlike manner. However, it would be reasonable to expect that specific matters such as the removal of fire services and the existence of a building permit would have been capable of being addressed in the evidence, at least to some extent.
17 On the other hand, the pleaded breach is distinctly lacking in particulars. The plaintiff provides no further evidence in relation to these alleged breaches in the affidavit of Miles Rozman sworn 9 July 2020, either in relation to the question of nature of the breach or the question of damages flowing from the alleged breach.
18 In that context, any trial assessment of damages in relation to these breaches would either result in nominal damages only, or have to traverse the existence and extent of the alleged breaches. Whilst I am not positively satisfied that TWCP has established a prima defence on the merits to this claim, this is a factor which weighs in favour of setting aside the default judgment on this claim.
Statutory compliance term
19 The proposed defence denies that the statutory compliance term was a term of the contract and denies that it was breached.
20 No evidence is relied upon by TWCP to establish that TWCP complied with its obligations under the Building Act 1993 (Vic). In particular, no evidence is put forward to counter the allegation in the particulars to paragraph 6(c) of the statement of claim that there was no director of TWCP who was a registered building practitioners as required by ss 169, 169F or 169G of the Building Act 1993 (Vic). If the statutory compliance term was a term of the contract, TWCP would not have established a prima facie defence to the allegation of breach.
21 However, the statutory compliance term is not an express term of the contract. The term as pleaded effectively incorporates by reference the entirety of the Building Act 1993 (Vic) into the contract. I accept TWCP’s submission that it is arguable that such a term should not be implied into the contract. TWCP has a prima facie defence to the pleaded claim.
Claim for repudiation
22 The uncontradicted evidence filed on behalf of the plaintiff is that TWCP ceased working on site in October 2016.
23 On 9 December 2016, Mr Cecil sent an email to Rozzi which contained the following:
“I have been going through everything and looking at the situation overall but more importantly looking at our ability to resource this Project. With the complexities of this Project we just don’t have the resources to continue this project in Melbourne. There are already contractors that can finish this project of which we can hand over all of the details etc, could you please advise what this new arrangement would look like so that we can look to do the best we can to support.”
24 On 12 December 2016, Dean Salomone of Rozzi sent the following email to Mr Cecil:
“We note your comments below on Friday 9th December 2016, that
Proficient is unable and/or unwilling to continue the Swanston Street
project. Subsequently Proficient has repudiated the contract.As a result of this repudiation we have appointed an alternate builder
to complete the project.
We reserve all of our rights.”
25 The proposed defence denies that TWCP repudiated the contract “because it was prevent from completing the works due to structural defects in the building [sic]”. TWCP submits “in the circumstances of delays outside the control of the first defendant, the changed scope of the works and non-payment by the plaintiff, it is arguable that the first defendant had the right to terminate the contract on 9 December 2016.”[11]
[11] Affidavit of Tai Junior Cecil sworn 1 September 2020, paragraph 18.
26 TWCP’s submissions do not explain the legal basis for this alleged arguable right to terminate the contract. Neither repudiatory breach nor frustration are pleaded in the proposed defence. The evidence of unquantified and unparticularised delays due to structural issues and demolition works falls well short of establishing the radical change required for a defence of frustration. If frustration were to be relied upon, it should be pleaded in the proposed defence and detailed evidence provided of the nature of the structural issues; the extent of the delay caused; and the resulting radical change in performance.
27 I am not satisfied that TWCP has a prima facie defence on the merits to the claim for repudiation.
Claim for misleading or deceptive conduct
28 In paragraph 10 of the statement of claim it is alleged that TWCP represented that:
(a) TWCP had complied and would thereafter comply with all of its obligations under the Building Act 1993 (Vic) to enable it to complete the contract works;
(b) Jason Gosney (Gosney) was a director of TWCP; and
(c) Gosney was a registered building practitioner for the Contract Works as required by ss 169, 169F and/or 169G of the Building Act 1993 (Vic).
Representation
29 In the particulars to paragraph 10 of the statement of claim, the representation is said to be partly oral, partly in writing and partly to be implied. To the extent it was oral, it is alleged to have been constituted by a conversation between Mr Cecil and Miles Rozman on or about 14 April 2016. To the extent it was in writing it was said to be constituted by a building permit. To the extent it was implied, it was to be implied by the fact that TWCP applied for the building permit.
30 Mr Cecil denies making the representation in his first affidavit.
31 The permit referred to in the particulars was not put in evidence by either party. A letter from the Victorian Building Authority was attached to the reply submissions filed on behalf of the plaintiff. The defendant objected to this letter being relied upon without being put into evidence and I have not had regard to its contents.
