S&v Nominees Pty Ltd v Rignanese - [2006] SASC 138

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
S&V NOMINEES PTY LTD v RIGNANESE & ANOR
[2006] SASC 138
Reasons of Judge Lunn a Master of the Supreme Court
12 May 2006
PROCEDURE
Application to set aside judgment in default of defence - judgment regularly obtained - affidavits of defendants showing only a possibilituy of a defence on the merits if further documents about the complicated transactions in question could be found - held defendants had not satisfied the onus on them to show they had a bona fide and plausible defence - application dismissed.

S&V NOMINEES PTY LTD v RIGNANESE & ANOR
[2006] SASC 138
Reasons on Defendants’ application to set aside the default judgment prior to its liquidation on 13 December 2002.

JUDGE LUNN: Prior to its liquidation on 13 December 2002 the plaintiff, S & V Nominees Pty Ltd (“S & V”), was a company controlled by Antonio and Kathy Rignanese. Antonio is the brother of the first defendant. The two defendants (Giovanni Rignanese and Giovanna Rignanese) (“G & G”) were the controllers of Rignanese Pty Ltd, which also went into liquidation in 2004 Since the events to be related below there has been a major falling out between the two Rignanese families.
Up until 1999 S & V owned land at Gawler Road, Virginia, being Lots 11 and 12 and comprised in Certificates of Title 5096/746 and 5180/2 (“the Gawler Road land”). It was subject to a mortgage to the Commonwealth Bank.
The claim in this action arose against the background of the following three inter-related property transactions. On 16 February 1999 S & V apparently entered into a contract with Metro Meat International Ltd (“Metro”) to purchase several allotments of land at Taylors Road, Virginia. By a Deed dated 20 March 1999 S & V assigned to Antonio Rignanese the benefit of its contract for the purchase of some, but not all, of the Metro land for $182,000. By a Deed dated 15 April 1999 S & V assigned to Rignanese Pty Ltd its interest in the purchase of the balance of the Metro land for a consideration of $978,000 plus a re-imbursement of $42,155, apparently representing part of a deposit paid by S & V to Metro.
By a transfer dated 3 May 1999 S & V transferred to G & G personally the Gawler Road land for a stated price of $285,000. The transfer acknowledged the receipt by S & V of the purchase price, but it was common ground that it was not paid. The mortgage given by S & V to the Commonwealth Bank was also discharged apparently by a payment of $52,650, but the source of that money is unknown. G & G then became the registered proprietors of the Gawler Road land.
By a transfer dated 12 July 1999 Metro transferred to Rignanese Pty Ltd most of the land which had been the subject of the contract of sale for a stated price of $978,000. Part of this purchase price was apparently derived through a mortgage for $230,000 which was given to the ANZ Bank by G & G as a first mortgage over the Gawler Road land. By a transfer dated 21 July 1999 Metro transferred the balance of the land, which was the subject of the contract of sale, to Antonio Rignanese for a stated consideration of $182,000.
The evidence before me on how these transactions were financed by the Rignanese family and their companies is highly confused and unsatisfactory. A firm of landbrokers, Town & Country Landbrokers (“Town & Country”), apparently represented all of the Rignanese interests in the transactions and prepared the necessary documents. It is likely that not all of the relevant documents have been put into evidence. Town & Country has not responded to enquiries made by the defendants in the last few months about whether it still has any other relevant documents. The accuracy of some of the documents about the financing of the transactions, which are before the Court, is questionable.
There is a vendor’s settlement statement dated 4 May 1999 on the letterhead of Town & Country addressed to S & V for the settlement on the Gawler Road land which shows a contract price of $285,000, an amount to be lent to the purchasers (ie G & G) of $70,000 and “AMOUNT DUE TO YOU AT SETTLEMENT and to be held for fees, disbursements as agreed and then to purchase the Taylor’s Road, Virginia, $161,463.58”. There is a handwritten endorsement on that settlement statement, apparently made by Kathy Rignanese, to the effect that the amounts of $70,000 and $161,463.58 are a loan to G & G. The evidentiary status of that endorsement is dubious.
There is an undated, but duly executed, memorandum of agreement between S & V and G & G for a loan by S & V to G & G repayable at the rate of $200 per month as from 5 June 1999, but with a right of S & V to call up the loan on 7 days notice. The amount of the loan as recorded in words is “Sixty thousand five hundred dollars” but the amount recorded in figures is “$60,000”. There is no reference in the agreement to the loan being vendor finance for the purchase of the Gawler Road land. The defendants assert that this document does relate to vendor finance for the Gawler Road land, but it is impossible to reconcile the principal sum of either $60,500 or $60,000 with any of the other financial evidence about that purchase. In any event, the actions of the liquidator of S & V have almost certainly called up the balance of that loan, and it is due and payable by the defendants.
