Shilkin v Homestead Furniture Nominees Pty Ltd

[2011] WADC 7

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION:   PERTH

CITATION:   SHILKIN -v- HOMESTEAD FURNITURE NOMINEES PTY LTD [2011] WADC 7

CORAM:   WAGER DCJ

HEARD:   1 DECEMBER 2010

DELIVERED          :   25 JANUARY 2011

FILE NO/S:   APP 50 of 2010

BETWEEN:   STEVEN ANDREW SHILKIN

Appellant (Defendant)

COLIN HOWARD TAYLOR
JENNIFER ELLEN BARKER
First Respondents (Claimants)

AND

HOMESTEAD FURNITURE NOMINEES PTY LTD
ANNE MARGARET SHILKIN
Second Respondents (Defendants)

Catchwords:

Practice and procedure - Application to set aside default judgment

Legislation:

Magistrates Court (Civil Proceedings) Act 2004

Result:

Appeal dismissed

Representation:

Counsel:

Appellant (Defendant)    :                        Mr J Ludlow

First Respondents (Claimants)   :             Mr M Hawkins

Second Respondents (Defendants)  :        No appearance

Solicitors:

Appellant (Defendant)    :                        J Ludlow Barrister

First Respondents (Claimants)   :             Peel Legal & Property Services

Second Respondents (Defendants)  :        Not applicable

Case(s) referred to in judgment(s):

Foran v Wight (1989) 168 CLR 385

Hall v Hall [2007] WASC 198

James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53

Parker v Transfield Pty Ltd & Anor [2000] WASCA 382

Rodgers v Rodgers (1964) 114 CLR 608

Spencer v Commonwealth of Australia [2010] HCA 28

Tey v Optima Financial Group Pty Ltd [2010] WADC 98

Trego & Smith v Hunt [1896] AC 7

World Best Holdings Ltd v Sarker [2010] NSWCA 24

1. WAGER DCJ:  The appellant, Mr Shilkin, appeals against the Magistrates Court decision to refuse to set aside default judgment against him.  Mr Shilkin submits that the appeal also relates to an appeal against the refusal to set aside default judgment in respect of the second respondents, Homestead Furniture Nominees Pty Ltd (Homestead) and Ms Shilkin, although neither respondent has formally joined Mr Shilkin in this appeal nor has either respondent filed a separate appeal.

2. On 12 June 2007 Homestead entered into a commercial lease of premises in Pinjarra with the lessors Mr Taylor and Ms Barker, the first respondents, for a period of five years in order to carry on a furniture business.  Mr Shilkin and Ms Shilkin provided guarantee and indemnity for the lease pursuant to cl 13 of the lease.

3. On 16 February 2010 the lessors commenced proceedings in the Mandurah Magistrates Court against Mr Shilkin, Ms Shilkin and Homestead claiming $31,541.20, being outstanding rent and operating expenses owed in default of the lease.

4. Mr Shilkin filed a notice of an intention to defend on behalf of Homestead and on his own behalf.  A notice of intention to defend was never filed by or in respect of Ms Shilkin.

5. It is not challenged that Mr Shilkin did not receive a notice of the date of a pre‑trial conference that was held on 27 April 2010.  He was therefore not present when default judgment was entered against him and also entered against Ms Shilkin and Homestead.

6. Mr Shilkin now appeals pursuant to s 40(1) Magistrates Court (Civil Proceedings) Act 2004 against the decision of his Honour Magistrate McIntyre made on 16 June 2010. The appeal must be determined on the material and evidence that was before the learned magistrate because leave has not been given for any additional evidence to be considered; s 40(5) Magistrates Court (Civil Proceedings) Act.

7. The material and evidence before the learned magistrate included an affidavit sworn by Mr Shilkin dated 15 June 2010 setting out the merits of his defence and counterclaim.  Mr Shilkin deposed to the fact that he was not notified of the pre‑trial conference date and that the court had refused to accept documents prepared in relation to defence and counterclaim.  He further deposed at pars 10 – 14 as follows:

   10.As at the commencement of the lease, there was a newsagency and a butcher's store directly opposite the furniture store premises, and a post office nearby.

