Sahara (WA) Pty Ltd v Superb Curries Pty Ltd
[2016] WADC 103
•11 JULY 2016
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: SAHARA (WA) PTY LTD -v- SUPERB CURRIES PTY LTD [2016] WADC 103
CORAM: PRINCIPAL REGISTRAR MELVILLE
HEARD: 3 FEBRUARY 2016
DELIVERED : 11 JULY 2016
FILE NO/S: CIV 1465 of 2015
BETWEEN: SAHARA (WA) PTY LTD
Plaintiff
AND
SUPERB CURRIES PTY LTD
First DefendantVIVEK KALER
Second DefendantINDIAN FOODS SAFARI PTY LTD
Third Defendant
Catchwords:
Application to set aside default judgment - Admissibility of evidence filed in other courts - Counterclaim and equitable set off
Legislation:
Rules of the Supreme Court 1971 O 13 r 10, O 37 r 6
Result:
Default judgment be varied with leave to the defendants to defend the balance of the action
Representation:
Counsel:
Plaintiff: Mr D Singh
First Defendant : Mr B Nugawela
Second Defendant : Mr B Nugawela
Third Defendant : Mr B Nugawela
Solicitors:
Plaintiff: Friedman Lurie Singh & D'Angelo
First Defendant : Gendeh Legal
Second Defendant : Gendeh Legal
Third Defendant : Gendeh Legal
Case(s) referred to in judgment(s):
ACN 076 676 438 Pty Ltd (in liq) v A-Comms Teledata Pty Ltd [2000] WASC 214
Bank of Credit and Commerce International (Overseas) Ltd (in liq) v Habib Bank Ltd [1998] 4 All ER 753
Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2001] WASC 191
Goh v First Industries Corp [2002] WASCA 341
Hall v Hall [2007] WASC 198
Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989)
Starrs v Retravision (WA) Ltd [2012] WASCA 67
The University of Western Australia v TSW Analytical Pty Ltd [No 2] [2014] WADC 145
Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71
PRINCIPAL REGISTRAR MELVILLE: By way of introduction to these reasons for decision I will make the following observation. This is yet another commercial transaction in which the major human protagonists would seem to struggle with the concept that the companies of which they are directors and shareholders are separate legal entities and in which they seem to conflate the idea that their interests as individuals are one and the same as the interests of the company. One of the results of this attitude is the imprecise use of language they seem to employ in describing the transactions and in what capacity those involved in them were acting. This can create uncertainty as to whether the transactions spoken of were between them in their personal capacity, or whether they were between them in their capacities of director and or agents of their respective companies. In particular, in the course of his affidavit Mr Vivek Kaler referred to a number of loans made by him to Sanjeev Kumar. Unless those loans were made to Mr Kumar as agent for Sahara (WA) Pty Ltd, (that is, in fact made to Sahara (WA) Pty Ltd) the payments are irrelevant to the issues before the court, namely the extent to which any one of the three defendants is indebted to Sahara (WA) Pty Ltd.
On 29 April 2015 the plaintiff filed a writ seeking the amount of $83,500 from the first defendant said to be owing pursuant to an agreement reached between the plaintiff and the first defendant for the sale and purchase of a restaurant at 1B/1 Wise Street, Joondalup dated 22 October 2014 (the contract), and from the second defendant as a result of his alleged failure to pay that amount as guarantor of the first defendant's obligations.
The plaintiff also claimed against the third defendant the sum of $73,000 as the drawer of four cheques dishonoured upon presentation, which cheques were post-dated 17 December 2014, 5 January 2015, 19 January 2015 and 23 February 2015. The total amount of the cheques neatly coincides with the balance remaining to be paid on the purchase price of $105,000 stated in the contract after allowing for payment of the deposit of $32,000. It is also in accordance with the special conditions of the contract which required the issue of four cheques of different dates.
No appearance being entered by any of the defendants the plaintiff obtained a default judgment against the first and second defendants in the sum of $83,500 and against the third defendant in the sum of $73,000.
By chamber summons dated 20 November 2015 the defendants seek to set aside the default judgment. The application is brought pursuant to the Rules of the Supreme Court 1971 O13 r 10, which provides as follows:
The Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order.
