Starrs v Retravision (WA) Ltd - [2012] WASCA 67

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: STARRS -v- RETRAVISION (WA) LTD [2012] WASCA 67

CORAM: PULLIN JA
MURPHY JA
ALLANSON J

HEARD: 23 NOVEMBER 2011

DELIVERED : 27 MARCH 2012

FILE NO/S: CACV 4 of 2011

BETWEEN: CHRISTOPHER STARRS
JANINE STARRS
Appellants
AND
RETRAVISION (WA) LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :MASTER SANDERSON
Citation  :RETRAVISION (WA) LTD v STARRS [2010] WASC 373
File No  :CIV 2890 of 2009

Catchwords:

Practice and procedure - Application to set aside default judgment - Merits of proposed defence - Turns on own facts

Legislation:

Nil

Result:

Judgment varied
Appeal otherwise dismissed

Category: B

Representation:

Counsel:

Appellants: Mr R Ross-Smith
Respondent: Mr G D Cobby

Solicitors:

Appellants: Fox Tucker Lawyers
Respondent: Norton Rose Australia

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

ACN 076 676 438 Pty Ltd (In Liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214
Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Bank of Adelaide v Lorden [1970] HCA 59; (1970) 127 CLR 185
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152
Buckeridge v Mercantile Credits Ltd [1981] HCA 62; (1981) 147 CLR 654
Building Guarantee and Discount Co Ltd v Dolejsi [1967] VR 764
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Collie v Merlaw Nominees Pty Ltd [2003] VSC 424
Deputy Commissioner of Taxation for Australia v Cumins [No 3] [2008] WASC 87
Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471
Evans v Bartlam [1937] AC 473
French v Triple M Melbourne Pty Ltd [2006] VSC 36
Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210
Hall v Hall [2007] WASC 198
Keall v Saville [1985] VR 846
Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [2009] WASC 10
Palmer v Prince [1980] WAR 61
Perpetual Trustees Victoria Ltd v Pilcher [2005] VSC 244
RT Co Pty Ltd v Minister of State for the Interior [1957] HCA 39; (1957) 98 CLR 168
Schoenhoff v Commonwealth Bank of Australia [2004] NSWCA 161
St George Bank Ltd v O'Reilly [1999] ACTSC 21
Taylor v Bank of New South Wales (1886) 11 App Cas 596
The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257 (S)
The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412
Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710

PULLIN JA: I agree with Allanson J.
MURPHY JA: I agree with Allanson J.
ALLANSON J: On 2 November 2009, the respondent commenced proceedings against the appellants for money due under a guarantee. On 4 February 2010, the respondent entered judgment against the appellants in default of appearance. The master subsequently refused an application by the appellants to set that judgment aside. The appellants now ask the court to set aside the judgment of the master, and the default judgment, so that the action may proceed.
The appellants claim that judgment in default was not regularly entered, as it overstated the amount then due, and because it was entered unreasonably in the circumstances. They submit that the court, in the exercise of its discretion, should also take into account that they attempted to lodge an appearance and it was not accepted due to an administrative error by the court.
The appellants further argue that they have a defence to the respondent's claim which has sufficient prospects of success, and that they should not be shut out of their defence.

Background

The first appellant, Mr Christopher Starrs, was the sole shareholder of Starrs & Co Pty Ltd and the second appellant, Mrs Janine Starrs, was its sole director and secretary. Starrs & Co carried on business in South Australia as a furniture, electrical and appliance retailer. It is now in liquidation.
The respondent, Retravision (WA) Ltd, was the major provider of electrical goods and appliances to Starrs & Co. On 20 November 2008, an instrument entitled 'Company Charge and Guarantee and Indemnity' (the Agreement) was executed by Retravision as mortgagee, Starrs & Co as mortgagor, and each of the appellants as guarantor.

The Agreement

In general terms, the Agreement provided that in consideration of Retravision advancing money, credit and financial accommodation to Starrs & Co, and refraining from demanding or suing for payment of any

part of the secured money that was presently payable, Starrs & Co granted security to Retravision by way of a fixed and floating charge over its assets.