   11.Subsequently, in another part of Pinjarra, a company carrying on a business in which I understand at least one of the complainant's has a financial interest ('Coles centre company') opened a new shopping complex known as the Coles centre.

   12.On behalf of those who had a financial interest in its business, the Coles centre company lured away the newsagency business, the butcher and the post office that had previously carried on business near the furniture store premises.  All three of those businesses therefore closed the shops near the furniture store premises from which they had previously been trading and moved to the Coles centre.  The Coles centre company did not attempt to lure away the first defendant as well.

   13.As from August 2009 the first defendant's trading figures went into a steep decline coinciding with the opening of the Coles centre, and the closure of the three shops I have mentioned.  I believe that these two events are more than a mere coincidence, because the combined effect on the furniture store business of the opening of the Coles centre and the closure of the three shops was to lure away many potential customers of the furniture store business.  The actions of the Coles centre company as described above essentially made the furniture store business unviable.

   14.The matters to which I have just referred are the main basis on which the first defendant was and still is seeking to defend the claimant's claim against it, and the main basis on which the defendant wished, and still wishes, to make a counterclaim.  The first defendant also alleges that the claimant's owe them money for fixtures agreed to be transferred to the claimants.

8. An affidavit sworn by Mr Taylor dated 24 May 2010 was also before the learned magistrate.  Annexed to the affidavit was an email sent by Mr Shilkin to a representative of the lessor admitting the breach of the lease.  The email sets out:

   Dear Brian, I received your phone message this morning.  The reason we have decided to bring the lease to an end is that we have continued to lose money.

   We are not in a position to pay the arrears at the moment.  We have properties we own on the market.  One has sold and is due to settle mid January.  It is our plan to satisfy creditors from the proceeds of these sales.  The public company we own a majority of shares in and has been suspended from trading for an extended period is also due to be re listed at the end of January.  In the interim we are cash flow strapped.  We will be continuing to sell down our stock, including whatever is left after the vacate date.  We will undertake to pay some contribution as soon as we can.

   It must be said here that the opening of the Coles Complex absolutely slaughtered our business.  We were not aware that all the businesses at our end of town had been enticed to close and move to the Coles centre; namely the town Newsagent directly opposite, the town butcher of 39 years standing, also directly opposite.  The Hotel also closed next to us and the post office moved to the Coles Centre.  It has not escaped our knowledge that our landlord is also involved in the Coles centre.  Our figures went into a steep decline from the August of the opening and despite all attempts and extensive advertising and price reductions they have not recovered.  The final straw is the opening of the Freeway bypassing Pinjarra and dropping passing traffic incredibly.

   We do not recoil from our obligations but are cash flow strapped at the present time.

9. A copy of the commercial lease between Homestead, Mr Shilkin and Ms Shilkin was also annexed.  Relevantly cl 13 of the lease sets out the guarantee and indemnity binding Mr Shilkin and Ms Shilkin.  Clause 13 states:

   GUARANTEE AND INDEMNITY

   IN CONSIDERATION of the Lessor granting the Lease (hereinafter called 'the lease') to the Lessee at the request of the person named in Item 8 of the Second Schedule (hereinafter called 'the Guarantor') the Guarantor hereby unconditionally and jointly and severally guarantees to the Lessor the payment of rent and other moneys payable to the Lessor in terms of the Lease and the due and punctual performance by the Lessee of the terms covenants and obligations on the part of the Lessee under the lease including the obligation to indemnify the Lessor in all cases where indemnities are granted by the Lessee to the Lessor thereunder and the Guarantor hereby acknowledges and declares that this guarantee shall be a continuing guarantee and shall not be affected or avoided in any way by any agreement or arrangement made between the Lessor and the Lessee whether with or without the consent of the Guarantor or by any alterations or variations to the rights or obligations of either of the parties to the Lease or by the granting of any time or other indulgence or forbearance by the Lessor to the Lessee and the Lessor shall be at liberty to regard the Guarantor in all respects as original debtor and shall not be obliged to take actions first against the Lessee provided always that before taking any action against the Guarantor the Lessor shall give notice in writing to the Guarantor either by delivering the same or forwarding the same by prepaid post to the Guarantor at the Guarantor's address mentioned in Item 8 or (to the address of the Guarantor last known to the Lessor) calling upon the Guarantor to remedy the default of the Lessee within 14 days of the giving of such notice and in the event of the Guarantor failing so to do the Lessor may thereafter proceed against the Guarantor as hereinafter provided and the Guarantor FURTHER ACKNOWLEDGES AND DECLARES that the obligations of the Guarantor whereunto shall not merge or be deemed to have merged in any judgment against the Lessee.  FURTHER IN CONSIDERATION of the Lessor granting the afore written Lease to the Lessee at the request of the Guarantor the Guarantor hereby jointly and severally covenants with the Lessor that if the Lessee being a natural person becomes bankrupt or being a corporation is wound up and the trustee or the liquidator of the Lessee as the case may be shall lawfully disclaim the said Lease at any time then and in such event the Guarantor shall indemnify the Lessor from and against all losses, damages, costs and expenses which the Lessor may suffer as a result of such disclaimer and in so far as it may be necessary so to do in order to give full effect to this indemnity the Guarantor shall waive any rights of recourse the Guarantor might otherwise have or have had against the Lessee arising out of this indemnity and no such disclaimer shall operate so as to relieve the Guarantor of the Guarantor's obligations under this indemnity and it is expressly agreed that the provisions of this indemnity shall survive any termination of the said Lease arising out of any such disclaimer.

10. Clause 7.1 of the lease sets out that the lessors have the right to grant any lease or leases of other parts of the centre for the same purpose or purposes for which Homestead was entitled to use the leased premises.

The learned magistrate's decision

1. The learned magistrate rejected Mr Shilkin's submission that it was inappropriate for default judgment to be entered against Ms Shilkin and himself because they were guarantors of the lease only and the court needed to determine whether the primary debtor, Homestead, had in fact been in breach of the lease before proceeding further.  He also rejected that the email annexed to Mr Taylor's affidavit was a 'without prejudice' document finding that there was no evidence of an attempt to negotiate between the parties.  His Honour determined that the email was a clear admission of the elements of the claim.

2. The learned magistrate determined that the claimants' case, based on the terms and conditions of the lease and the contents of the email, was unanswerable.

3. His Honour found that Mr Shilkin's affidavit contained vague assertions in relation to misrepresentation associated with the opening of the Coles centre and that no detail of the misrepresentation, ownership, names of prospective witnesses or other relevant factual material was provided in the affidavit.  The learned magistrate commented that a five‑year lease that commenced in November 2007 should have taken into account the likely impact of the opening of the freeway on traffic through the Pinjarra region.

Grounds of appeal

1. Although a number of grounds of appeal were filed, counsel for Mr Shilkin submits that there are two main issues to be determined:

   (1)whether Mr Shilkin has standing to have the default judgment against Ms Shilkin and Homestead set aside; and

   (2)whether there is an arguable defence against the lessors' claim.

2. I will now consider each of the main grounds.

Does Mr Shilkin have standing to have the default judgment against Ms Shilkin and Homestead set aside?

1. Counsel for Mr Shilkin submits that Ms Shilkin and Homestead raise the same arguments against the lessors and that the extent of any liability that Mr Shilkin may have to the lessors is affected by whether, and if so, the extent to which Ms Shilkin and Homestead are liable.

2. It is submitted that the court should look at the impact of the default judgments on Mr Shilkin.  Counsel refers to the High Court decision of James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53, a case involving consent judgments, to support its submission. Counsel for Mr Shilkin submits that when the Magistrates Court entered default judgment against Ms Shilkin it had accepted documents from both the primary debtor Homestead and Mr Shilkin that disputed any primary liability on the part of Ms Shilkin. Given that Ms Shilkin was a guarantor the alleged primary debtor had standing to oppose an entry of judgment against her, but the learned Magistrate did not give the primary debtor an opportunity to do so. Counsel for Mr Shilkin submits that evidence led before the learned magistrate indicated that Ms Shilkin wished to defend the claim against her.