The authorities indicate that where a judgment has been entered irregularly, that is, other than in accordance with the rules, then generally the judgment will be set aside and the defendant be given leave to defend without more.
However, where judgment has been regularly entered, the defendant, in order to have judgment set aside or varied should provide an explanation for why and how it came to be that judgment was entered in default and for any delay in bringing the application to set aside, together with an explanation that shows there is a defence to the claim or that there is a serious question to be tried.
Staude DCJ in The University of Western Australia v TSW Analytical Pty Ltd [No 2] [2014] WADC 145 [4] said:
The principles to be applied were conveniently summarised by Master Sanderson recently in Vautier Holdings Pty Ltd v Kagioulis Trading Pty Ltd [2014] WASC 209 [10]:
(1)The decision whether or not to set aside the judgment must have as its paramount consideration the interests of justice. It is an essential principle of civil litigation that a party should be entitled to put their case to the court.
(2)Simply because a judgment is regular does not provide grounds for refusing to set it aside. What is important is the merits of the defence raised by the party against whom judgment is entered.
(3)Some explanation for the failure to enter an appearance ought be provided. The stronger that explanation the more likely judgment will be set aside. But a failure to adequately explain the delay will not in and of itself lead to the application being refused. All relevant circumstances must be considered.
(4)The test to be applied in determining whether the judgment should be set aside is similar to the test applied on summary judgment. The defendant must establish there is a serious question to be tried.
(5)A defendant who seeks to have a judgment set aside should 'condescend upon particulars' of the defence. In other words, on an application to set aside a default judgment a defendant ought provide the same level of detail as would be provided if the defendant was responding to an application for summary judgment by the plaintiff.
In Hall v Hall [2007] WASC 198 [66] and [67] Newnes J said:
Again, with respect, it seems to me there is obvious force in the observation of Ward LJ that courts should be very wary about attempting to come to a provisional view as to the probable outcome of a defence involving issues of fact, based on the affidavit evidence available on an application of this nature, unless there is some inherent improbability in what is being asserted or some extraneous evidence which would contradict it. The evidence before the Court on such an application is necessarily limited and generally untested by cross-examination, and it is not appropriate to seek to resolve disputed questions of fact on the affidavit evidence: Lau v Citic Australia Commodity Trading Pty Ltd (supra).
I do not, however, understand the decisions of the Full Court in Rollond v Bank of Western Australia Ltd and Parker v Transfield Pty Ltd to require such a course to be undertaken. That is, I do not understand the statements in those cases to the defendant having a "credible defence" which would have "a real prospect of success" to be referring to a provisional view as to probable findings of fact at trial. Rather, I understand the Court to mean that it must appear from the affidavit material before the Court that the defendant's case is not inherently incredible and that if the defendant's evidence were accepted at trial the defendant would have a real prospect of success.
The evidence
The application to set aside judgment was supported by an affidavit of Mr Vivek Kaler, the second defendant (Mr Kaler) who was a director for both the first and third named defendants. He said he is authorised by those defendants to affirm the affidavit on their behalf. A further affidavit of Ranjeet Kaur Dalip Singh, the solicitor acting for the defendants sworn 2 February 2016 was filed in support of the application.
In response, Mr Sanjeev Kumar (Mr Kumar) swore an affidavit dated 22 December 2015 in his capacity as director of the plaintiff. His evidence was supplemented by a further affidavit of Mr Dara Singh, the solicitor acting for the plaintiff, sworn 1 February 2016 to which Mr Singh annexed copies of affidavits of Mr Kaler the first of which was sworn 23 November 2015 and filed in the Federal Court in support of an application to set aside bankruptcy notices issued against him by the plaintiff, and the second of which was sworn 25 November 2015 in support of an application to set aside a statutory demand issued by the plaintiff against the first and third defendants.
At the conclusion of the hearing of this application I invited the parties to file and serve further submissions on two questions being:
(1)as to the admissibility of the copies of the affidavits filed in the Federal Court in relation to the bankruptcy proceedings and the statutory demands;
(2)as to whether the existence of a counterclaim or equitable set‑off is relevant to an application to set aside default judgment pursuant to O 13 r 10; and
(3)as to the admissibility of the annexures to the affidavit of Mr Ranjeet Singh sworn 2 February 2016.