Starrs & Co was obliged to pay the secured money to Retravision immediately on demand, unless otherwise agreed in writing by Retravision in a collateral security: cl 7.1. Retravision was authorised to debit the account of Starrs & Co with the secured money immediately it became owing. Starrs & Co was also required to indemnify Retravision for certain liabilities and costs, including all costs incurred in connection with proceedings or claims, and including legal costs and expenses on a full indemnity basis. Such sums were to form part of the secured money.
Under cl 14, Starrs & Co was to punctually pay for all products and services supplied to it by Retravision or a supplier, subject to and in accordance with Retravision's or the suppliers' written terms and conditions of supply prevailing from time to time. Starrs & Co was also to comply with Retravision's credit policy: cl 14.2, 14.4. The terms of the credit policy are important to the appellants' arguments in this appeal.
Clause 22 sets out events of default, including Starrs & Co not paying secured money on time. On the occurrence of an event of default all of the secured money became immediately payable and the security became immediately enforceable. Retravision had power to appoint a receiver, as the agent of the mortgagor, at any time after an event of default: cl 23.
The Agreement also provided for the appellants to give security by way of guarantee and indemnity: see cl 48 and following. The appellants guaranteed payment of the secured money and performance of all of the obligations of Starrs & Co, and the payment of all damages suffered by Retravision arising from any breach or termination of the finance facility. The guarantee extended to any future advances, credit or accommodation by the mortgagee to the mortgagor.
By cl 49.2:
If the Mortgagor does not, on the date provided in the Facility, pay any amount payable to the Mortgagee, the Guarantor must immediately pay that amount to the Mortgagee.
The guarantee contained several clauses intended to protect Retravision's position, including an indemnity by the guarantors. I deal with these separately in discussing the appellants' proposed defence.

The credit policy

A copy of Retravision's credit policy, dated June 2006, was in evidence. The respondent did not question whether it was current at the relevant time, and I assume that it is the credit policy referred to in cl 14 of the Agreement. The credit policy set out the terms on which Retravision gave credit to 'dealers'.
The terms of payment in the credit policy required payment on the last working day of each month. They included a 'retention of title' clause in the following terms:
2.6The title to any goods supplied to the dealer by Retravision (WA) Ltd:
2.6.1is not transferred from Retravision (WA) Ltd to the dealer; and
2.6.2will remain with Retravision (WA) Ltd as legal and equitable owner,
until such time as all monies due and payable by the dealer to Retravision (WA) Ltd have been paid.
Under cl 2.7, Retravision was also entitled to reclaim possession of goods, even if they had been paid for in full, in satisfaction of debts owing to it, on the occurrence of specified events of insolvency.
By cl 2.9:
Retravision (WA) Ltd may commence legal action against the dealer if the goods are not paid for within Retravision (WA) Ltd's usual credit terms or any separate arrangement for credit made by Retravision (WA) Ltd with the dealer although property in the goods has not passed to the dealer.