3. Counsel for the lessor submits that there is no evidence directly from Ms Shilkin and that Ms Shilkin never indicated that she wished to defend the action.  Clause 13 of the lease sets out in express terms that the lessor shall be at liberty to regard the guarantor in all respects as the original debtor.  Given the unambiguous nature of the obligations set out in cl 13 Mr Shilkin does not have standing to have judgments against other parties including Homestead and Ms Shilkin set aside.

4. I accept that cl 13 expressly sets out that the guarantor is regarded in all respects as the original debtor.  James Hardie & Co Pty Ltd v Seltsam Pty Ltd does not assist Mr Shilkin in this case.  He does not have standing to have the judgments against the other parties set aside.

Is the email a 'without prejudice' document?

1. Counsel for Mr Shilkin submits that the email should not have been considered by the learned Magistrate because it is inadmissible being 'without prejudice' correspondence.  It is conceded that the words 'without prejudice' are not required to make a communication a 'without prejudice' communication; Rodgers v Rodgers (1964) 114 CLR 608, 614; however, counsel for the lessor submits that the email is a statement of Mr Shilkin's position not part of a dialogue between the parties created in an attempt to resolve issues that had arisen between them in relation to the cessation of the lease.

2. In Cross on Evidence (8^th Aust ed), the author states at 25350:

   As part of an attempt to settle a dispute, the parties frequently make statements 'without prejudice'.  When this is done the contents of the statement cannot be put in evidence without the consent of both parties, the case being one of joint privilege.  This is so whether the parties are endeavouring to settle the whole of the dispute or only particular aspects of it.  The statements often relate to the offer of a compromise and, were it not for the privilege, they would constitute significant items of evidence on the ground that they were admissions.  However the rule is not confined to admissions; it extends to all bona fide without prejudice statements which touch upon the strengths or weaknesses of the parties' cases or place of valuation on a party's rights.  While in large measure the rule rests on the protection of admissions, to dissect out identifiable admissions and withhold protection from the rest of the communications containing them would not only create huge practical difficulties but would fail to enable the parties to speak freely about all issues in the course of seeking compromise.

3. The email relates to Mr Shilkin's decision to end the lease.  There is no evidence that the email was part of any ongoing correspondence or negotiation between the parties.  There is no reason why the email cannot be considered to be part of the evidence.

Does Mr Shilkin have an arguable defence against the lessors' claim?

1. In Parker v Transfield Pty Ltd & Anor [2000] WASCA 382 [3] and [4], Malcolm CJ said in relation to setting aside default judgment:

   In such cases the relevant test is that stated in my judgment in Rollond & Anor v Bank of Western Australia Ltd, unreported; FCt SCt of WA; Library No 980498; 3 September 1998 at 9 41 as follows:

   'For an application to set aside a default judgment to be successful, the defendant must present a credible defence demonstrating that, if the default judgment was set aside and the matter was argued on its merits, the defendant would have a real prospect of success.'

   This is a reformulation of the test previously formulated in terms that the issue is whether there is a reasonably arguable defence on the merits such that the default judgment should not be allowed to stand: Palmer v Prince [1980] WAR 61 per Jackson CJ at 62; and see Burt J at 64. See also the formulation of the test by Ipp J in Rollond & Anor v Bank of Western Australia Ltd, unreported; FCt SCt of WA; Library No 980026; 2 February 1998 at 10.

2. The judicial discretion is unfettered.  The discretion is to be exercised so as to do justice between the parties, having regard to the particular circumstances of the case: Hall v Hall [2007] WASC 198.

3. 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: Hall v Hall [67] (Newnes J).