The solicitors for the plaintiff annexed to their subsequent submissions a letter they wrote to the three defendants dated 24 March 2015. The letter was constituted by little more than their statement as to their client's instructions and demanded payment of $83,500 from the first two defendants and the sum of $73,000 from the third defendant based on the allegations of dishonoured cheques. The plaintiff's solicitors advised that they sought leave to adduce this letter by a further affidavit. I have not addressed this issue as in my view the letter adds nothing to the evidence that is already before me and, in any event, for the reasons that follow would make no difference to the outcome.
Was the judgment irregular?
A judgement that has been entered for an excessive amount is irregular and in times past might have been set aside without more. However, in more recent times the courts are more inclined to amend the judgement depending on the significance and circumstances of the irregularity: see ACN 076 676 438Pty Ltd (in liq) v A-Comms Teledata Pty Ltd[2000] WASC 214 [17] ‑ [19], a case subsequently endorsed by the Court of Appeal in Starrs v Retravision (WA) Ltd[2012] WASCA 67. In Bank of Credit and Commerce International (Overseas) Ltd (in liq) v Habib Bank Ltd [1998] 4 All ER 753 it was observed that by the time the application to set aside the default judgment comes to be heard the court will have much more information, verified by affidavit, available to it. If in light of that information it appears that although there were irregularities in the judgment it was substantively right, then there is no point in putting the parties to the expense and delay associated with reaching a regular judgment where the irregular judgment could be corrected.
The court went on to say:
Further, it is the same in principle if the court is satisfied from the affidavits and exhibits that, although the amount in the default judgment was wrong, it (the court) knows what the correct amount was. The court will not set the incorrect judgment aside and make the plaintiff start again. It will vary the judgment to the correct amount.
Even assuming the plaintiff was entitled to judgement for $83,500 against the first and second defendants (which for reasons that follow it was not) judgement should have been along the lines of 'The first and second defendants do pay the plaintiff the sum of $83,500 of which the third defendant is jointly and severally liable to pay $73,000'. In my view, with judgement being entered for too much and with amounts being separately entered against the first and second defendants on the one hand and the third defendant on the other, the judgement can properly be characterised as irregularly entered.
However, for the reasons that follow the judgement should not be completely set aside but rather should be varied to reflect the correct position.
The admissibility of the annexures to the affidavit of Mr Dara Singh
In my view copies of the affidavits filed in the proceedings in another jurisdiction are admissible. This issue was canvassed by Wheeler J in Deputy Commissioner of Taxation for the Commonwealth of Australia v Robinswood Pty Ltd [2001] WASC 191. At [20] she observed that the better view is evidence will be inadmissible where it is given in a suit which was between strangers, but will be admissible where it can be said the parties are 'virtually and substantially the same'.
In my view the parties here are virtually and substantially the same as the parties in the bankruptcy proceedings. Whilst I find that material admissible, I find it of little assistance in resolving this dispute. The plaintiff appeared to place some reliance on par 9 of the affidavit filed by Mr Kaler in the Federal Court sworn 23 November 2015 which says:
I am also advised by my lawyers and verily believe it is likely that in order to set aside default judgment in the DCWA, a possessing a right to counterclaim may not be sufficient grounds. I refer to paragraph 68 of 'VK-2'.
I find this evidence is an opinion on the very issue that this court is required to decide. What a lay person believes from what his lawyers have told him about the legal effect of the existence of a counterclaim in the context of an application to set aside a default judgment is irrelevant to the decision of this court and in the event it was relevant, is of little weight.
The admissibility of the annexures to the affidavit of Mr Ranjeet Singh
Annexure A to the affidavit of Mr Ranjeet Singh sworn 2 February 2016, is constituted by a file note he took of a conversation with Sudesh Kumar in which Sudesh Kumar is said to have stated that the Mr Kaler deposited $5,000 into his (Sudesh Kumar's) account with instructions to withdraw it and to give the funds to Sanjeev, (whenever reference is made to Sanjeev I infer is Mr Sanjeev Kumar, the director of the plaintiff).
