Symond v McNeice

[2011] NSWDC 87

District Court

New South Wales

Medium Neutral Citation:	Symond v McNeice [2011] NSWDC 87
Hearing dates:	10 August 2011
Decision date:	11 August 2011
Before:	MURRELL SC DCJ
Decision:	Application dismissed
Catchwords:	Default judgment Motion to set aside Loan agreement Explanation for delay Arguable defence
Legislation Cited:	Uniform Civil Procedure Rules 2005 Frustrated Contracts Act 1978
Cases Cited:	Akari v Sole [2008] NSWSC 59 Martech International Pty Ltd v Energy World Corporation Ltd [2006] FCA 1004 Agricultural & Rural Finance Pty Ltd v Gardener [2008] HCA 57 Electronic Industries Ltd David Jones Ltd (1954) 91 CLR 288 Davis Contractors Ltd v Fareham UDC [1956] AC 696 Lindsay-Owen v Associated Dairies Pty Ltd [2000] NSWSC 1095 Scanlan's New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169
Category:	Principal judgment
Parties:	JJ Symond Robert McNeice (applicant)
Representation:	S. Docker D. Baran Kemp Strang Schreuder Partners Lawyers
File Number(s):	2010/00120002

JudgmenT

Background

1. The applicant is an entrepreneur who was friendly with the respondent and the respondent's nephew. In 2003, he obtained a personal loan of $100,000 from the respondent's nephew. In early May 2004, he obtained a personal loan from the respondent. It was agreed that the principal sum of $170,000 and interest of $20,400 would be repaid on or before 1 November 2004. The moneys were not paid. In late November 2004, the applicant met with the respondent at the residence of the respondent. The applicant gave a cheque for $170,000 to the respondent and asked him to defer banking the cheque until the applicant had the capacity to meet the cheque. The respondent became angry and asked the applicant to leave. The following morning, the applicant spoke to the respondent's nephew, who offered to approach the respondent and repeat the offer that had been rejected on the previous evening. The applicant heard nothing further from the respondent or his nephew. The respondent presented the cheque. It was dishonoured.

1. Thereafter, the applicant was engaged on overseas business. As a result of complaints made by the respondent and his nephew to NSW police, in August 2008 the applicant was arrested in Indonesia. He was detained in appalling circumstances. In April 2010, he was extradited to Australia. In May 2010, he pleaded guilty to two counts of obtaining money by deception. He was sentenced to imprisonment and incarcerated from August 2008 to September 2010, when he was released on parole.

The Proceedings

1. On 20 May 2010, the applicant was served with a statement of claim seeking $190,400, and additional interest from 2 November 2004. No defence was filed. On 8 July 2010, default judgement was obtained. In May 2011, a bankruptcy notice was served on the respondent.

1. On 27 May 2011, the applicant filed a notice of motion seeking to set aside the default judgement pursuant to rule 36.16(2)(a) of the Uniform Civil Procedure Rules 2005 (UCPR).

1. In the draft defence upon which he seeks to proceed, the applicant admits that the respondent advanced $170,000 on condition that the loan would be repaid on or before 1 November 2004 together with interest of $20,400. However, the applicant contends that, through the agency of the respondent's nephew, on about 27 November 2004 the loan agreement was varied. Under the variation, the respondent was to retain possession of the cheque for $170,000 "and not bank same until (the applicant) had the capacity to pay (the loan)". Further, the draft defence asserts that, as a result of the applicant's arrest and incarceration in Indonesia, the loan agreement was terminated by frustration. Alternatively, he asserts that liability should be eliminated under the provisions of the Frustrated Contracts Act 1978. Pursuant to a draft cross-claim upon which he seeks to proceed, the applicant claims damages for collateral abuse of process by the respondent. The applicant claims that the respondent did not commence the subject proceedings to recover the debt, but for the ulterior and improper purpose of causing the applicant to suffer emotional harm and distress.

Issues on the Application to Set Aside the Default Judgement

1. Rule 36.16 (2) of the UCPR affords a broad discretion to set aside a default judgment where the interests of justice require it and to permit the defendant to contest the plaintiff's claim. The proper approach to such an application was summarised by Hall J in Akari v Sole [2008] NSWSC 59 at [28]-[29]. The applicant bears the onus of showing an arguable case on the merits; not that a different result is likely, but that there is an arguable defence. The onus is on the applicant to advance any facts said to give rise to an arguable defence. The court is not concerned to determine disputed issues of fact and should take the applicant's evidence at it's highest. The court should also consider the extent of the delay in seeking to set aside the judgement, any explanation for the delay, and whether the respondent would suffer any special prejudice if the judgement was set aside.

1. In this case, the respondent did not assert that it would suffer any special prejudice if the judgment was set aside. There was substantial delay in making the application: from mid June 2010 (when the applicant should have filed a defence) to 27 May 2011 (when the applicant filed the motion to set aside judgement). However, of itself, delay will rarely justify a refusal to set aside a default judgement.