There is in evidence a purchasers’ settlement statement dated 22 July 1999 addressed to Rignanese Pty Ltd for its purchase of part of the Metro land for $978,000. There is no evidence about who prepared it. It referred to a debit “for purchase cost from Tony $182,000”. This would appear to be the price payable by Antonio Rignanese for his purchase of the balance of the Metro land. It refers to a credit of “Finance from Lot 4 Taylors Road $132,604.20” which the second defendant asserts should be a reference to Lot 42 which she said was the Metro land being sold to Antonio Rignanese The settlement statement does not refer to the $230,000 which G & G obtained from their mortgage of Gawler Road land to the ANZ Bank. There is also in evidence a purchasers’ settlement statement dated 22 July 1999 prepared by Town and Country addressed to Antonio Rignanese for his purchase of the balance of the Metro land. I infer this statement is incomplete and there may well be a missing second page as the credit entries do not balance the debit entries. It refers to part of the price of $140,900 being lent by the ANZ Bank. This seems inconsistent with the first mentioned entry above on the settlement statement for the purchase by Rignanese Pty Ltd of the major part of the Metro land.
There are no other primary documents before me relating to how the purchases were financed. Counsel were neither able to reconcile the figures in the documents which were in evidence nor to explain satisfactorily the convoluted transactions.
The last balance sheet produced for S & V prior to its liquidation, which was as at 30 June 2001, showed an asset of a loan from G & G of $231,456. Subject to a minor discrepancy of about $8, which appears inconsequential, this is the sum of the two amounts of $70,000 and $161,463.58 referred to in the settlement statement of 4 May 1999. There is no evidence about how this amount came to be shown in the formal accounts of S & V as the amount of a loan owing by G & G. The liquidator of S & V has based his claim in this action upon that book entry.
In actions 970/02 and 1574/03, Antonio and Kathy Rignanese, and after their bankruptcies their son Kon Rignanese as the assignee of the alleged debt, sued Rignanese Pty Ltd and G & G for this same debt of $231,456. Those actions never came to final judgment.
S & V instituted this action on 19 May 2004 claiming $231,456 from G & G as money lent. G & G were served on 1 July 2004 and entered a notice of address for service on 26 July 2004. There was a Status Conference on 8 September 2004 at which a solicitor attended for G & G and obtained an extension of time to file a defence. The second defendant said at this time she was searching for documents to assist in the preparation of the defence. On 6 October the first defendant appeared in person before another Master and requested further time to file the defence. The second defendant was seriously ill at this time. No defence was filed. On 20 October S & V filed an application seeking judgment in default of defence. On 3 November that judgment was entered. The defendants did not attend at the hearing on that day but at the time their daughter was in hospital. Judgment was entered for $231,456 plus interest to the date of judgment of $22,719.72. On 3 February 2005 G & G were served with a bankruptcy notice based on this judgment. On 23 August 2005 S & V filed a creditors petition seeking the bankruptcy of G & G. G & G have obtained several adjournments of the hearing of this petition in order to apply to set aside the judgment in this action. On 6 February 2006 solicitors acting for G & G took out an application in this action to set aside the judgment, but it was not supported by any affidavit sworn by the defendants personally. I dismissed that application on 1 March after the then solicitor for G & G attended and sought leave to withdraw on the grounds she did not have current instructions. On 30 March another solicitor filed a further application to set aside the default judgment. It is that application which is now before me.
Since about 2004 there have been a number of communications between the liquidator of S & V and G & G when the claim has been discussed. The liquidator has alleged that G & G made various admissions about their indebtedness in those discussions, but G & G deny it. It is not appropriate to make findings about any such admissions on affidavit evidence and the application can be resolved without having to do so.
The evidence and the submissions of G & G were generally to the effect that they have been unsure whether they had any personal liability to S & V or not. If they had any such liability, they hoped that it was for a relatively small amount and not for the full amount of the claim. Their position was that on the documents available to them they were unable to decide whether it was shown they were indebted to S & V, and if so for what amount. They believed there were other documents which would clarify the issue, but they have not been able to obtain them. Counsel for G & G accurately summarised the thrust of his case in the following passage in his address in reply:
We don’t know the whole story. All the documents are not there and if they exist, if they have been taken to the court, if they are somewhere else, why haven’t they shown up on an affidavit? Why haven’t they come up? Even now as I stand before you, we do not know the whole entirety of the transaction. We’ve no idea of what finally occurred between these parties in respect of all these transactions. It’s exasperation and there’s nothing.
Counsel for G & G pursued his application on the basis that on the evidence now before the Court S & V could not make out a sufficient case to justify the judgment which it had obtained. That conclusion is probably correct, but it is not the approach which is to be adopted in law in considering whether a default judgment is to be set aside.
There was no dispute that the judgment was regular and that G & G had been in default in not filing a defence before it was obtained. In those circumstances a judgment is only to be set aside if the defendants have filed a sufficient affidavit of merits as to their defence to the claim. The requirements for such an affidavit of merits to be sufficient and adequate were set out by Walters J, with whom Mitchell J concurred, in Watson v Anderson (1976) 13 SASR 329 at 341:
….. a mere statement by a defendant that he has a good defence is not sufficient to justify a review of the exercise of a judicial discretion. He must go further and demonstrate “a very compelling reason” for his failure to appear in the action, and, further, that he has a plausible defence either in law or in fact. ..… and that issues are raised in such form as to require serious consideration of the defence which he would put forward. In the words of Jenkins LJ in Grimshaw v Dunbar” the judge is entitled to satisfy himself that the party applying has a bond fide intention of defending the action, and that there is some possibility of his doing so with success”.
