Russell Kennedy Pty Ltd v Khan
[2015] VCC 1262
•14 September 2015
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISON
EXPEDITED CASES LIST
Case No. CI-14-05925
| RUSSELL KENNEDY PTY LTD | Plaintiff |
| v. | |
| LAILA KHAN | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 September 2015 | |
DATE OF JUDGMENT: | 14 September 2015 | |
CASE MAY BE CITED AS: | Russell Kennedy Pty Ltd v. Khan | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1262 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure – Service of Writ interstate – Requirement to serve prescribed form – Whether “substantial compliance” with form – s. 16 Service and Execution of Process Act 1992 (Cth) – s. 25C Acts Interpretation Act 1901 (Cth).
Undue influence – Solicitors requiring director of client company to execute guarantee in respect of legal costs – Whether “under influence was exerted in the circumstances of a “special relationship”.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C. Juebner | Russell Kennedy |
| For the Defendant | Mr C.R. de Robillard | Francom Legal |
HIS HONOUR:
1This is the rehearing of the defendant’s application to set aside the judgment entered by the plaintiff in default of appearance on 27 January 2015. The defendant requested the rehearing of the decision of Judicial Registrar Burchell on 26 June 2015 dismissing the defendant’s application.
2Having reheard the application, I have determined that the defendant’s application by summons filed 6 May 2015 should be dismissed. There were essentially two issues for determination:
a.was there compliance with s. 16 of the Service and Execution of Process Act 1992 (Cth) (“SEPA”) by service of the Form 1 notice required to be served with the writ;
b.if service of the writ were effective, has the defendant a defence on the merits to the plaintiff’s claim which would warrant the setting aside of the judgment.
Effectiveness of service of the writ
3Section 16 of the SEPA required service of any “prescribed” notices with the originating process if it were to be served outside the State where the process was issued.
4The Schedule to SEPA prescribes a Form of Notice. The form requires the inclusion of the “issuing court” in the form. By mistake, the issuing court was described in the form served with the County Court writ as the “Supreme Court of Victoria” in 3 places. There was also a further error as an alternative clause was included which would have been appropriate if the proceeding had been issued in the Supreme Court but was not appropriate for a proceeding issuing in the County Court.
5Section 25C of the Acts Interpretation Act 1901 (Cth) provides that, “Where an Act prescribes a form, then strict compliance with the form is not required and substantial compliance is sufficient”.
6The defendant submitted that service of the writ was not “effective” because there had not been “sufficient compliance” with the Form 1 notice required by SEPA.
7Submissions were addressed to the Court as to matters which might be relevant to the interpretation of the phrase “sufficient compliance”. In this regard, the defendant had filed two affidavits stating that on the day she received the writ she showed a friend the documents and asked that the matter be investigated.
8The defendant said that she “caused a friend to seek details of the claim in the Supreme Court of Victoria and I am informed by that person and verily believe that there was in fact no case against me in that court”.
9The defendant was cross-examined before the Judicial Registrar. The defendant maintained her previous refusal to identify the “friend” saying the friend did not wish to become involved.
10The transcript of that hearing including the defendant’s evidence was available to me as part of the evidence I should consider on the rehearing. During the defendant’s evidence, she said:
a.she showed the “document” she received to the friend. The friend “just said that they were going to look at the document for me”;
b.the defendant did not recall that the document included “a cover form”. By reading the document she “understood” that the solicitors “were suing me for a huge amount of money”;
c.the friend told her that there “was a problem with the document” and “said something about it not being right”. The friend did not say to her that “there’s no case against you in the Supreme Court of Victoria”, although she “said something about checking with the Supreme Court”.
d.the defendant agreed that the friend told her, “there’s a problem with these documents because it refers to two different courts”.
11It is clear that some contextual matters would be relevant considerations in the process of construing section 16 of SEPA, and whether there had been “substantial compliance” with the requirement to serve a completed Form 1 with the originating process.
12The matters of context would include:
a.the purpose of the legislation. In this case, SEPA is enacted for the purpose of facilitating the service and execution of process across state and territory borders in circumstances where the Commonwealth legislation will override any inconsistent state or territory law
b.the requirements of section 16, and therefore its likely purpose. The section required that a prescribed notice should be served with the Writ to properly inform defendants of their rights and the processes by which they might defend themselves. Otherwise, service of the Writ would not be effective;
c.the Form 1 notice must be read as a whole so that the significance of any lack of compliance with the form might be assessed.