The default and proceedings in the court

On 16 June 2009 Retravision sent notice of default under the facility to Starrs & Co, demanding that Starrs & Co pay the whole of the secured money by 30 June 2009. The balance of the secured money was then said to be $967,319.11. On 8 July 2009, Starrs & Co advised the solicitors for Retravision that they would forward a proposal to resolve the matter. There is no evidence about whether anything further was done in relation to a proposal.
On 26 October 2009, Retravision served notice of default on each of the appellants as guarantor, demanding the appellants pay the whole of the secured money by 30 October 2009. The balance of the secured money claimed at that time was $3,141,011.92.
On 2 November 2009 Retravision commenced proceedings against the appellants in the Supreme Court of Western Australia seeking payment of the sum of $3,141,011.92 as at 30 September 2009, together with interest, enforcement expenses, and costs. On 30 November 2009 the claim was served on the appellants in South Australia. The writ required the appellants to enter an appearance within 30 days after service.
On 17 December the appellants wrote to the solicitors for Retravision, asking whether Retravision would agree to have the matter dealt with in South Australia. The appellants said that conducting the matter in Western Australia would disadvantage them as they could not obtain legal representation in Western Australia or attend court.
On 18 December, the solicitors for Retravision replied in a letter which had several errors in it, and was patently unhelpful. The letter incorrectly referred to the notices of default having been served on 30 November 2009 (when the writ had been served on that day), and further said:
We anticipate receiving instructions from Retravision to commence proceedings in the Western Australian Supreme Court.
That was the last correspondence between the appellants and Retravision before the entry of default judgment.
On 22 December 2009, the appellants signed an appearance and posted it to the registry of the court. They also wrote to the Chief Justice asking for the claim to be remitted to the Supreme Court of South Australia. On 13 January 2010, the Chief Justice replied, advising the appellants that they would need to make an application in chambers to have the claim remitted to South Australia.
On 28 January 2010, an administrative officer of the court wrote to the appellants advising them that their memorandum of appearance had been rejected. On 4 February 2010, the appellants forwarded a further appearance and an application to remit the matter to South Australia. Also on 4 February 2010, before the appearance was received, the respondent entered judgment in default of appearance for the sum of $3,141,011.92 plus interest.
On 2 March 2010, the appellants again wrote to the Chief Justice regarding the rejection of their appearance, and requesting the error be remedied administratively. On 12 March 2010, the Chief Justice replied. He advised the appellants that their complaint of administrative error was well founded, but that it appeared that judgment was regularly entered and the court could not of its own motion set aside that judgment. That correspondence was forwarded by the court to Retravision's solicitors.
On 8 April 2010, Retravision's solicitors wrote to the appellants, referring to that correspondence and saying:
An application to set aside the judgment would only succeed if you were able to persuade a court that you had reasonable grounds of defence. Before our client decides whether to consent to the default judgment being set aside without requiring an application to be made, please advise as to what your grounds of defence would be.
A response was requested by 22 April 2010. On 21 April 2010, Ms Janine Starrs replied on behalf of the appellants. She summarised what had happened to date and said that the defence was not relevant to Retravision's answer to the Chief Justice's letter.
On 21 April 2010 the solicitors for Retravision responded, repeating that a regularly entered judgment can only be set aside if there are arguable grounds of defence and again asking the appellants to advise their grounds of defence. The time for reply was extended to 28 April 2010. On 28 April 2010, Ms Starrs wrote again and requested a further two weeks as her husband was unwell and they were in the process of obtaining legal representation. On 29 April 2010, the solicitors for Retravision responded, agreeing to an extension of one week but not the two weeks asked.
The appellants then applied to the master to have the judgment set aside. They were not represented. The matter was first heard on 23 August 2010 and adjourned to allow the appellants to file additional affidavits. The appellants filed additional affidavits on 20 September 2010, and the application was then heard on 21 October 2010. Master Sanderson delivered judgment refusing the application on 13 December 2010.

The appeal

The appellants commenced their appeal and formulated the grounds of appeal while they were not legally represented. There are three grounds of appeal, but with multiple subparagraphs.
The appellants were represented at the hearing of the appeal. There was no application to amend the grounds, although the appellants told the court that they did not press many of their original contentions. In effect, the appeal proceeded on two questions:
1.was the default judgment irregularly entered; and
2.should the court's discretion be exercised to permit the appellants to defend on the basis they now propose?
The appellants relied on further material (including their proposed defence) contained in four affidavits that were filed in October and November 2011, after they had obtained representation. Little of that material was fresh evidence.

Was judgment regularly entered?