4. French CJ and Gummow J in the High Court decision of Spencer v Commonwealth of Australia [2010] HCA 28, a case relating to an issue of whether the court could be satisfied that the applicant had no reasonable prospect of successfully proceeding in the context of an application to dismiss proceedings summarily under s 31A(2) of the Federal Court of Australia Act 1876 (Cth) said at [23] and [24]:

   Accepting that there are a number of ways in which s 31A may be applied to empower the Federal Court to dismiss a proceeding, it is to be distinguished, in its application to deficient pleadings, from rules (such as O 11 r 16 of the Federal Court Rules) which provide for the striking out of pleadings.  As Lindgren J said in White Industries Aust Ltd v Federal Commissioner of Taxation:

   'evidence may disclose that a person has or may have a "reasonable cause of action" or "reasonable prospects of success", yet the person's pleading does not disclose this.  In such a case O 11, r 16 empowers the Court to strike out the pleading but … s 31A(2) would not empower the Court to give judgment for the respondent against the applicant.  A failure after ample opportunity to plead a reasonable cause of action may suggest that none exists and therefore that the applicant has no reasonable prospects of success, but the existence of a reasonable cause of action and the pleading of a reasonable cause of action  remain distinct concepts.'

   The exercise of powers to summarily terminate proceedings must always be attended with caution.  That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action or on the basis that the action is frivolous or vexatious or an abuse of process.  The same applies where such a disposition is sought in a summary judgment application supported by evidence.  As to the latter, this Court in Fancourt v Mercantile Credits Ltd said:

   'The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.'

1. Accordingly, I need to consider whether a reasonable cause of action has been identified by the evidence in this case or whether there is no real question to be tried.

2. Counsel for Mr Shilkin submits that Mr Shilkin's affidavit sworn 15 June 2010 contains sufficient uncontradicted allegations of fact to support the factual basis for the argument that a business in which one of the lessors had a financial interest had effectively lured any potential customers away from Homestead making it difficult, if not impossible, for Homestead to continue to pay rent under its lease.  I note the affidavit was dated 15 June 2010, being only one day before the matter was heard by the learned magistrate.  There was little time for the lessors to contradict or reply to the argument raised by Mr Shilkin.

3. It is submitted that the factual argument is supported by the contractual principle that a party cannot take advantage of the non‑fulfilment of a contractual term, the performance of which the party has itself prevented: Tey v Optima Financial Group Pty Ltd [2010] WADC 98, 25. The performance of the contract, it is submitted, is rendered impossible by the wrongful act of the other contracting party: Foran v Wight (1989) 168 CLR 385, 418. Consistent with dicta in the case of World Best Holdings Ltd v Sarker [2010] NSWCA 24 [59] – [62], it is submitted that a landlord cannot complain of any breaches by a tenant if the tenant has been prevented or obstructed from performance by the landlord's actions.

4. The commercial lease entered into by the parties does not place any restrictions on trade on the lessors.  In fact, cl 7.1 of the lease gives the lessors the right to grant any lease or leases of the other parts of the centre leased by Homestead for the same purpose or purposes for which Homestead is entitled to use the leased premises.  Taking the allegation against the lessors at its highest, the suggestion is that tenants at or near the premises in businesses not connected with Homestead were given an opportunity to lease businesses at another location. 

5. There is no suggestion that the lessors should be restricted from involving themselves in any commercial enterprise that they deem to be appropriate.  There is no condition of the lease that would preclude tenants in other businesses in other locations from making commercial decisions to move independently of any decision made by Homestead.  This is not a case where the lessor has poached the customers of Homestead.  Lessees of other premises carrying on businesses as diverse as running a post office, a butcher shop and a newsagency are neither customers of Homestead nor are they businesses that would poach the customers of Homestead.

6. Consistent with the dicta in Trego & Smith v Hunt [1896] AC 7 in the absence of an express covenant not to do so a vendor of a business may do everything that a stranger to the business would do including setting up next door to the business just sold. Clause 7.1 of the lease allows competitors to take up lease options in the business premises occupied by Homestead. The lease does not expressly state that businesses unrelated to Homestead must remain at or near the business premises and there is no implied commercial reason why the businesses would be required to remain at or near the premises occupied by Homestead.

7. I do not accept that Mr Shilkin has a credible defence that, if argued on its merits, would have a real prospect of success.  There is no evidence that the lessors had any interest in the Coles centre.  Even if an interest was disclosed it is open to the lessors to carry out commerce and trade as they think fit.

8. The appeal will be dismissed.

9. The orders I propose are:

   1.The appeal be dismissed.

   2.The appellant pay the first respondent's costs of the appeal to be taxed.