Vautier Holdings Pty Ltd v Kagioulis Trading Pty Ltd - [2014] WASC 209

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: VAUTIER HOLDINGS PTY LTD -v- KAGIOULIS TRADING PTY LTD [2014] WASC 209

CORAM: MASTER SANDERSON

HEARD: 22 MAY 2014

DELIVERED : 17 JUNE 2014

FILE NO/S: CIV 2780 of 2013

BETWEEN: VAUTIER HOLDINGS PTY LTD (ACN 059 032 772)
Plaintiff
AND
KAGIOULIS TRADING PTY LTD (ACN 146 928 127)
First Defendant
IOANNIS KAGIOULIS
Second Defendant

Catchwords:

Practice and procedure - Application to set aside default judgments regularly entered - Principles on which default judgment set aside - 'Service question to be tried'

Legislation:

Nil

Result:

Application dismissed

Category: A

Representation:

Counsel:

Plaintiff:     Mr D K Barker
First Defendant            :     Mr M Strbac
Second Defendant        :     Mr M Strbac

Solicitors:

Plaintiff:     Chalmers Legal Studio
First Defendant            :     Delta Legal
Second Defendant        :     Delta Legal

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

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Hall v Hall [2007] WASC 198
Palmer v Prince [1980] WAR 61
Parker v Transfield Pty Ltd [2000] WASCA 382
Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998)
Starrs v Retrovision (WA) Ltd [2012] WASCA 67
The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412