The appellants submitted that the default judgment was not regularly entered on two bases:
1.The solicitors for Retravision acted unreasonably in entering judgment.
2.Judgment was entered for more than the amount due.
The appellants referred also to the correspondence with the Chief Justice and whether the court had wrongly refused to accept their notice of appearance; to the conduct of Retravision in not agreeing to the default judgment being set aside; and to what the appellants' counsel referred to as obdurate behaviour by Retravision's solicitors in response to requests by the appellants for information.
Whether judgment was regularly or irregularly entered may be significant. Under O 13 r 10 of the Rules of the Supreme Court 1971 (WA) the court may set aside or vary a judgment entered in default of appearance, on such terms as it thinks just. That discretion is not qualified: Evans v Bartlam [1937] AC 473; and see Hall v Hall [2007] WASC 198. But as a general rule, a judgment regularly entered will not be set aside unless the court is satisfied that there is a defence on the merits. That rule may be departed from in 'rare but appropriate cases': Palmer v Prince [1980] WAR 61, 63; Evans v Bartlam (480). A judgment irregularly entered, however, 'ought not be on the records of the court and therefore if a judgment in default of appearance or pleading has been entered irregularly, it will be set aside ex debito justitiae':Collie v Merlaw Nominees Pty Ltd [2003] VSC 424 [37]; RT Co Pty Ltd v Minister of State for the Interior [1957] HCA 39; (1957) 98 CLR 168, 170. Not every irregularity in the means by which a judgment in default is obtained will necessarily entitle the defendants to have the judgment set aside as of right: ACN 076 676 438 Pty Ltd (In Liq)v A‑Comms Teledata Pty Ltd [2000] WASC 214 [17] ‑ [19]. In an appropriate case, the court may amend an irregularly entered judgment rather than set it aside.
The appellants say entry of judgment was irregular because it was unreasonable to enter judgment without warning them, when Retravision and its solicitors were aware that they were not represented and that they intended to defend the action.
The appellants rely on Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [2009] WASC 10, where Templeman J (following comments of Cummins J in Perpetual Trustees Victoria Ltd v Pilcher [2005] VSC 244 [15] ‑ [16]) held that it was inappropriate or unreasonable in all the circumstances of that case for the plaintiff to enter judgment in default of a defence, and that the judgment entered was irregularly obtained. Templeman J held that the defendant was entitled to have the judgment set aside as of right, without going into the merits. Lampson is very different from the present case. Templeman J was particularly concerned that the case had been entered into the CMC list by order of the master, and the first directions hearing before the case manager had not yet been held. It had been delayed to accommodate the plaintiff's legal representatives. Directions for the filing of a defence could be expected to be made at the first CMC hearing. Although the plaintiff's solicitors spoke to the defendant's solicitors about the directions to be made at the first CMC hearing, they entered judgment in default of defence without notifying either the defendant's solicitors or the case manager. The circumstances were sufficiently grave for his Honour to order that the plaintiff's solicitor show cause why he should not pay the costs of the application to set aside default judgment personally.
In St George Bank Ltd v O'Reilly [1999] ACTSC 21, Higgins J set aside default judgment for what he described as unreasonable behaviour (breach of usual standards of practice between solicitors). It is not clear whether his Honour regarded the judgment as irregular, but he made no finding on whether there was an arguable defence.
I am not aware of any other cases where conduct that could be described as unreasonable or discourteous has been held to make the entry of judgment irregular. In The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412, default judgment was entered the day after an appearance was due. The plaintiff's solicitor had been told the previous day that the defendant was represented and would enter an appearance that day. A copy of the appearance was faxed to the plaintiff's solicitor. The appearance lodged was defective, and the plaintiff entered default judgment. The Court of Appeal exercised its discretion under O 2 r 1 to correct the irregularity in the appearance, and on that basis set aside the default judgment. In its decision on the costs of the appeal, however, the court said that judgment had initially been regularly entered: see The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257 (S) [2].
In French v Triple M Melbourne Pty Ltd [2006] VSC 36 [22], Bongiorno J regarded the entry of default judgment 'at the earliest possible opportunity without warning against parties known to the plaintiff's solicitor to be represented' to be legal, but a relevant factor in setting aside the judgment in the court's discretion.
In Keall v Saville [1985] VR 846, 849 Gobbo J declined to set aside default judgment, in the absence of an affidavit as to the merits, despite saying that the plaintiff's solicitor's attitude could be categorised as 'both unreasonable and abrupt, if not discourteous'.
In my opinion, the failure to warn the appellants before entering judgment in default of appearance did not make the entry of judgment irregular. The fact that the appellants were unrepresented did not make it irregular. But the circumstances in which judgment was entered, including the administrative error which led to the rejection of the appellants' appearance, are relevant to the exercise of the discretion under O 13 r 10.

The judgment is, however, irregular on another ground. A judgment entered for more than the amount due is irregular. The respondent conceded at the hearing that the judgment overstated the amount due. Between 4 November and 10 December 2009, the respondent had received $329,500 from the receivers and managers appointed to Starrs & Co and that distribution must be deducted. To that extent the judgment cannot stand.
The appellants say that is a sufficient basis for the judgment to be set aside. The respondent submits that there would be no utility in wholly setting the judgment aside, as the appellants have no defence, and that the proper course is to vary the judgment to reflect the amount that was due at the time it was entered.
The court has power to amend an irregularly entered judgment. In Deputy Commissioner of Taxation for Australia v Cumins [No 3] [2008] WASC 87 [47], the plaintiff applied to vary a judgment that had been entered for more than the amount due. Newnes J said:
It seems to me that in circumstances such as the present, where the amount for which judgment has been obtained is overstated but the amount of the judgment to which the plaintiff is entitled is clear, no purpose would be served by the trouble and expense of a trial which can only have the same outcome as a judgment varied to record the correct amount; to set aside the judgment would be an exercise in futility and would be inconsistent with the principles contained in O 1 r 4B. The correct approach is to vary the judgment to substitute the amount to which the plaintiff is actually entitled for the overstated amount: see Conners v Acheron Pty Ltd [1995] 1 Qd R 504, at 508.
The power can be exercised even where the application for amendment is made after the defendant has applied to set it aside: Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210 [20]; Building Guarantee and Discount Co Ltd v Dolejsi [1967] VR 764.
In my opinion, the correct approach to this appeal is to first consider whether the appellants may have a defence on the merits. Unless the appellants have a defence, they would be vulnerable to an application for summary judgment. It would be futile to set aside the judgment rather than vary it by substituting the amount now owing after the receipt of distributions from the receivers. That would be an important factor in the exercise of the court's discretion. The fact that the respondent did not earlier apply to vary the judgment is a factor to be taken into account in relation to the exercise of the discretion, and also in relation to the costs of the appeal.

