SGP Distribution (NSW) Pty Ltd ABN 73 607 353 926 v TML Trading Pty Ltd ABN 55 605 292 331

[2022] NSWDC 18

District Court

New South Wales

Medium Neutral Citation:

SGP Distribution (NSW) PTY LTD ABN 73 607 353 926 v TML TRADING PTY LTD ABN 55 605 292 331 [2022] NSWDC 18

Hearing dates:

14 February 2022

Date of orders:

15 February 2022

Decision date:

15 February 2022

Jurisdiction:

Civil

Before:

Abadee DCJ

Decision:

See paragraph 44

Catchwords:

PRACTICE AND PROCEDURE - application to set aside summary judgment entered by consent - doubt about correct entity to sue - whether judgment should be set aside for being procured in an absence of good faith - whether judgment should be set aside on independent ground of irregularity - discretionary considerations

Legislation Cited:

Civil Procedure Act 2005 (NSW) rr 6.2, 6.25, 13.1, 13.4, 14.14, 14.23, 36.15, 42.1

Uniform Civil Procedure Rules 2005 ss 17,19, 56-60, 63

Cases Cited:

Aon Risk Services Australia v Australian National University (2009) 239 CLR 175

Coles & Ors v Burke & Anor (1987) 10 NSWLR 429

Kendell v Carnegie (2006) 68 NSWLR 193

Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 3) [2010] NSWCA 3

Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110

Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

SGP Distribution Pty Ltd (Plaintiff)
TML Trading Pty Ltd (First Defendant)
John Boumelhem (Second Defendant)

Representation:

Counsel:
Mr R Quickenden for the Plaintiff
Mr A Kaufmann for the Defendants

Solicitors:
CBD Law for the Plaintiff
Mitry Lawyers for the Defendants

File Number(s):

2021/89702

Publication restriction:

Nil

Judgment

1. On 1 September 2021, the Court ordered summary judgment in favour of the plaintiff (the respondent) against the defendants (the applicants). After a contest on costs, on 6 September 2021, the Court ordered that the applicants pay the respondent’s costs of the proceeding.

2. By a notice of motion dated 16 November 2021, as amended (14 February 2022) the applicants seek orders to set aside the summary judgment, under r 36.15 of the Uniform Civil Procedure Rules 2005 (‘UCPR’) and/or s 63 of the Civil Procedure Act 2005 (NSW) (‘CP Act’). If that application succeeds, the applicants move the Court for an order for summary disposal of the proceeding under r 13.4 of the UCPR.

3. By the proceeding, the respondent had sued the applicants in respect for the contract for the supply of goods on credit. The first applicant was a company and the second applicant was its director. The respondent had alleged that the company had applied to it for the supply of goods on credit on 16 July 2020. It alleged that goods were supplied between December 2020 and February 2021 to the value of $235,675.98 and, in breach of the credit contract, the goods had not been paid for. The respondent sued the applicants in debt, and under the guarantee, respectively. The defence, commonly filed, was very limited in terms of the admissions made. The applicants fundamentally put the respondent to proof; only admitting that an application for credit was made, and (in the case of the second applicant) signing a deed of guarantee and indemnity.

4. Counsel for the applicants has indicated that the applications raise a short point. The applicants accept that goods were supplied.

RELEVANT STATUTORY PROVISION & COURT RULES RELEVANT TO THE ARGUMENTS

The statutory powers

5. Section 17 of the CP Act deals with the subject of approved Forms. Section 17(3) provides that if a form is approved in relation to a document to be used in connection with a proceeding, a document that is filed with (or issued by) the court “is to be in that form”. It is common ground that the relevant initiating process in this case was a Form 3A. That stipulated that the statement of claim was required to be verified by affidavit.

6. Section 19(1) of the CP Act provides that a proceeding is to be commenced and carried on in the manner prescribed by rules of court.

7. Section 63 of the CP Act is applicable to “a failure to comply with any requirement of this Act or of rules of court” (s 63(1)), with such failure to be treated as an “irregularity” (s 63(2)). Where such irregularity is established, the Court is empowered, relevantly, to set aside a judgment, wholly or partly (s 63(3)). A procedural requirement for such order is that the party affected by the irregularity makes an application to the Court, by taking a “fresh step in the proceedings”, within a “reasonable time”, after the applicant becomes aware of it (s 63(4)).