13In my view, the actions of the defendant in the present case following the receipt of the documents would not ordinarily be matters which would be relevant to the determination of the question of whether the notice served with the writ constituted “substantial compliance” with the requirements of section 16.
14These factual matters may be relevant to more general issues on the application, for example, the sufficiency of the explanation for the defendant’s failure to file an appearance and matters going to the exercise of discretion to set aside a judgment regularly entered.
15I was referred to a passage in Pearce and Geddes, Statutory Interpretation in Australia, 8th edition, 2014, at para 29 suggesting that, in immigration cases the personal circumstances of applicants for refugee status may be relevant in construing the sufficiency of the details provided in required application forms. In my view, those decisions essentially involve a consideration of the purpose of the relevant legislation and the specific provisions requiring the completion of an application form.
16I was referred to a number of authorities by counsel in their submissions as to how I should determine the question of the effectiveness of service of the Writ on the defendant. I consider that the following conclusions are appropriate.
a.I should follow the decision of Byrne J in Marlan Financial Services Pty Ltd [1999] VSC 435 at paragraph 11 that, “if the service [under SEPA] does not comply with the requirements of that statute it cannot be said to be effective unless the recipient accepts it as such”;
b.I should follow the decision of the Full Court of South Australia in Elan Copra Trading Pty Ltd v JK International Pty Ltd [2005] SASC 502, in preference to the decision of Gallop J in Davies v Alliance Acceptance Co Ltd (1993) 110 FLR 153, and accept that “it is doubtful in any event that the requirements of SEPA with respect to service are capable of being waived” (para 38);
c.The reasons of Chernov J in ANZ Group Ltd v Kostovski in the Supreme Court of Victoria (unreported, case no. 5511 of 1997) (“Kostovski”) should be applied in considering what constitutes “substantial compliance” with a prescribed form.
17Section 25C of the Acts Interpretation Act requires “substantial compliance” rather than “strict compliance with the form”. In Kostovski, a writ issued in the County Court “contained two endorsements which … breached the Rules. The first was that it mistakenly bore the title ‘In the Supreme Court of Victoria at Melbourne’. The second relevant endorsement was that it directed that an appearance was to be filed in the Supreme Court, instead of with the Registrar of the County Court. (The statement of claim also bore the heading ‘In the Supreme Court of Victoria at Melbourne’)”. The Writ also bore stamps indicating that it was issued in the County Court.
18Chernov J determined that, notwithstanding “an irregularity in the issue of the Writ” that the Court could, “in appropriate circumstances, disregard the irregularity”. In that case, he held that “the irregularity did not relevantly prejudice the defendant” as “the defendant has not made out an arguable defence to the bank’s claim for possession. Therefore, “the justice of the situation” warranted the Court disregarding the irregularity.
19Chernov J was deciding very different issues in that case. However, he referred to the decision of the Full Court of the Supreme Court of Victoria in National Australia Bank Ltd v Meehan (unreported, 4 February 1994) where the “absence on the copy writ of the identifying number assigned to it by the Court“ was regarded as “no more than a technical defect which did not produce an irregular judgment”. It is apparent that Chernov J took a similar view of the “irregularities” in the description of the issuing court and the court at which an appearance was to be filed, and considered that they were not matters of significance.
20In the present case, I consider that the following matters should lead me to reach a similar conclusion:
a.the Form 1 notice contains two clear warnings at its head:
i.“Please read this notice and the attached document very carefully”;
ii.“If you have any trouble understanding them you should get legal advice as soon as possible”;
b.although the notice, in three places, referred to “the Supreme Court of Victoria”, the attached writ (Form 5A) was headed “In the County Court of Victoria at Melbourne” and noted that to “defend the proceeding” an appearance would need to be filed, and that this was to be done by “filing a Notice of Appearance” in the Registrar’s office in the County Court Registry, 250 William Street, Melbourne”;
c.according to the Affidavit of Service of David Halling sworn 16 September 2015, the documents were served on the defendant at 11.55am on Sunday 14 December 2014 and in addition to the writ and the Form 1 under SEPA, the documents served included a Form 28, “Filing Confirmation Notice” under the County Court Rules of Civil Procedure 2008 which was headed, “In the County Court of Victoria at Melbourne” and noted that the Writ “was filed in the County Court in this proceeding” and “the attached document [the Form 5A Writ] is a validly filed document of the County Court of Victoria”.