Annexure B is a statement taken from 'Kiran' at Mr Singh's residence on 24 January 2016, stating that in July 2014 both her and her husband (Rajdeep Singh) paid the sum of $17,000 to Sanjeev and upon requesting its return sometime in September/October of 2014 was told by Sanjeev that he had sold the restaurant to Vivek and that he would return the money when he received it from Vivek. Kiran goes on to say in the witness statement that the $17,000 was subsequently paid to them by Vivek, in three tranches of $10,000, $2,000 and $5,000 and that she was told by Sanjeev the payments were made by Vivek due to the sale of the restaurant. I infer that Vivek is Mr Kaler.
In so far as these statements as to what Sanjeev said are placed before the court in an attempt to prove the facts they address, they are clearly hearsay. However, on applications such as these it is open for a party to file an affidavit containing hearsay evidence if the deponent believes that evidence to be correct and identifies the source of the evidence and the grounds upon which the belief is based: see Rules of the Supreme Court 1971 O 37 r 6.
It is desirable to express any belief in the truth of the facts and the grounds thereof along the lines of 'I have been informed by X and verily believe that Y is the fact. The grounds for my belief are as follows …': see Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989). However, this is desirable and not mandatory and the document must be read as a whole in order to see whether the requirements of O 37 r 6 have been satisfied.
The affidavit of Ranjeet Singh could have been much better written. However, in par 1 in the first sentence he swears that the facts are within his own knowledge. In the second sentence he deposes 'where matters deposed to are not within my knowledge, the source of information and grounds of belief are identified and I believe those matters to be true'. In this case the reference to matters which are not within his knowledge must be a reference to the matters disclosed in the annexures. Those words cannot apply to the only other matters the affidavit addresses, namely pars 2, 3 and 4 because the fact recited in those paragraphs are clearly within his knowledge.
Equally clearly the facts found within annexures A and B to the affidavit are not within his knowledge. Notwithstanding my unease with the manner in which the affidavit purports to comply with O 37 r 7, I am satisfied that having regard to par 1, and having regard to the affidavit as a whole and construed in the manner I have describe above, Mr Ranjeet Singh is saying he believes the contents of annexures A and B to be true. However, I am inclined to the view that he has not stated why he believes the statements to be true.
In the end I do not need to finally decide this issue because to the extent the affidavit evidence of Ranjeet Singh is inadmissible little turns on it as all it does is corroborate the evidence given by Mr Kaler at pars 13 and 42 of his affidavit.
At par 13 of his affidavit Mr Kaler says that he gave Sudesh Kumar $5,000 who then gave it to Sanjeev. He annexes a copy of a bank statement which shows a transfer of that amount to Sanjeev on 6 August 2014.
Mr Kaler says further at par 42:
Since the plaintiff owed Kiran and Rajdeep the sum of $17,000, Sanjeep had on behalf of the plaintiff requested that I pay Kiran and Rajdeep the said sum and to deduct that sum paid from the balance of the purchase price. I agreed and therefore paid Kiran and Rajdeep as stated below:
i.a sum of $10,000 on 30/10/2014;
ii.a sum of $2,000 on 10/11/2014; and
iii.a sum of $5,000 on 12/11/2014.
Copies of my bank statements to support my withdrawal from bank account are attached and marked as 'F'.
In my view the copy of the bank statement attached and marked 'F' does not corroborate payment of these sums at all. The bank statement marked 'F' runs from 28 October 2014. There is an entry showing a withdrawal of $10,000 on 30 October but no records of any withdrawals between 31 October 2014 and 11 November 2014 although there is a withdrawal of $13,000 on 12 November 2014 that appears to have indorsed against that date the name Kiran. Irrespective of the problems with the bank statement standing as corroboration of the statements of fact found within par 42, those statements of fact, if accepted, show a payment to Kiran and Rajdeep in the sum of $17,000 at the direction of Sanjeev Kumar on behalf of the plaintiff by way of reduction of monies owing pursuant to the contract.
Whilst the defendants' solicitors took objection to pars 40 and 41 there is sufficient in par 42 to raise a real issue as to the payment of the $17,000 by way of defence to the claim brought by the plaintiff.