8. The power to set aside judgments or orders, whether that be under s 63 of the CP Act or under r 36.15, is commonly exercised with reference to the overriding purposes of management of civil proceedings (s 56(2)), as identified in ss 56-60 of the CP Act generally.

The power under Court rules

9. The alternative basis for the application is r 36.15 of the UCPR.

10. Rule 6.2 provides that subject to court rules, practice notes and any other rules of court, a person may commence proceedings in court by filing a statement of claim.

11. Rule 13.1 provides requirements relating to applications that may be brought for summary judgment. One such requirement, for the plaintiff, is evidence of a belief that the defendant has no defence to the claim (wholly or partly).

12. Rule 14.14(2) provides that in a defence to a statement of claim, the defendant must plead specifically any matter that: (a) if not pleaded specifically, may take the opposite party by surprise; (b) the party alleges makes the claim not maintainable; or (c) raises matters of fact not arising out of the preceding pleading (the statement of claim).

13. Rule 14.23(2) provides that a party’s pleading (in a proceeding commenced in this Court) must be verified by affidavit. It may be subscribed to the pleading, absent any court order to the contrary. Rule 14.23(3) specifies the content of the affidavit. Most material in this case is a statement in the person that the allegations of fact in the statement were believed to be true.

14. Rule 36.15(1) of the UCPR empowers the Court to set aside an order (or judgment) “on sufficient cause”, where it is made “irregularly, illegally or against good faith”.

15. It is common ground that the power in r 36.15(1) is discretionary.

16. Even where any of the bases are made out, the circumstance that an order or judgment is satisfied on proof of sufficient cause precludes the exercise of the power for slight, or even contentious reasons: Kendell v Carnegie (2006) 68 NSWLR 193 at [45]. It must be established that there has been misconduct by the party in whose favour the judgment or order has been made: Coles & Ors v Burke & Anor (1987) 10 NSWLR 429.

17. It is well-established that these matters present alternatives, but they are not exclusive of each other. It is also established that ‘irregularity” does not extend to errors attributable to the forensic decisions of parties. Thus, in Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No 3) [2010] NSWCA 3, it did not suffice to establish an irregularity that a wrong party was identified.

18. A more promising basis for the order is that where an order is procured in the absence of good faith. The breach of a promissory representation as to the course of conduct within litigation is capable of amounting to a breach of good faith: Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110. In that case, an order was made in the absence of a party contrary to an informal agreement between legal representatives. The decision emphasised that it is unnecessary to establish that anyone was personally guilty of conduct against good faith.

EVIDENCE ON THE APPLICATION

Mr Mitry’s evidence

19. The applicants relied upon the affidavit of their solicitor, Richard Louis Mitry, dated 16 November 2021 and a director of the plaintiff, Kasim Saligic, affirmed 7 July 2021.

20. Mr Mitry, indicated that, apparently in November 2021, he had conferred with Counsel and Mr Boumelhelm, the second applicant, and formed a view, based upon the content of invoices raised, and the terms of the contract, that the respondent did not have title, or standing, to sue on them. With the grant of leave to adduce supplementary evidence, Mr Mitry said that he first became aware that there was no affidavit verifying the statement of claim this morning, 14 February 2022.

21. Counsel for the respondents was granted leave to cross-examine Mr Mitry. The points that emerged from that cross-examination were:

1. He did not dispute receiving all of the invoices founding the quantum of the respondent’s debt claim on or about 16 March 2021;

2. By 14 April 2021, he had received all of the relevant invoices, the statement of claim and delivery dockets;

3. He had arranged to file a Defence (filed on 20 April 2021) whilst having the invoices and other documentation he had requested in his possession;

4. It was not until after the hearing of the application for summary judgment, and after that application had been consented to, in November 2021, that the applicants had briefed counsel.