21In the circumstances, I consider that there was “substantial compliance” with the SEPA Form 1 notice. A person, in the position of the defendant, served with the documents should have noted the inconsistency between the description of the issuing court and the court where an appearance was to be filed on the Form 1 and the Writ (and the Filing Confirmation Notice).
22Regard should have been had to the warnings at the head of the Form 1 notice and appropriate enquiries should have been made from a lawyer. It is obvious that an enquiry simply as to whether the proceeding had been issued in the Supreme Court of Victoria would be insufficient.
23The evidence as to the actual investigation requested by the defendant, the enquiries made on her behalf and what she was later advised, is contradictory. The answers under cross-examination disclosed that the defendant was later told by the person who investigated the matter that there was a “problem”, presumably because two different courts were referred to in the documents.
24The defendant’s evidence was that she send the documents she had received on Sunday 14 December 2014 to her barrister, Mr de Robillard, the following day. There is no evidence of any circumstances which would have prevented the defendant being appropriately advised about the “problem” raised by the documents.
25I am satisfied that the writ was “effectively” served on the defendant and that, if she had wished to defend the proceeding, she should have filed an appearance to the Writ.
Defence on the merits
26Before the Judicial Registrar, three matters of possible defence were raised in relation to the plaintiff’s claim that the defendant had guaranteed payment for the legal services the plaintiff was to provide for the company, Samir Pty Ltd, of which the defendant was a director and shareholder.
27The three possible defences were that:
a.the plaintiff’s charges were excessive;
b.the plaintiff had performed the legal work negligently;
c.the defendant executed the guarantee in circumstances which involved the exercise of undue influence.
28In the hearing before me, only the third matter was pursued. The plaintiff in its statement of claim relied upon two “acknowledgements and guarantees (‘guarantees’) in writing and dated 3 May 2012 and 5 June 2012 between the plaintiff and the defendant”.
29Each of the guarantees is in similar form and was executed as a deed by the defendant. The documents were addressed to the plaintiff and stated that, “In consideration of you providing legal services to Samir Pty Ltd at my request in this matter, I acknowledge that I am jointly and severally liable for and guarantee the payment of the fees and disbursements incurred in this matter by or on behalf of Samir Pty Ltd”.
30The defendant has sworn and filed two affidavits in support of her application to set aside judgment:
a.In her affidavit sworn 26 April 2015, the defendant exhibited a “draft defence” but otherwise made no reference in the affidavit in response to the statement of claim. In the draft defence, apart from non-admissions and denials, the only specific pleading to the plaintiff’s claim was a statement that “she did not receive a revised estimate of the plaintiff’s fees”.
b.in her affidavit sworn 24 June 2015, the defendant stated relevantly, as follows:
“20. To the best of my recollection, I was referred to the plaintiff by an experienced person in the nursing home industry who recommended the plaintiff as experts in the field. I was required to a sign a retainer agreement within less than 24 hours of first talking to a solicitor from the plaintiff.
21. At no time was I provided with an opportunity of independent advice regarding the guarantee pursuant to which I am now being sued.
22. At the time, I was under a great deal of stress as I had just been though some six years in the Family Court with complicated family law proceedings involving a large number of properties, the nursing homes, realty as well as the various businesses associated with the nursing homes.
23. I required urgent expert assistance from the plaintiff because the licensee company, Samir Pty Ltd, had been served with documents from the Department which, if not addressed urgently, would have resulted in the licences being suspended and / or cancelled”.
31Mr de Robillard’s written submissions dated 25 June 2015, set out what he described as “relevant facts” in paragraphs 1 – 14. These are essentially a chronology of events up to 8 May 2012. Most of these facts can be derived from the exhibits to the affidavit sworn on 28 May 2015 by Victor Anthony Harcourt on behalf of the plaintiff.
32In paragraphs 15 – 19 of the submissions, the following statements are made:
“15. It is respectfully submitted, in the premises, that the demand for a guarantee as contained in the 8 May 2012 letter could reasonably be argued to be oppressive and unfair.