The failure of a defendant positively to swear to all matters of fact and law upon which he would base his defence – and such a failure is evidence in the case at bar – would scarcely give the court an assurance that his application was being made in good faith, or that he has a defence of any real substance. In the view I take, the court must be in a position to see for itself that on the pleadings and affidavit evidence, a bona fide case fit to be tried has been made out by the defendant. In the present case, however, the memorandum signed by the defendant, seems to me to be quite inconsistent with his contention that the transaction between him and the plaintiff involved only the giving of an option to purchase. The version of fact offered by the defendant in this respect appears to me to be completely incredible.
Here G & G have not put forward a plausible defence on the facts and have not shown that they have a defence of any real substance. All they have done is to suggest that if more investigations are pursued, and further documents and evidence come to light, they might then have some basis of defence to the whole or part of the claim. However, because a regular judgment has already been obtained the onus is on G & G to show that they have some plausible and bona fide defence to the claim. They have not been able to go this far. A mere possibility that they might be able to raise a defence if they are given more time to pursue investigations is not sufficient. If the substantial uncertainties about what occurred are subsequently unravelled, there is at least an equal possibility that they will be against the interests of G & G as they would be in their favour. What they have to overcome is that in the transfer of the Gawler Road land they incurred a liability of at least $231,456 to S & V and they have not been able to show in any plausible way that they have effectively discharged that liability. On this ground alone this application to set aside the default judgment must fail.
The following matters reinforce my conclusion about the unsatisfactory and inconclusive nature of the case G & G have put forward on the evidence:
·    G & G assert in their affidavits that the real purchase price of the Gawler Road land was only $230,000. They say the price was “jacked up” to $285,000 to facilitate obtaining a loan of $230,000 on the security of that land from the ANZ Bank. However, while that may be the reason for the price being inflated they do not depose to any specific agreement that they did not have to pay the extra $55,000. If there was any agreement that only $230,000 would be paid, but it would be falsely documented that $285,000 was paid so as to deceive the ANZ Bank as to the value of the land, there may well be an illegality which would bar effect being given to any collateral agreement that G & G did not have to pay the extra $55,000.
·    The existence of the undated agreement of loan strongly suggests that at least one or more of the documents put forward is inaccurate and cannot be relied upon. However, it is impossible to deduce which of the figures in the various documents are correct and incorrect.
·    There is a strong inference that in negotiating and carrying out the arrangements the parties did not have proper regard to the respective entitlements and liabilities of the distinct legal entities which were involved. There is a real possibility that there was not a proper differentiation between S & V and Antonio Rignanese on the one hand and Rignanese Pty Ltd and G & G on the other hand. Insofar as any liabilities of G & G were to be discharged by Rignanese Pty Ltd, or insofar as any asset and S & V was to be applied to the benefit of Antonio Rignanese, there needed to be proper documentation to give effect to it, but in the evidence there is none.
There was a subsidiary and distinct issue about an alleged entitlement of G & G to a set-off for rent payments received by S & V which were payable to G & G. Harris Transport (“Harris”) occupied the Gawler Road land and had to pay rent for it. However, it was not until 17 September 2001 that arrangements were made for Harris to pay its rent directly to G & G. G & G in their affidavits assert that they were entitled to the rent from Harris from 5 May 1999 until 17 September 2001. That is a reasonable assertion. A document was exhibited to the affidavit of the second defendant filed on 30 March 2006 (“GR 11”) which she stated was calculations which she had made of the rent payable by Harris in 1999 and 2000. She deposed in her affidavit that such rent had been paid to S & V, but at least for the year 2000 that is inconsistent with the calculations in the exhibit. The second defendant does not say when she made the calculations but I infer it was at about the end of 2000. The document suggests that Harris was in arrears with its rent to the extent of $26,806 at the end of 2000. The references to payments of $1332 dollars made on 6 September and 5 October 1999 are inconsistent with the document being a calculation of what might have been owed by S & V to G & G for rent paid by Harris to S & V. The document appears to contradict the affidavit. It is also significant that no claim was made by G & G to any such set-off until the filing of their affidavits on 30 March 2006. It was not mentioned in any of the many discussions between the liquidator and G & G. I am not satisfied that this claim for a set-off of approximately $45,000 is sufficiently bona fide or plausible that the amount of the default judgment should be reduced by it, or any part of it.
In view of the conclusions which I have already reached it is not necessary to go into the reasons for the delays by G & G in defending the action.
I have today made the following orders on FDN 13:
1      Application to set aside the default judgment of 3 November 2004 is refused.
2      The defendants are to pay to the plaintiff its costs as agreed or taxed of the application.
3      Fit for counsel.
4      Time for any appeal extended to 14 days from today