Mr Saligic’s evidence

22. In argument, counsel for the applicants referred to invoices issued by the respondent which commonly bore the following notation:

“All amounts payable under contracts to which this invoice relates to has been assigned to Grow Invoice Finance Pty Ltd. All cheques must be payable to Grow Invoice Finance Pty Ltd … All remittance must be emailed to [email protected]. Payment to any other party other than Grow Invoice Finance Pty Ltd will not constitute as settlement of the debt.”

23. The remittance advice that appeared below the plaintiff’s statement of account requested that payment (by the company) be returned to Grow Invoice Finance Pty Ltd. Bank account details were supplied which appeared to be in the name of that entity.

24. Counsel for the applicants drew attention to other matters:

1. CMSA Pty Ltd had been engaged, as agent for the respondent, to recover the claimed monies;

2. On 9 March 2021, correspondence was sent by Ms Louise Avni, director of CMSA, to both applicants, making demands for payment;

3. On 16 March 2021, Mr Mitry requested that Ms Avni supply all invoices said to be owing; and

4. Ms Avni supplied all outstanding invoices to Mr Mitry.

Other facts

25. It was not disputed that in its Defence, the applicants did not specifically plead that the respondent had no title to sue for the debts claimed. In particular, they did not specifically plead that such debts as arose were owed to an assignee.

26. Although the applicants identified the irregularity of the omission by the plaintiff to provide a verifying affidavit with the statement of claim, the applicants’ solicitor had only identified that ‘irregularity’ on 14 February 2022. The applicants’ counsel was unable to identify an irregularity at the date that this notice of motion, seeking to set aside the summary judgment, was filed (November 2021).

27. It was not disputed that for the application for summary judgment to have succeeded, it would have been necessary for the deponent of the supporting affidavit to depose to that person’s belief that the defendant had no defence to the claim.

PARTIES’ SUBMISSIONS

The applicants’ submissions

28. The applicant identifies as the irregularity the omission of the plaintiff to swear a verifying affidavit in support of the claim, contrary to ss 17 and 19 of the CP Act and rr 6.2 and 14.23 of the UCPR. This, it was said, enlivened the discretion under s 63 of the CPA Act.

29. A separate basis is an absence of good faith, in that the respondent joined the wrong party in circumstances where it knew that the debt had been assigned.

30. The discretion should be exercised as it would be manifestly unjust for the respondent to maintain judgment when it had assigned its documents.

31. Further, since interest cannot accrue, given the assignment, that part of the proceeding would remain open anyway.

32. A further basis is that the applicants remain exposed to suit by the assignee.

33. If the judgment is set aside on the bases enumerated, there is no reason why the proceeding should not also be summarily dismissed, under r 13.4, for the same reasons.

The respondent’s submissions

34. The respondent concedes that the statement of claim should have been verified. The respondent also concedes that an assignment of the debts in law had been made; although it contends that there was no assignment of rights under the indemnity or guarantee as it may have against the second applicant. Counsel also conceded that, subject to discretionary considerations, it was enough to engage r 36.15 that the wrong party had been joined.

35. The respondent referred to certain aspects of delay by the applicants which could lead the Court to reject the application on discretionary grounds. It appeared to me, however, that most of the points might be relevant to the costs consequences that should flow from the summary judgment being set aside. The points included that:

1. The applicant’s ‘bad faith’ complaint was only raised this morning.

2. Had the applicants’ ‘wrong party’ point been raised earlier, the plaintiff could have supplied an affidavit of verification and the new party could have been added to the proceeding earlier than it may now be.

CONSIDERATION

36. In my opinion, the applicants have made out their argument that the summary judgment, which had been consented to, should be set aside under r 36.15. I accept the applicants’ point that, on the basis of the information made available to it, the respondent should have known that an effective assignment of the debts owed by the first applicant to the respondent had been made, such that there was at least real doubt as to whether the plaintiff had title to sue in debt. To then proceed to seek summary judgment with that knowledge was contrary to good faith. I also accept that it is unnecessary to ascribe fault to any one individual in order to establish the basis of an absence of good faith.