32 Whilst in some circumstances a bare denial may not be sufficient to establish a prima facie defence, here the claim for misleading and deceptive conduct is based to a significant extent on an oral representation which Mr Cecil denies making. Mr Cecil’s denial that he said what was attributed to him suffices to establish a prima facie defence to this claim.
Claim that Mr Cecil was involved in misleading and deceptive conduct
33 It follows from the fact that TWCP has established a prima facie defence to the claim for misleading and deceptive conduct that Mr Cecil has established a prima facie defence to the claim that he was involved in TWCP’s misleading and deceptive conduct.
Other factors
34 The other factors I must consider are the reasons for the default; whether the defendants made the application promptly upon becoming aware of the judgment; and whether, if judgment were set aside, any prejudice to the plaintiff could be adequately compensated by costs or the giving of security.
35 Mr Cecil states that he was provided with a copy of the writ and statement of claim on 3 December 2019. He contacted a Queensland firm of lawyers and was told to expect a call from a Victorian firm of lawyers. He did not receive a call and did not follow it up. He received a further copy of the writ and statement of claim on 18 March 2020, together with an order for substituted service on him. He telephoned the Victorian firm of lawyers and said he was told that Court matters are on hold due to the COVID-19 pandemic. He took from this that he did not have to file a defence and took no further steps.
36 Judgment in default of appearance was entered on 7 May 2020. Orders were made on 26 June 2020 timetabling the trial assessment of damages. Mr Cecil states he received a copy of the default judgment, timetabling orders and the affidavit of Miles Rozman sworn 9 July 2020 on 15 July 2020. A notice of appearance was not filed until 1 September 2020 and the application to set aside the default judgment was not made until 2 September 2020.
37 There is thus a delay from 3 December 2019 until 1 September 2020 before Mr Cecil took any step in the proceeding.
38 In the meantime, Rozzi has incurred significant expense in obtaining default judgment and in preparing for the trial assessment. If the default judgment were set aside now, the proceeding would not be able to be fixed for trial until June 2021. The defendants’ default will have caused significant delay in the ultimate resolution of the proceeding.
39 Rozzi does not rely on any specific evidence of prejudice arising from this delay. However, there is a prejudice in and of itself of delay.
40 There has been considerable delay by the defendants in seeking to set aside the default judgment which has not been satisfactorily explained. That delay is not so serious as to justify a refusal to set aside the default judgment where a defence on the merits has been shown, particularly in a context where Rozzi does not put forward any specific evidence of prejudice which cannot be compensated by an order for costs. However, it does tell against setting aside the default judgment in its entirety, in circumstances where TWCP has not established a defence on the merits to the claim for repudiation.
Conclusion
41 I have concluded that Mr Cecil has established a prima facie defence on the merits to the only claim made against him, being for involvement in the misleading and deceptive claim.
42 I have concluded that TWCP has:
a) not established a prima facie defence on the merits to the claim for damages for repudiation;
b) has established a prima facie defence on the merits to the claims for breach of the reasonable time term and statutory compliance term and the claim for misleading and deceptive conduct; and
c) has not established a prima facie defence on the merits to the claim for breach of the quality term, but that there are other factors which weigh in favour of setting aside the default judgment.
43 I have also concluded that there has been considerable delay by the defendants in seeking to set aside the default judgment, which has not been satisfactorily explained, but that that delay is not so serious as to justify a refusal to set aside the default judgment where a defence on the merits has been shown.
44 Rule 21.07 of the County Court Civil Procedure Rules 2018 gives the Court the power to set aside or vary the default judgment. In all the circumstances, the most appropriate order is to set aside the default judgment against Mr Cecil and to vary the default judgment against TWCP to read: “On the claim for damages for repudiation pleaded in paragraphs 6-9 of the statement of claim, the first defendant pay the plaintiff damages to be assessed”.
45 The defendants should pay the costs of the application to set aside the default judgment. Had I set aside the default judgment in its entirety, I would have also required the defendants to pay the costs of entry of default judgment and the costs of the trial assessment. However, given the default judgment will stand on the claim for damages for repudiation, these costs have not been thrown away. I will hear from the parties as to the appropriate timetabling orders for the future conduct of the proceeding.
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Certificate
I certify that these 10 pages are a true copy of the judgment of Judicial Registrar Tran delivered on 5 October 2020.
Dated: 5 October 2020
Jane Le
Associate to Judicial Registrar Tran
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