MASTER SANDERSON: This is the defendants' application to set aside a default judgment. Judgment in default of appearance was entered against the first defendant on 24 December 2013. The amount of the judgment was $281,176.44 plus costs. This application was brought on 6 March 2014 - roughly 11 weeks after judgment was entered. Judgment in default of appearance was entered against the second defendant on 24 January 2014. In the case of the second defendant the period between the entry of judgment and the application was approximately seven weeks.
In support of the application the defendants relied on two affidavits. Both were sworn 6 March 2014. One was sworn by Kelly Graham and the other was sworn by the second defendant. In opposition to the application the plaintiff replied on an affidavit of Annette Leila Weir sworn 2 April 2014.
Both judgments were regularly entered. There was no suggestion of any improper conduct on the part of the plaintiff. Given the time between the service of the writ and the entry of judgment and the fact the defendants made no effort to contact the plaintiff precludes any suggestion the judgment was 'snapped'. Therefore the principles which apply to setting aside a regular judgment must be considered.
The principles set out in Hall v Hall [2007] WASC 198 by Justice Newnes are generally viewed as setting out the law as it presently applies. That is certainly the view of the authors of Civil Procedure Western Australia: see [13.10.6]. In his decision after an extensive review of the authorities including Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998) (Malcolm CJ, Kennedy & Owen JJ); Parker v Transfield Pty Ltd [2000] WASCA 382; and Palmer v Prince [1980] WAR 61 Newnes J:
It is apparent that what a defendant will generally be required to show by way of a defence on the merits has been expressed in a number of ways that, in their terms, are not always easy to reconcile. There are, however, two fundamental principles that I think have never been doubted. The first is that the discretion is unfettered and no hard and fast rules can be laid down as to how it is to be exercised. The second is that the discretion is to be exercised so as to do justice between the parties, having regard to the particular circumstances of the case [63].
Justice Newnes further said:
Again, with respect, it seems to me there is obvious force in the observation of Ward LJ that courts should be very wary about attempting to come to a provisional view as to the probable outcome of a defence involving issues of fact, based on the affidavit evidence available on an application of this nature, unless there is some inherent improbability in what is being asserted or some extraneous evidence which would contradict it. The evidence before the Court on such an application is necessarily limited and generally untested by cross-examination, and it is not appropriate to seek to resolve disputed questions of fact on the affidavit evidence: Lau v Citic Australia Commodity Trading Pty Ltd (supra) [66].
In the end Justice Newnes concluded a court is not required to form a provisional view as to probable findings of fact at trial. What is required that 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. In The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412 the Court of Appeal appeared to endorse this statement of principle: see [55].
Since Justice Newnes decision there have been a number of cases which have dealt with an application to set aside a default judgment. Perhaps the most important is the decision in Starrs v Retrovision (WA) Ltd [2012] WASCA 67. This was a case where the judgment which was entered was irregular - it was for an amount which it was accepted on appeal was greater than the amount owed by the appellants to the respondent. The appellants took the view that as the judgment was irregular they were entitled to have it set aside as a right. After the appeal was commenced, but prior to its hearing, the respondent applied to vary the judgment to the correct amount. The court was prepared to vary the amount and declined to set aside the judgment on the basis there was no real prospect of the appellants successfully defending the action. In the course of his judgment Allanson J (with whom Pullin & Murphy JJA agreed) said [51]:
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].
It is instructive to look at both of the High Court authorities referred to by his Honour. Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 was concerned with service outside the jurisdiction. The appellant contended the claim had such poor prospects of success that service ought be set aside. In a joint judgment Gaudron, McHugh, Gummow & Hayne JJ said:
If service was authorised by the Rules, and has been properly effected, the Court's authority to determine the issues that are raised by the proceeding has been regularly invoked. If the Court is not persuaded that it is an inappropriate forum for trial of the proceedings, it will have reached that conclusion having given due weight to the considerations of comity and restraint which we mentioned earlier. Only then do the prospects of success of a claim made in originating process served outside Australia fall for consideration.
It is, of course, well accepted that a court whose jurisdiction is regularly invoked in respect of a local defendant (most often by service of process on that defendant within the geographic limitations of the court's jurisdiction) should not decide the issues raised in those proceedings in a summary way except in the clearest of cases. Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way [56] ‑ [57]. (footnotes omitted)
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 concerned a person under a disability who brought an action for personal injuries 29 years after the action but within the ultimate 30 year limitation period. The Court of Appeal in New South Wales exercising what it described as its inherent jurisdiction stayed the action. The High Court by a majority dismissed the appeal. In the course of their reasons the majority (Gleeson CJ, Gummow, Hayne & Crennan JJ) said:
In his reasons, Hoeben J identified, under the heading 'Absence of triable issue', the first submission of the defendants. This was that the claim by the plaintiff 'was so obviously untenable that it could not succeed'. The submission was framed in terms which appeared to state as a principle remarks made by Barwick CJ in a passage in General Steel Industries Inc v Commissioner for Railways (NSW). Barwick CJ pointed out that, on the one hand, great care was to be exercised to ensure that a plaintiff was not improperly deprived of the opportunity for the trial of the case 'under the guise of achieving expeditious finality', and, on the other, the summary intervention of the court was not reserved for cases where 'argument is unnecessary to evoke the futility of the plaintiff's claim'. His Honour then immediately continued:
'Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.'
The conclusion in General Steel was that Barwick CJ was satisfied that the statement of claim did not disclose a reasonable cause of action so that this Court was authorised by O 26 r 18 of the then High Court Rules to strike out that pleading. To reach that conclusion, extensive argument was considered respecting the construction and application of the Crown use provisions of the Patents Act 1952 (Cth).
The statements in General Steel should not be given canonical force. ... [44] ‑ [46]. (footnotes omitted)
Callinan J was in dissent. His Honour cautioned against dealing summarily with the plaintiff's claim. He said:
Perhaps one might have expected the appellant to have sworn an affidavit in the courts below stating in detail his recollection of the relevant events, and his recollection of the layout of the road upon which he came to grief. That he has not done so does not however give rise to any necessary inference against him that even he cannot speak to the matters central to the case which he has to prove. It should not be assumed that all of the relevant facts are in. The applications made here are applications only. They are not trials. Applicants take their chances when they make them. It is undesirable and inappropriate in my view that they be elevated to something in the nature of a full scale pre-trial trial. That this is so is reason for the adoption of the hard test that General Steel prescribes [229].
Without in any way wishing to be proscriptive I think it is possible to set out a number of principles which govern an application to set aside a regular judgment. They are:
(1)The decision whether or not to set aside the judgment must have as its paramount consideration the interests of justice. It is an essential principle of civil litigation a party should be entitled to put their case to the court.
(2)Simply because a judgment is regular does not provide grounds for refusing to set it aside. What is important is the merits of the defence raised by the party against whom judgment is entered.
(3)Some explanation for the failure to enter an appearance ought be provided. The stronger that explanation the more likely judgment will be set aside. But a failure to adequately explain the delay will not in and of itself lead to the application being refused. All relevant circumstances must be considered.
(4)The test to be applied in determining whether a judgment should be set aside is similar to the test applied on summary judgment. The defendant must establish there is a serious question to be tried.
(5)A defendant who seeks to have a judgment set aside should 'condescend upon particulars' of the defence. In other words, on an application to set aside a default judgment a defendant ought provide the same level of detail as would be provided if the defendant was responding to an application for summary judgment by the plaintiff.
It is the last two of these criteria which may be seen as the most controversial. The authorities do not formulate the test as requiring an applicant to establish there is a serious question to be tried. Nonetheless it seems to me the authorities do point in that direction and it is logical that should be the test. There would be no point in setting aside a default judgment if immediately after the defendant entered an appearance the plaintiff made a summary judgment application which was bound to succeed. Furthermore adopting that test offers a level of consistency when considering whether summary disposal of an action is appropriate. It is to be emphasised of course as all the authorities make clear it is only in the clearest of cases a defendant ought be put out of court. The above formulation does not suggest otherwise.
The plaintiff's claim is quite straightforward. It is the lessor of premises known as the Two Rocks Tavern. It entered into a sublease of the Tavern for a period of five years with the first defendant. The second defendant guaranteed the first defendant's performance of the lease. The plaintiff alleges the defendant has not paid rent nor has it paid rates and taxes for which it is liable under the sublease. A default notice has been served and the default has not been remedied. The plaintiff's claim is for $281,176.44 and that is the amount for which judgment has been entered.
Turning then to the explanation for the delay the defendants approach this in two ways. They first seek to explain how it is no appearance was entered by either defendant and then they seek to explain what occurred after they became aware judgment had been entered. The evidence provided by the second defendant and Ms Graham in their affidavits is in all material respects identical. The second defendant runs a business known as 'Peter's By The Sea' in Scarborough. Ms Graham worked for the second defendant as a business development consultant. On 23 October 2013 a letter directed to the defendants was received at Peter's By The Sea. This was a letter of demand. The second defendant and Ms Graham discussed the letter and the second defendant instructed Ms Graham to negotiate with the plaintiff. Contact was made with Ms Annette Weir who appears to have been an agent of the plaintiff. An offer to negotiate a settlement was made by Ms Graham. The discussions appear to have been amicable but nothing was agreed.
On or about 28 November 2013 a writ was received by post. The second defendant signed a memorandum of appearance on behalf of the first defendant and that Ms Graham posted the document to the Supreme Court. It appears to never have arrived. Ms Graham did hold further discussions with Annette Weir and once again an offer was made to settle the matter. But again that came to nothing. Ms Graham says as a consequence of her amicable contact with Ms Weir she took the view the plaintiff would not pursue any further court action. Ms Graham does not suggest any undertaking as to the further conduct of the claim was offered by Ms Weir or anyone else on behalf of the plaintiff.
On 14 February 2014 the second defendant was advised judgment had been entered against both defendants. He contacted Ms Graham. Then and only then a decision was made to seek legal advice. The defendants' present solicitors were contacted on 20 February 2014 and an appointment was made for 24 February 2014. The defendants' retained their present solicitors after the meeting and this application was brought.
It must be said the evidence on behalf of the defendants in relation to the delay shows a remarkably cavalier attitude to the legal proceedings which had been initiated. The evidence is there were a number of phone calls during which rather vague suggestions of a compromise were advanced. There is no evidence any physical meeting took place or indeed that one was proposed. While the second defendant may not have known precisely what was involved in a writ, he is a man of business and he could reasonably have been expected to take legal advice. Against that it should be acknowledged once he became aware that judgments had been entered he acted with reasonable dispatch.
Counsel for the plaintiff in his written submissions made much of the fact the second defendant could not have entered an appearance on behalf of the first defendant even if the purported appearance had not gone astray. With respect that seems to me to be largely irrelevant. Lawyers apart, it is not well understood in the commercial world a company can only act through a solicitor. In any event the attempt to enter an appearance is just one factor to be taken into account in looking at the delay.
In the end I am satisfied the explanation marginally favours the defendants. In particular the relatively short delay between becoming aware of the judgment and moving to set it aside is in their favour. Against that neither took any action when it should have been apparent something needed to be done. In the end the explanation for the delay is not such as to warrant the application being dismissed.
That then leads to the merits. Once again there is no material difference between the evidence of the second defendant and Ms Graham. It can be summarised as follows. Around the end of 2010 the second defendant was approached by representatives of the plaintiff and offered the opportunity of purchasing and repairing the Two Rocks Tavern. He was advised the Tavern needed considerable refurbishment and repair work. An estimate of between $80,000 and $90,000 was provided. An oral agreement was reached with the plaintiff pursuant to which the second defendant or his nominee would purchase the Tavern.
(Throughout the affidavits of the second defendant and Ms Graham there is reference to 'purchasing' the Tavern. Although it is not clear this must be a reference to purchase of the leasehold. Nowhere in the evidence is it suggested the plaintiff was owner of the freehold.)
Having reached agreement with the plaintiff the second defendant in consultation with Ms Graham decided the Tavern needed immediate refurbishment. As part of the negotiations the second defendant says he had negotiated for 12 months possession of the Tavern free of charge to allow this refurbishment to take place. Refurbishment started in March 2011 but took longer and cost more than was anticipated. The second defendant wanted to begin trading in September 2011. He entered into discussions with representatives of the plaintiff. He then explains the position as follows:
To begin trading the Owners extended the protection order on the Two Rocks Tavern Liquor Licence but I was told by the Owners words to the effect of 'there will be no further extensions of this order so if finance is not in order by the time the extension runs out, you will need to have a lease in place' (par 53).
On or about 9 September 2011 he was given a lease. He queried the rent which he thought was high. The response from the plaintiff's representative was twofold. First he said the rent was the standard commercial rate for Two Rocks. Second he was shown a map of the Two Rocks area and told in November 2011 a development would be starting next door to the Two Rocks Tavern. That development would contain, so it was represented, 600 residential units and would be completed 'very soon'. The second defendant then signed the lease without taking legal advice. Although it is not entirely clear from the evidence it would appear since the date he signed the lease the second defendant through the first defendant has continued to trade the Tavern.