37. Although the evidence of assignment was limited only to the assignment of debts, and not rights of action under the indemnity or guarantee, in my view, it should be open for the second applicant to contest any personal liability he may have on the basis of the identification of the correct debtor. In other words, he derivatively should benefit from the order setting aside the judgment against the company, as the debtor.

38. It is unnecessary to venture an opinion as to whether the procuring of the same judgment on an unverified statement of claim constituted an irregularity, as affording a separate basis for setting aside the judgment. In deference to Counsel’s submissions, I would have been inclined to think that an ‘irregularity’ was established; although, as a matter of discretion, I would not have been inclined to set the judgment aside on that basis. The function of providing a verifying affidavit could, as it happens, have been fulfilled by the affidavit in support of the application for summary judgment, about which the applicants raised no point. In other words, the irregularity had since been superseded. Parties to civil litigation should not be permitted to think that any non-compliance with a rule of court or statutory provision at any time prior to a judgment being entered which, with reasonable diligence, could have been notified to the party in breach of the rule and been capable of rectification, could found an application under s 63 of the CP Act or r 36.15 of the UCPR.

39. It has not been a very satisfactory position that delay has occurred in this proceeding which, of its nature is for commercial litigation (see the observations of the effect on commerce from the dilatory conduct of litigation in Aon Risk Services Australia v Australian National University (2009) 239 CLR 175 per Heydon J at [137]). But just as the applicants had sufficient information in their possession to raise the point upon which they have prevailed by the time they filed their defence and consented to a summary judgment, so too, the respondent should be taken to have known what the real position was when it commenced the proceeding and certainly when, at the point when it sought summary judgment, the court rules were such that a reconsideration of the claim, on its merits and as to the lawful entitlement, should have occurred. Both parties were legally represented. Conducting the balancing exercise required for procedural discretionary applications of this kind, I consider that the dictates of justice weigh most heavily in favour of the substantive justice in having what, to paraphrase counsel for the respondent characterised as an ‘illegal’ judgment being set aside.

40. I also do not overlook the possibility that, with the correct party (plaintiff) joined, nothing much may later change and in the not too distant future, this Court will be faced with the similar process that was initiated last year. However that be so, if the outcome turns out to be the same, then at least that will occur on the footing of claims legitimately prosecuted and adjudicated.

41. I do not accede to the applicants’ application for summary disposal. That would only mean that a fresh proceeding would be continued, based on almost exactly the same substratum of fact identified in the pleadings in this proceeding.

42. It is a common place in litigation that where there is doubt about the entitlements of competing entities, they are joined in the same proceeding. In this way, the Court can avoid the spectre of a multiplicity of legal proceedings. The solution, which the Court ventilated in argument, to the present problem, is to see Grow Invoice Finance Pty Ltd added as a plaintiff to the proceeding, subject to its consenting to it, and for amended pleadings to be filed. This will sound in the orders I am about to make.

43. As to the costs consequences although the applicants’ succeeded, there is reason to displace the rule (r 42.1) that costs should follow the event. In particular, the application was in the nature of an indulgence to make up for the applicants’ failure to raise the points it raised in this application sooner than they could and should have raised. As a more minor point, they also failed on their summary disposal application though, in fairness,that did not occupy much time in argument. The proper order is that there be no order as to costs of the defendants’ notice of motion dated 16 November 2021, as amended.

44. The orders of the Court are:

1. Pursuant to r 36.15 of the UCPR, the summary judgment entered (by consent) for the plaintiff against the defendants for the sum of $235,675.98 on 1 September 2021 is set aside.

2. The applicants’ application for summary disposal of the proceeding is dismissed.

3. There be no order as to the costs of the defendants’ notice of motion dated 16 November 2021.

4. Subject to its provision of consent (under r 6.25 of the UCPR) being filed within 7 days, the entity Grow Invoice Finance Pty Ltd be joined as Second Plaintiff to the proceeding.

5. Leave is granted to the plaintiffs to file and serve an Amended Statement of Claim by 22 February 2022.

6. The defendants are to file and serve a Defence to the Amended Statement of Claim by 22 March 2022.

7. The proceeding is listed for case management before the Registrar on 28 March 2022 or such other date as may be notified to the parties.

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Decision last updated: 15 February 2022