Delay
The explanation for the delay in bringing the proceedings is found within pars 55 – 59 of the affidavit of Vivek Kaler. The explanation is to the effect that he had been negotiating in relation to the amount and time for payment. At par 61 he gave evidence that he received notice of the judgment but he continued to attempt to negotiate an amicable settlement both with Sanjeev Kumar and his wife and that in October 2015 he reached agreement with Sanjeev Kumar that the sum of $45,000 would be paid in three instalments which, later that month was re‑negotiated to an amount of $50,000 by way of two subsequent instalments the first of which was to be paid within a week following which he received the bankruptcy notice on 31 October 2015 and following which the plaintiff issued a creditor's statutory demand for payment against the first and third defendants on 4 November 2015.
Is there any defence or serious question to be tried?
The contract between the plaintiff and the first defendant for the purchase of the restaurant at 1B/1 Wise Street, Joondalup is dated 22 October 2014. It describes the settlement date as 22 October 2014 and the possession date as 22 October 2014. That part of the agreement dealing with the gross purchase price and the apportionment thereof is not completed other than to the extent 'nil' is ascribed to the value of 'goodwill' and $105,000 is ascribed to 'plant and equipment: fixed'.
The manner of payment was by way of a deposit of $32,000 said to have been paid herewith with $73,000 to be paid on acceptance. The balance of the purchase price was to be paid before 10 January 2015.
Having regard to the way that the claim has been indorsed and the way the application has been argued, it appears common ground that the purchase of the restaurant was as a going concern with $32,000 having been paid leaving on the face of it $73,000 remaining to be paid as at 22 October 2014.
That being the case, it is impossible to see how the plaintiff can claim that it is owed $85,000 pursuant to the terms of the contract. In this regard the plaintiff argues that there was an additional amount to be paid of $10,500, being the 'security deposit held by the lessor of the restaurant premises'. It is said that the security deposit was assigned to the first defendant pursuant to the deed of assignment which was annexed to his affidavit and marked 'SK1'. It says the purchase price did not include the security deposit.
A perusal of cl 2.2 of the deed reveals that the assignor of the lease (the plaintiff) assigned to the first defendant all of the estate and interest of the assignor in the premises and the whole of the rights of the assignor under the lease together with all the right, title and interest in and to the security deposit.
Nowhere in the assignment can I see any covenant by the first defendant to make any payment to the plaintiff for the assignment, or any acknowledgement that the plaintiff was entitled to be reimbursed by the first defendant for the assignment of the security deposit.
Nowhere in the contract can I see any agreement by the first defendant to pay for the assignment of the security deposit.
In short, I can see no evidence of the liability in the first defendant or its guarantor to pay the plaintiff the claimed security deposit of $10,500 or for any amount (the security deposit in the assignment was said to be $10,150).
Further, Mr Kaler says at par 34 the purchase price was to include the security deposit. This is at least consistent with the subsequent assignment of the lease that provided for the security deposit to be paid to the first defendant.
Repayment to Kiran and Rajdeep
In my view the three defendants have a defence to the judgement if the evidence showing $17,000 was paid to Kiran and Rajdeep on behalf of the plaintiff at the direction of Mr Kumar should be accepted at trial. This would see a reduction of the debt leaving $56,000 owing, considerably less than the amount for which judgement was entered.
Repayment of Mullah
The defendants then seek to reduce the debt owing to the plaintiff further by an alleged payment of $10,000 to Mr Kumar. In par 50 of Mr Kaler's affidavit it was said that Mr Kumar in turn had to reduce a debt to a person known by the name 'Mullah' in respect of money borrowed by Mr Kumar from Mullah and used in the plaintiff's business. The payment of the $10,000 by Mr Kaler was made at Mr Kumar's request and the value of that payment was to be deducted from the purchase price. This evidence is disputed by Mr Kumar. Whilst the fact this evidence is disputed is not determinative of the question as to whether the defendants may have defence to the action, the significance of the dispute as to the facts is that, being mindful that the contents of an affidavit in support of an application to set aside default judgement may be rejected where they are inherently implausible, the probative value of the evidence given by Mr Kaler therefore requires closer scrutiny.
It is difficult to see why Mr Kaler would make such a payment in these circumstances if not to reduce the first defendant’s liability to the plaintiff and in turn Mr Kaler's liability under the guarantee. Otherwise there was nothing in it for him personally. One has to ask why such a loan would be made when considerable monies were still to be paid for the purchase of the restaurant, there had been a delay in starting the business and the takings of the business were so low.
