Spice Chest Pty Ltd v MacDonald - [2019] FCA 1268

FEDERAL COURT OF AUSTRALIA
Spice Chest Pty Ltd v MacDonald [2019] FCA 1268

File number: NSD 397 of 2019

Judge: GLEESON J

Date of judgment: 15 August 2019

Catchwords:
PRACTICE AND PROCEDURE – application for default judgment – where respondents have not appeared before Court – originating process and statement of claim taken to be served – applicant entitled to make default application

CORPORATIONS – misleading or deceptive conduct – whether first respondent contravened s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) – where pleaded facts do not support pleaded representations – applicant not entitled to default judgment against first respondent

CORPORATIONS – unjust enrichment – where funds were not used for the purpose that they were advanced – failure of consideration – applicant entitled to default judgment against second respondent

Legislation:
Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12DA, 12GF,

Bankruptcy Act 1966 (Cth) s 54C

Corporations Act 2001 (Cth) s 601AB

Property Law Act 1974 (Qld) s 56

Federal Court Rules 2011 rr 5.01, 5.02, 5.22, 5.23, 5.32, 8.06, 10.31, 10.32, 16.32

Uniform Civil Procedure Rules 2005 (NSW) r 14.12(1)(f)

Cases cited:
Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559

Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979

Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025; (2003) 47 ACSR 285

Speedo Holdings BV v Evans (No 2) [2011] FCA 1227

Date of hearing: 16 May 2019

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Economic Regulator, Competition and Access

Category: Catchwords

Number of paragraphs: 70

Counsel for the Applicant: Gilbert Tsang

Solicitor for the Applicant: Aubrey Brown Lawyers

Counsel for the Respondents: There was no appearance for the Respondents

ORDERS

NSD 397 of 2019

BETWEEN:
SPICE CHEST PTY LTD (ACN 610 547 147)

Applicant

AND:
TROY SCOTT MACDONALD

First Respondent

VISION PROJECT GROUP PTY LTD (ACN 160 724 434)

Second Respondent

JUDGE:

GLEESON J

DATE OF ORDER:

15 AUGUST 2019

THE COURT ORDERS THAT:
1.Default judgment be given against the second respondent in the sum of $1,130,067.00.
2.The second respondent pay the applicant’s costs of the application for default judgment against the second respondent.
3.Otherwise, the interlocutory application filed 2 May 2019 be dismissed.
4.Liberty be granted to the applicant’s lawyers to approach the associate to Gleeson J to have the proceeding listed for a case management hearing no later than 30 September 2019.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
GLEESON J:

By interlocutory application filed on 29 April 2019, the applicant (Spice Chest) applied for default judgment against the respondents in an amount of $1,130,067.00.
Rule 5.23(2)(b) of the Federal Court Rules 2011 (Rules) provides:
If a respondent is in default, an applicant may apply to the Court for:
...
(b)if the claim against the respondent is…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] FCA 1268
Decision Date: 15 August 2019

CaseChat Overview and Summary

The matter in question involved Spice Chest Pty Ltd, a plaintiff, and two defendants: Mr. MacDonald and another party identified as the second respondent. The primary dispute revolves around allegations of misleading or deceptive conduct under the Australian Securities and Investments Commission Act 2001 (Cth) and unjust enrichment. The Federal Court of Australia was tasked with determining whether Spice Chest was entitled to a default judgment against the defendants.

The legal issues presented to the court included whether the pleadings supported a claim of misleading or deceptive conduct against Mr. MacDonald and whether there was sufficient basis to grant a default judgment against the second respondent for unjust enrichment. The court had to evaluate the sufficiency of the evidence and the pleadings to determine if Spice Chest's claims were substantiated. Specifically, the court examined whether the written contract provided an enforceable guarantee by Mr. MacDonald, and if the funds advanced were misappropriated by the second respondent.

The court found that while Spice Chest was entitled to a default judgment for the unjust enrichment claim against the second respondent, it was not entitled to a default judgment against Mr. MacDonald for misleading or deceptive conduct. The court concluded that the written contract did not clearly specify an enforceable guarantee by Mr. MacDonald, as the obligation secured was not explicitly mentioned in the contract. The pleadings did not sufficiently support a claim that Mr. MacDonald provided a written guarantee of the loan funds, nor did they adequately describe the consideration for such a guarantee. Consequently, the court dismissed the claim for misleading or deceptive conduct against Mr. MacDonald but granted the application for default judgment against the second respondent.

The court's final orders included granting default judgment to Spice Chest against the second respondent in the amount of $1,130,067.00, requiring the second respondent to pay the applicant's costs of the application. The application for default judgment against Mr. MacDonald was dismissed, and liberty was granted for Spice Chest's lawyers to seek a case management hearing. The court's ruling underscored the importance of clear and substantiated pleadings in supporting claims under the Australian Securities and Investments Commission Act.