16. It may also, in terms, be misleading coming from a leading law firm to a person of Mrs Khan’s educational standard, not at all versed in the law.
17. It may reasonably be argued that being a director of a company does not automatically make one liable for the company’s debts, as the statement seems to infer. Such a proposition would appear to be contrary to the very purpose of incorporation as a proprietary limited company.
18. The second guarantee given on 5 June 2012 was obtained:
(a) following the same potentially misleading statement: “As director of Samir Pty Ltd you are personally responsible together with Samir Pty Ltd for payment of our fees and disbursements in this matter”. The letter was sent by email on 5 June 2012 and signed on the same day.
(b)the email was sent on the day when it had been foreshadowed the adverse AAT decision would be made and the need to commence proceedings in the Federal Court by way of appeal had been deemed essential. Please refer to VAH paragraph 14.
19. There is no evidence that Mrs Khan was given the opportunity to obtain independent legal advice in relation to the guarantees.
33Mr de Robillard also relied upon the decision of the Full Court of Supreme Court of Victoria in Haywood v Roadknight [1927] VLR 512. The Court considered a sale of land entered into by the defendant with the plaintiff in circumstances where the plaintiff’s solicitor was found to have acted to the agent of the defendant in the transaction.
34In this context, at page 521 of the judgment, the Court said, “Where the relationship of confidence exists it is incumbent on the person in whom the confidence is reposed to satisfy the Court that he put himself ‘at arm’s length’ to his client…He must furnish his employer [client] with all the knowledge he himself possessed….and he must give ‘as ample and correct advice and information to his client as he would have done if his client had been dealing with the third person’”.
35The classic statement of the equitable doctrine of undue influence from Ashburner’s Principles of Equity, 2nd edition, 1933, at page 299 is quoted in Cheshire & Fifoot, Law of Contract, 10th Australian edition, 2012, at page 761 as follows:
“In a Court of equity if A obtains any benefit from B, whether under a contract or as a gift, by exerting an influence over B which, in the opinion of the court, prevents B from exercising an independent judgment in the matter in question, B can set aside the contract or recover the gift. Moreover in certain cases the relation between A and B may be such that A has peculiar opportunities of exercising influence of B. If under such circumstances A enters into a contract with B, or receives a gift from B, a court of equity imposes upon A the burden, if he wishes to maintain the contract or gift, of proving that in fact he exerted no influence for the purpose of obtaining it”.
36At page 767 of Cheshire and Fifoot, it is further stated that, “the special relationships that automatically raise a presumption of special interest (in contrast to the subsequent presumption of undue influence, which only follows upon proof of a suspicious transaction within the scope of that special influence) include those of: solicitor and client”.
37On 3 April 2012, the plaintiff sent by post and email a letter addressed to “Ms Laila Khan, Samir Pty Ltd” which attached “our standard Terms of Engagement which together with this letter, set out the basis on which we will act for you. Please contact me if you wish to discuss the legal costs or any other aspect of this letter or Terms of Engagement”.
38Clause 6.5 of the Terms of Engagement, under the heading “Multiple clients and personal guarantees”, stated:
“If the matter relates to work to be undertaken for 2 or more persons or entities (whether jointly or severally) each of them is jointly and severally liable to pay our fees and disbursements, regardless of whether we may, at your request or for any other reason:
(a) direct our accounts or statements to only one of them or to a third party, or
(b) obtained instructions in relation to the daily conduct of the matter from only one of them or from a third party.
If we have attached a guarantee to the retainer letter then we require each of the persons named in the guarantee to execute it and return it to us.
39Further letters were sent by the plaintiff to the defendant on 1 May, 8 May and 2 June 2012. The later 2 letters were addressed to “Ms Laila Khan, Director, Samir Pty Ltd” and enclosed a document headed “Acknowledgment and Guarantee”. The two later letters attached further copies of the Terms of Engagement and the letter contained the following paragraphs under the heading “Guarantee”:
“As a director of Samir Pty Ltd, you are personally responsible together with Samir Pty ltd for payment of our fees and disbursements in this matter. Please sign the acknowledgment and guarantee below and return this to us. The enclosed copy should be retained by you for your records. As soon as we receive the signed acknowledgment and guarantee, we will be able to proceed with the work in accordance with your instructions”.