The transaction makes more sense if Mr Kaler in his capacity of director or as agent of the first defendant gave the $10,000 to Mr Kumar in his capacity as director or agent of the plaintiff.
There may be an issue as to whether Mullah lent the $10,000 to Mr Kumar in his personal capacity who on lent it to the plaintiff. However if Mr Kumar represented the money received from Mr Kaler was to be deducted from the balance of the purchase price, this implies that the money borrowed from Mullah was borrowed by Mr Kumar on behalf of the plaintiff or, alternatively, that the representation to Mr Kaler was made by Mr Kumar in his capacity of director on behalf of the plaintiff and would give rise to an estoppel against the plaintiff.
Whilst this reasoning may be a little speculative, it demonstrates Mr Kaler's evidence on this point is not inherently implausible. Whilst more detail surrounding this transaction could have been provided, such as where the $10,000 he provided came from and why there is no paper trail showing withdrawal, receipt by Mr Kumar and deposit, the story is of such simplicity there cannot be much more detail to produce.
Again with some misgivings as to the lack of particularity that one might expect, I am satisfied there is sufficient evidence provided to raise an issue as to whether a further $10,000 was paid on behalf of the first defendant in reduction of the purchase price or whether the plaintiff is estopped from denying $10,000 was paid in reduction of the purchase price. It does not help that in par 50 of his affidavit Mr Kaler then says 'I therefor loaned Sanjeev $10,000 in cash on 3 February 2015'. This may prove fatal to the defendants. But whether it is fatal should be determined at trial.
Rent
The rent was paid by the first defendant for October 2014. This is not disputed. The agreement to purchase the business was effective as of 22 October 2014 at which time the liability to pay the purchase price of $105,000 in accordance with the contract arose. Thereafter the first defendant was liable to pay rent as owner of the business and quite independently of the purchase price. In other words the purchase price did not cover the rent post 22 October 2014 and did not cover the rent pre‑22 October 2014.
However, Mr Kaler says the payment was made for this period as a result of an agreement between he and Mr Kumar that it would be settled later. Given the commercial nature of the arrangement being entered into, the fact there was a lease existing in the name of the plaintiff that was to be transferred to the first defendant and the fact that Mr Kaler had no personal interest in the lease other than as shareholder and director of the first defendant is seems likely the payment of the lease was made on that basis. For it to be otherwise makes little commercial sense.
Whilst Mr Kumar says in his affidavit the first defendant took over possession of the premises on 1 October 2014 that does not accord with the signed contract to purchase which he annexes to his affidavit and which provides that the date of possession was 22 October 2014 and which was signed on 22 October 2014.
From annexure C to the affidavit of Mr Kaler, the rent was $4,010.42 per month. Adding the GST it totals $4,411.16. The value of the rent for the period 1 October 2014 to 22 October 2014 is therefore $3,130.50.
The missing stock
Having regard to the conditions of sale at cl 6.5, it was agreed that the first defendant would buy the marketable stock of the business at the value thereof at settlement, estimated to be in the sum set out in the agreement. There is no sum set out in the agreement and there is according to the evidence filed on behalf of the first defendant, no stock. I take the view that the sum of $105,000 agreed by way of purchase price either did not include any amount allowable for stock or, if for some reason it could be construed that it did, it was the stock that remained, if any, at the time of settlement. In these circumstances the first defendant has no claim to a set‑off of $5,000 for the value of stock it alleges it was entitled to receive but did not receive.
Counterclaim and equitable set‑off
Generally speaking an unliquidated counterclaim cannot constitute a legal set‑off and a defence to a claim: see Goh v First Industries Corp [2002] WASCA 341 [16]; Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71 84 ‑ 85. However, where the counterclaim by a defendant has been contributed to by, or is otherwise so bound up with the rights which are relied upon by the plaintiff that it would be unconscionable the plaintiff should be allowed to proceed against the defendant without allowing a set off, then the counterclaim may be pleaded as an equitable set off and stand as a defence to the claim: see again Westwind Air Charter Pty Ltd v Hawker de Havilland (84 ‑ 85).