Orders

Orders of the court

1. Default judgment be given against the second respondent in the sum of $1,130,067.00.

2. The second respondent pay the applicant’s costs of the application for default judgment against the second respondent.

3. Otherwise, the interlocutory application filed 2 May 2019 be dismissed.

4. Liberty be granted to the applicant’s lawyers to approach the associate to Gleeson J to have the proceeding listed for a case management hearing no later than 30 September 2019.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The statement of claim includes a claim under the ASIC Act. I accept that, where the Court has jurisdiction to determine a matter of a particular kind, it has accrued jurisdiction to determine the whole of the controversy: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559. Accordingly, I am satisfied that the Court has jurisdiction to determine the whole of the controversy the subject of the statement of claim.IS SPICE CHEST ENTITLED TO DEFAULT JUDGMENT AGAINST MR MACDONALD? On the face of the statement of claim, Spice Chest transferred $1,180,067 to VPG “on behalf of Mr MacDonald” and at his direction, and in reliance on the guarantee representation and the terms of the written contract which refers to developments being undertaken by company A and company B. Rather than providing the loan funds to company A and company B, Mr MacDonald caused the loan funds to be used for the development of the 49 Pinelands development, which was a project owned by company C. Ultimately, counsel for the applicant, Gilbert Tsang, did not rely on the claim in debt based on a guarantee given by Mr MacDonald, in the absence of any written guarantee of the kind required by s 56 of the Property Law Act and the allegation that Mr MacDonald did not provide a written guarantee. Further, there is no pleading of consideration to support a guarantee. In this regard, there is an alleged representation that, in consideration for financing the relevant developments, Spice Chest would receive a 20% share in the net profit of these developments but no reference is made to the guarantee as consideration for the advance of loan funds. There is an alternative pleading that para 4 of the written contract is enforceable as a contract of guarantee against Mr MacDonald. Section 56(2) of the Property Law Act provides:(2)A promise, or memorandum or note of a promise, in writing shall not be treated as insufficient for the purpose of this section merely because the consideration for such promise does not appear in writing or by necessary inference from a written document. In the written contract, the promise is to provide the trustee with the “following security … personal guarantee of Troy Scott MacDonald”. The obligation secured, or to be secured by the guarantee is not clearly specified in the written contract. As noted above, the written contract does not refer to the sum of $1,180,067.00 as a loan, or mention its repayment. Rather, the written contract referred to a 20% share of profit as the “return for the investment”. Accordingly, I am not satisfied on the face of the statement of claim (supplemented by the written contract) that the written contract contains an enforceable guarantee by Mr MacDonald of a principal obligation owed by company A and company B to repay the sum of $1,180,067.00. The second claim against Mr MacDonald is for damages pursuant to s 12GF of the ASIC Act. Section 12GF provides relevantly:(1)A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision C (sections 12CA to 12CC) or Subdivision D (sections 12DA to 12DN) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.…(1B) Despite subsection (1), if:(a)a person (the claimant ) makes a claim under subsection (1) in relation to:(i) economic loss; or(ii) damage to property;caused by conduct of another person (the defendant ) that was done in contravention of section 12DA; and(b) the claimant suffered the loss or damage:(i)as a result partly of the claimant’s failure to take reasonable care; and(ii)as a result partly of the conduct referred to in paragraph (a); and(c) the defendant:(i) did not intend to cause the loss or damage; and(ii) did not fraudulently cause the loss or damage;the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.Note: Subdivision GA also applies proportionate liability to a claim for damages under this section for a contravention of section 12DA.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

File number:	NSD 397 of 2019
Judge:	GLEESON J
Date of judgment:	15 August 2019
Catchwords:	PRACTICE AND PROCEDURE – application for default judgment – where respondents have not appeared before Court – originating process and statement of claim taken to be served – applicant entitled to make default application CORPORATIONS – misleading or deceptive conduct – whether first respondent contravened s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) – where pleaded facts do not support pleaded representations – applicant not entitled to default judgment against first respondent CORPORATIONS – unjust enrichment – where funds were not used for the purpose that they were advanced – failure of consideration – applicant entitled to default judgment against second respondent
Legislation:	Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12DA, 12GF, Bankruptcy Act 1966 (Cth) s 54C Corporations Act 2001 (Cth) s 601AB Property Law Act 1974 (Qld) s 56 Federal Court Rules 2011 rr 5.01, 5.02, 5.22, 5.23, 5.32, 8.06, 10.31, 10.32, 16.32 Uniform Civil Procedure Rules 2005 (NSW) r 14.12(1)(f)
Cases cited:	Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979 Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025; (2003) 47 ACSR 285 Speedo Holdings BV v Evans (No 2) [2011] FCA 1227
Date of hearing:	16 May 2019
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Economic Regulator, Competition and Access
Category:	Catchwords
Number of paragraphs:	70
Counsel for the Applicant:	Gilbert Tsang
Solicitor for the Applicant:	Aubrey Brown Lawyers
Counsel for the Respondents:	There was no appearance for the Respondents