The proposed defence

The appellants were not represented before the master. The draft defence that they put forward was brief and lacked detail. It asserted that the guarantee delivered no benefit to the appellants as guarantor; that there was no consideration for the guarantee; and that it was signed under duress. None of those defences is now pursued.
The appellants also claimed that Retravision was in breach of the terms of the guarantee in failing to apply its credit policy and in declining to retrieve its stock, and that it had induced the appellants to enter the guarantee by representing to them that the stock would be retrieved if it was not paid for. The substance of that defence remains in the current proposed defence.
In my opinion, because the question now being considered is whether it would be futile to set the judgment aside rather than vary it, it is proper to consider the proposed defence, and (to the extent that it may support that defence) the material adduced as additional evidence on the appeal. I also accept, as submitted by the appellants, that they should only be denied the opportunity to proceed in the ordinary way, and after taking advantage of the usual interlocutory processes, if there is a high degree of certainty about what the outcome would be should this matter go to trial: see Agar v Hyde[2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].
In the proposed defence, the appellants admit that Retravision made money, credit and financial accommodation available to Starrs & Co under the Agreement. They admit the default by Starrs & Co, and the services of the notices of default. They admit that they did not comply with the notice of default, but say that they were not obliged to comply. They propose to defend the claim as follows:
1.Before trading in April 2007, the appellants were furnished by Retravision with the Retravision credit policy (par 5).
2.Retravision knew or ought to have known that when the appellants gave their guarantees that they did so knowing of the terms of the credit policy (par 8).
3.The credit policy provides for Retravision to retain title in goods it has supplied until it is paid in full, and give it the right to recover possession of goods in the event of insolvency (par 9).
4.The appellants then plead in par 10 and 11:
10.By providing the Credit Policy to the defendants the plaintiff promised ('the Implied Promise') to the defendants that the plaintiff would (before calling on the Guarantees), in reliance on the Retention of Title, claim property in and retake possession of goods supplied to the Company the debt for which goods remained unpaid by the Company to the plaintiff.
11.Any rights of the plaintiff under the Guarantees are subject to the Implied Promise.
5.The 'implied promise' was repeated and affirmed by Retravision from time to time by communicating to Starrs & Co and to the appellants that the value of stock in the stores was equal to, or close to, the credit limit set by Retravision under the agreement (par 15); and were it not for those communications, the appellants would have given notice to Retravision limiting the scope of their guarantee (par 16).
6.The appellants plead the service of the notices of default, and the appointment on 11 July 2009 of receivers to the business of Starrs & Co. They plead (at pars 19 - 21) that they advised the receivers and Retravision that the value of the stock held by the business, and subject to retention of title under the credit policy, was more than the debt owed by Starrs & Co, and told them that 'the only logical solution' was for that stock to be recovered by Retravision.
7.It is convenient to set out the following paragraphs of the defence (pars 25 ‑ 31) in full:
25.Had the plaintiff, pursuant to the Retention of Title, retaken possession of the Stock, then the credit due to the Company thereupon would have extinguished all of the debt otherwise due by the Company to the plaintiff.
26.Contrary to the Implied Promise and notwithstanding the communications and notwithstanding the Receivers and Managers' responses and the plaintiff's response earlier described in this pleading the plaintiff resolved not to exercise or take up any of its election or rights pursuant to the Retention of Title ('the Failure').
27.The consequence of the Failure is that the debt by the Company to the plaintiff was not extinguished as described in paragraph 25 of this defence.
28.By the Failure the plaintiff destroyed released or abandoned its rights pursuant to the Retention of Title and in consequence the defendants are entitled to be released in equity from the Guarantees, the impairment by the Failure of the plaintiff's rights under the Retention of Title being the full amount of the trading debt of the Company.
29.The consequence of the Failure is that the defendants have been discharged absolutely from their obligations under the Guarantees or at least diminished by the value of the stock.
30.The plaintiff had a duty ('the duty to mitigate') to the guarantors to reduce the amount of the trading debt of the Company by exercising its right pursuant to the Retention of Title.
31.By the events pleaded in paragraphs 23 to 26 this defence the plaintiff has breached the duty to mitigate whereupon the defendants do not have any liability under the Guarantees.
The applicants' proposed defence essentially relies on three matters. The first is the contractual obligation to recover goods under the retention of title clause in the credit policy, as a result of the implied promise to do so, and the discharge of the guarantors' liability for breach of that promise. The second is the entitlement of a surety in equity to have his liability reduced by the amount in which the creditor has sacrificed or impaired a security. And third, they rely on the duty to mitigate.
The appellants accept that as between Retravision and Starrs & Co, the credit policy imposed no obligation on Retravision to recover goods rather than issue a notice of default and sue for the resulting debt. They submitted, however, that their position as guarantor must be analysed differently from the relationship between Retravision (as creditor and mortgagee) and Starrs & Co (as mortgagors).