The first defendant says through the affidavit of Mr Kaler that there was a misrepresentation as to the takings of the business which representations induced it to purchase the business. It is alleged that the restaurant was doing well and that the weekly sales ranged between $5,300 and $6,000 per week. It seems likely that representations were made as to the weekly takings of the business, as it is hard to conceive of a person willing to spend $105,000 on the purchase of a business without enquiring what the income of that business was. However, I consider it questionable that the first defendant relied on such a representation given Mr Kaler's requests for business sales records made on 31 September 2014 and 'again on the 2 October 2014'. This suggests he was not content to rely on oral representations in this regard. However if there is a loss as a result of the alleged misrepresentation, the loss results in a claim for damages in an unliquidated amount, that is, the damages need to be assessed.
Further, there is no loss that the second defendant or third defendant suffered as a result of the alleged misrepresentations. The second defendant as guarantor of monies owing by the first defendant to the plaintiff is liable to pay pursuant to the guarantee. Any claim for damages the first defendant may have against the plaintiff is not a remedy of which the second and third defendants may avail themselves.
Having regard to the evidence before me and the requirement that the affidavit in support of the application to set aside default judgment should condescend to particularity, I find the evidence in support of an allegation that the first defendant has suffered loss as a result of alleged misrepresentations by the plaintiff unsatisfying. In so saying I am mindful I am not required to make any findings of this fact and consider only whether, if that evidence is not inherently implausible and was accepted, that there is an issue of sufficient importance to warrant a trial and that the counterclaim was such as to impeach the very basis upon which this action has been brought against the first defendant and the others by the plaintiff.
If the only evidence was that there had been a representation that the takings of the business were $5,300 ‑ $6,000 per week but that immediately upon taking possession of the business as a going concern the weekly takings were in the region of $300 ‑ $600 per week, there would be an inference that the representations were incorrect. In those circumstances I would have been inclined to take the view that the misrepresentations were such as to induce the first defendant to enter into the contract by which the liability to make payment arose, and gives rise to a counterclaim that is so intertwined with the subject matter that it can be regarded as bound up with the rights the plaintiff is asserting and is sufficient to impeach it so as to allow the equitable set‑off to stand as a defence and sufficient reason to set aside the default judgment.
However in this case there is more evidence. The evidence is that the first defendant took possession or actually entered the premises on or about 15 November 2014 even though according to the deed of assignment the lease was assigned to the first defendant effective as of 1 October 2014 and the first defendant started paying rent from that date. Having taken possession of the premises and being entitled to start business from 22 October 2014 at the latest, the first defendant did not actually start trading until 10 December 2014. In that time there was a change in the business name of the premises. Annexure G to the affidavit of Mr Kaler shows that the plaintiff cancelled the registration of the food business known as 'Sanjha Chulha' by way of a form headed cancellation of registration of a food business which was signed on 9 December 2014.
Annexure H is a certificate of registration of a food business was issued for a food business trading as 'Virsa the Heritage Indian Cuisine' the proprietor of which is said to be the second defendant.
Given the time that elapsed between the first defendant taking possession of the business, if there was a discrepancy between what was represented as the weekly takings and the actual taking, that discrepancy may have been the result of these factors. This being so the first defendant has not satisfied me if there is a counterclaim for unliquidated damages as a result of the alleged misrepresentation as to the weekly takings, that it is such which impeaches the plaintiff's claim against the defendants for a debt due and payable. The first defendants remedy is to issue its own proceedings for damages.
Conclusion
Judgement was incorrectly entered for the plaintiff against the defendants.
For the purposes of this application I find the plaintiff was not entitled to the $10,500 it claimed from the first and second defendants that resulted in a default judgement of $85,000 and the third defendants liability under the judgment should have been jointly with the first and second defendants.
Of the contract price of $105,000, when deduction is made for the deposit of $32,000, payments to Kiran and Rajdeep of $17,000, payment to the plaintiff of $10,000 (the Mullah transaction) and the rent of $3,113.50, the plaintiff was entitled to $42,886.50.
Accordingly, default judgement should be varied with judgement being entered for the plaintiff against the first, second and third defendants in the amount of $42,886.50 and with the first, second and third defendants having leave to otherwise defend the action.
I will hear counsel as to the form of the orders and costs.
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