The contentious issues

(1) Was there an adequate explanation for the delay?

(2) Was there an arguable defence?

Explanation for Delay

1. The applicant gave evidence that he received the statement of claim on 20 May 2010. He noted and read the advice on the statement of claim that, if he intended to dispute the claim, he should file a defence and/or make a cross claim. He then telephoned the solicitor who was acting for him in the criminal proceedings. In a telephone call that lasted for two or three minutes, the solicitor advised the applicant that the civil claim was ill founded because the parallel civil and criminal proceedings constituted "double jeopardy". The solicitor told the applicant that he could ignore the statement of claim.

1. It is difficult to believe that any solicitor would advise a client to disregard a statement of claim seeking $290,379.63 on the basis of a two or three minute telephone call, particularly when the solicitor had not seen the statement of claim. No competent solicitor would have suggested that "double jeopardy" rendered the civil claim groundless. In relation to a claim that he or she considered to be groundless, no competent solicitor would have suggested that it should be ignored. Nor would any reasonable businessperson (such as the applicant) act upon such superficial advice when faced with a claim for a large sum of money. I do not accept the applicant's evidence that a solicitor advised him in the terms asserted, nor do I accept his evidence that he acted upon such advice. The applicant has not advanced an adequate explanation for the delay.

1. The adequacy of the explanation for delay is only one matter to be considered. Of greater importance is the issue of whether, if the applicant's evidence is taken at its highest, it supports an arguable defence.

Arguable Defence

1. The applicant wishes to argue that, in late November 2004, the original loan agreement was varied through the agency of the respondent's nephew so that the requirement to pay $190,400 by 1 November 2004 became a requirement to pay $170,000 (or $190,400?) when the applicant acquired the capacity to pay.

1. Taking the applicant's evidence at the highest, it is not capable of establishing that the respondent's nephew was acting as the respondent's agent. There is no evidence that the respondent appointed his nephew as his agent or held out that his nephew had authority to bind him in contractual relations. Rather, the respondent dealt directly with the applicant in relation to the personal loan when the loan was given and when repayment was discussed on 27 November 2004.

1. There is no evidence that the applicant and the respondent (either himself or through his nephew) agreed in principle or otherwise, to vary the terms of the loan. In November 2004, the applicant sought the respondent's forbearance in relation to repayment, but the respondent's answer was to become angry and demand that the applicant leave his residence. It was for that very reason that the applicant petitioned the respondent's nephew to intervene on his behalf.

1. For an agreement in principle to operate as a variation, there must be consideration. The mere forbearance by one party to a contract concerning performance of obligations by the other does not effect a variation of the contract unless it is supported by consideration or recorded in a deed under seal: Martech International Pty Ltd v Energy World Corporation Ltd [2006] FCA 1004 at [141] - [142], Agricultural & Rural Finance Pty Ltd v Gardener [2008] HCA 57 at [68], [84] and [96]. The applicant sought to rely upon Electronic Industries Ltd David Jones Ltd (1954) 91 CLR 288 as authority for the proposition that consideration was not necessary where the variation was a change in the date of performance of contractual obligations. However, in that case the High Court did not discuss whether consideration was necessary to support the variation of a contract. The facts in Electronic Industries were very different from those in the present case because, in Electronic Industries , neither party had performed its obligations under the contract.

1. The applicant contended that the cheque for $170,000 constituted consideration. However, the cheque was not capable of constituting consideration because, as each party was aware at the time, the cheque was worthless. No funds were available to meet the cheque and there was no indication as to when funds might become available. In any event, as the sum of $190,400 had fallen due on 1 November 2004, the worthless cheque for $170,000 was not consideration because it was an offer to pay a lesser amount than that owed.

Frustration

1. On the scenario advanced by the applicant, the issue of frustration is irrelevant. Frustration could only arise if the contract was varied in late November 2004. If the contract was varied so that the moneys did not become payable until the applicant was capable of paying them, then the time for payment had not arisen when the frustrating events occurred. The facts of arrest and incarceration merely provide evidence of incapacity to pay during the relevant period. Conversely, if the contract was not varied, then the time for compliance was 1 November 2004, four years before the alleged frustration.

1. In any case, events such as those upon which the applicant relies cannot substantiate an argument of frustration. Hardship, inconvenience or material loss will not call the principles of frustration into play: per Lord Radcliffe in Davis Contractors Ltd v Fareham UDC [1956] AC 696 at [728]-[729], cited with approval by Hamilton J in Lindsay-Owen v Associated Dairies Pty Ltd [2000] NSWSC 1095 at [11]. Prima facie, a promisor takes the risk of an event happening that prevents him or her from performing a promise: Scanlan's New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 per Latham CJ at [187].

1. The applicant has not advanced an arguable defence. The application is dismissed.

Decision last updated: 11 August 2011