40I consider that there are no circumstances raised, either in the affidavit material of the defendant or the facts derived from the documents exhibited to affidavits filed on behalf of the plaintiff, which would give rise to circumstances which would “automatically raise a presumption of special influence by reason of any special relationship which may have existed between the plaintiff and defendant”.
41In my view, the critical matters are as follows:
a.The passage in the letters dated 8 May and 2 June 2012 that, “as the director of Samir Pty Ltd, you are personally responsible together with Samir Pty Ltd for payment of our fees and disbursements in this matter” could not be regarded as a statement of law that, “being a director of a company … automatically makes[s] one liable for the company’s debts”.
b.The passage must be read in the light of:
i.the other parts of the paragraph including the request for the defendant to “please sign the acknowledgment and guarantee below and return this to us” and that, “as soon as we receive the signed acknowledgment and guarantee, we will be able to proceed with the work in accordance with your instructions”;
ii.clause 6.5 of the Terms of Engagement which states that, “if we have attached a guarantee to the retainer letter then we require each of the persons named in the guarantee to execute it and return it to us”;
c.the documents were sent by email and post to the defendant as director of Samir Pty ltd. No time limit was placed on the defendant to respond. She was offered the opportunity to discuss “any other aspect of this letter or Terms of Engagement”. It was, however, made clear by the letters dated 8 May and 2 June 2012 and the Terms of Engagement, that execution of the guarantee and its return was a requirement of the plaintiff proceeding with the legal work. The scope of that work and the retainer, were set out in the letters.
42In my view, the defendant has not disclosed a defence which would have a “real prospect of success”, as that phrase has been defined in recent decisions of the Court of Appeal, particularly Lysaght Building Solutions Pty Ltd [2013] VSCA 158 and D’Aquino v Trovatello [2015] VSCA 78.
Freezing order
43Judge Lacava made a freezing order on 24 July 2015. The order was extended by Judge Cosgrave on 18 August 2015. The plaintiff sought to further extend the terms of the freezing order in the hearing before me. The defendant did not oppose the orders sought save in one specific request, which was resolved by the plaintiff agreeing to the defendant’s alternative proposal.
Defendant’s application to re-open
44The defendant’s solicitors, by email to the associate to Judge Cosgrave on
11 September 2015 sought “leave to re-open” and to rely on “additional submissions of Mr de Robillard of counsel”. The plaintiff’s solicitors have informed the Court by email on 11 September that the matters sought by the defendant are opposed.45I propose to refuse the defendant’s applications made in the email dated 11 September 2015. I consider that the defendant, and her lawyers, have had ample time since the defendant’s application to set aside judgment was filed on 6 May 2015, to raise any new factual or legal issues included in the affidavit of Nuriye Gencay sworn 11 September 2015 and the further submissions of Mr de Robillard
Orders
46The following orders shall be made:
1The defendant’s summons filed 6 May 2015 is dismissed.
2The freezing order made by His Honour Judge Lacava on 24 July 2015 be varied by including the following paragraph, although otherwise the order and the undertakings given by the plaintiff are confirmed:
12A. The defendant whether by herself, her servants or agents or howsoever otherwise is restrained from settling any sale of her property at 18 Talofa Place, Castle Hill in the State of New South Wales, other than pursuant to the following conditions:
a. that within two business days of the entry into a contract of sale, a copy of the contract of sale be provided to the plaintiff’s solicitors;
b. that not less than 2 days prior to settlement of the sale, the plaintiff’s solicitors be provided with a copy of the statement of adjustments and settlement statement, together with details of the time and place of settlement;
c. that, at settlement, a bank cheque in the sum of $185,000 be provided to a representative of the plaintiff in attendance at the settlement, who shall cause that bank cheque to be paid into the County Court of Victoria at Melbourne.
3The defendant must pay the plaintiff’s costs of the defendant’s summons filed 6 May 2015 including any reserved costs to be assessed by the Costs Court on a standard basis in default of agreement.
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Certificate
I certify that the preceding 12 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 14 September 2015.
Dated: 14 September 2015
Olivia Bramwell
Associate to His Honour Judge Anderson
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