The implied promise

The appellants submitted that there was an implied obligation in the contract of guarantee that Retravision would take up its rights under the retention of title terms of the credit policy. This obligation arose from the circumstances in which the appellants executed the guarantee, having been shown the credit policy by Retravision, and 'because of the nature of guarantees'. The appellants submitted that where there is a condition in the contract of guarantee that the creditor will perform an obligation in relation to a security, failure to perform the obligation will discharge the guarantee absolutely: see, for example, Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710, 738. They accepted that Retravision's rights under the retention of title clause are not a security, but argued for the same principle to apply by parity of reasoning.
In my opinion, the term relied on cannot be implied. It is immaterial that Retravision knew that the appellants gave the guarantee 'knowing of the terms of the credit policy'. For a term to be implied, certain requirements must be met: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282 ‑ 284; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 346 ‑ 347. Relevantly to this case, a promise to recover unsold stock is not necessary to give business efficacy to the guarantee, which is completely effective without it.
Further, a condition that a mortgagee must exercise the right to recover the goods before it has the right to call on any security could not be said to be obvious, so that the parties must be presumed to have intended it. On the contrary, it would deny the clear intent of the guarantee.
Under cl 49, the guarantor guarantees the obligations of the mortgagor, including payment of secured money, and if the mortgagor does not pay any amount payable on the date provided, the guarantor 'must immediately pay that amount to the mortgagee'. By cl 52.1, the liability of the guarantor under the security is not discharged or in any way limited or diminished because the mortgagee does any of the following things without the consent of the guarantor:
(1)provides any further advances, credit or accommodation to the mortgagor, or otherwise increases the amount for which the mortgagor is liable to the mortgagee;
…
(7)releases, exchanges, varies or deals in any other way with any other guarantee, indemnity or security held or taken by the mortgagee;
(8)makes any agreement in relation to the postponement of priority of any other security;
…
(12)refuses or fails to obtain or enforce any other guarantee, indemnity or security for the payment of the secured money; or
…
(15)acts in any other way to the prejudice of the guarantor.
Even if the rights of Retravision under the retention of title clauses in the credit policy are not a security for the purposes of cl 52.1(7), (8) or (12), the terms of cl 52.1(15) are not restricted to a security.
Further, by cl 52.4 the appellants waive the guarantors' rights as surety 'whether legal, equitable, statutory or otherwise' which 'in any way restrict the Mortgagee's rights, remedies or recourse'.
The agreement also provides for an indemnity in cl 51 in the following terms:
If the Mortgagor is not bound by some or all of the Mortgagor's obligations under the Facility, if for any other reason the guarantee is not effective, the Guarantor agrees, by way of indemnity and principal obligation, to pay to the Mortgagee the amount which would have been payable by the Guarantor to the Mortgagee under the guarantee in clause 49 had the guarantee been effective and the Mortgagor been bound.
By cl 58 the guarantor acknowledges that 'there are no other conditions to the coming into effect or the remaining in effect of this security'. By cl 60 the guarantor acknowledges that security is not executed 'as a result of any representation made or information given to the guarantor by the mortgagee'.
The effect of these provisions is quite inconsistent with the proposed implied term. The obligations of the guarantor are unqualified.
The appellants seek to overcome this result by the plea that Retravision's rights under the guarantee are subject to the implied promise. Counsel for the appellants submitted that the right of Retravision to demand payment, and the obligation of the appellants to pay under the guarantee, are subservient to the implied condition and arise only after Retravision, as mortgagee, has made good its rights under the retention of title clause. Counsel submitted that the express terms of the guarantee could not work effectively without the implied term because 'they could not be applied in the way that reflects the bargain without including the implied term'.
To accept this submission would be to fail to give full effect to the written agreement between the parties. There is no claim that the appellants were induced to execute the Agreement by fraud, mistake or misrepresentation. Having executed it, the appellants are bound by it: see, for example, Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [32] ‑ [35].
The appellants' plead that Retravision repeated and affirmed the implied promise in subsequent communications. It was not suggested in the pleading, or in the appeal, that the pleaded communication served any purpose other than to affirm (presumably as an admission) the implied term. But if the implied term did not exist, the subsequent conduct of Retravision could not affirm it. In the circumstances, on the appellants' case, the plea regarding 'communications' during the course of Starrs & Co's trading adds nothing to the primary claim of the implied term.
Finally, the appellants plead that they, in effect, called on Retravision and the receivers to recover the goods. This would not, independently, give rise to an obligation to do so when the terms of the written agreement do not impose that obligation.

Impairment of security

Alternatively, the appellants submitted that the failure of Retravision to collect its goods under the retention of title 'sacrifices, ignores, abandons or diminishes security it had for the debt'.
It is established that where a creditor sacrifices or impairs a security, or by his neglect or default allows it to be lost or diminished, the surety is entitled in equity to be credited with the deficiency in reduction of his liability: Taylor v Bank of New South Wales (1886) 11 App Cas 596, 603; Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710, 738; Buckeridge v Mercantile Credits Ltd [1981] HCA 62; (1981) 147 CLR 654.
It is unnecessary in my opinion to consider in detail the authorities to which the appellants referred, and whether they might be applied to a provision retaining title in goods until payment. This is because the principle on which the appellants rely is subject to the terms of the guarantee: Buckeridge v Mercantile Credits Ltd (671); Bank of Adelaide v Lorden [1970] HCA 59; (1970) 127 CLR 185; Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 [91]; Schoenhoff v Commonwealth Bank of Australia[2004] NSWCA 161 [19] ‑ [22]. The terms of the guarantee that I have set out above, and in particular cl 52.1 and cl 52.4, would be effective to prevent any complete or partial discharge of the guarantee even if Retravision impaired its rights under the credit policy to the prejudice of the appellants.
The defence that the appellants wish to put forward cannot succeed.

Mitigation

The amount due under the guarantee was a debt, not damages. That appears to be admitted in the proposed defence. Counsel for the appellants submitted that an obligation to mitigate still arises between creditor and guarantor. It was not clear whether that proposition depended on the court finding an implied obligation to recover the goods.
In my opinion the position is correctly stated in O'Donovan, Modern Contract of Guarantee (1996) [516]:
If the principal transaction guaranteed is a debt or liquidated sum, the creditor's cause of action against the guarantor upon default of the principal will be an action on the guarantee for a money sum rather than a claim in damages. This is because the guarantor has promised to pay an agreed sum upon default by the principal, that is, to pay (in terms of the usual form of guarantee) all sums 'due', 'owing' or 'payable' to the creditor. … Another significant advantage to the creditor, arising from the fact that an action on the guarantee is for a money sum, is that the creditor is under no duty to mitigate its damages.
The question of mitigation does not arise.

Conclusion

The judgment entered by the respondent is irregular in overstating the amount due. That judgment was also entered in unusual circumstances, where the appellants' appearance had been rejected because of an administrative error by the court. Each of those factors must be taken into account in deciding whether to set aside the default judgment.
The court must also take into account that the proposed defence is without merit.
The court may, in the exercise of its discretion, vary the amount of the judgment. Once the judgment sum is corrected, any benefit to the appellants from setting it aside is not sufficient to outweigh the expense of a trial which must arrive at the same result.
The judgment will be varied to judgment in the sum of $2,811,511.92. The appeal is otherwise dismissed.