Counsel for the defendants maintained these facts gave rise to three potential lines of defence. First it was said that the plaintiff had engaged in misleading and deceptive conduct contrary to the Competition and Consumer Act 2010 (Cth) sch 2 s 18 and the Fair Trading Act 1987 (WA) s 18 and s 19. The representations complained of are those set out above. It is said the plaintiff's conduct was misleading or deceptive.
The difficulties with this argument are immediately apparent. It can be accepted the representations were made in trade or commerce. But there is no evidence whatsoever the representations were false. It might have been expected the second defendant or Ms Graham would have said based upon enquiries the rent charged was high. It would not have been necessary for the defendants to produce expert evidence - they could simply have relied upon information provided to them by a third party provided they believed the information to be correct and identified the source of the information. The same is true with respect to the 600 units. There is nothing at all provided. Nor is it clear reliance was placed on the representations when entering into the lease. That might be implied given the representations are specifically mentioned. Further it is not necessary for the representations to be the sole reason for the defendants entering into the lease with the plaintiff. But it might have been expected more explicit evidence on this point would have been provided.
In the end there is insufficient evidence to justify a conclusion the elements of the defence could be made out. There is a suspicion reliance was placed on the representations by the second defendant - why else would they have been mentioned in the affidavit? But mere suspicion is not enough. Even if some leap of faith could be made and the fact mention was made in the affidavit of the representations was enough to suggest reliance there is no evidence the representations were false. In the end there is nothing in the affidavit material which suggests a misleading and deceptive conduct argument would succeed or indeed that it has any chance at all of success.
The argument put by the defendants was what might be called the 'Amadio' defence. That is to say it was submitted the second defendant was under some form of disability and enforcement of the lease would be unconscionable. The only evidence which touches upon this defence is a statement in the second defendant's affidavit that English is not his first language. But the second defendant runs his own business. He was engaged in developing the Tavern at considerable expense. There can be no suggestion he was in some way at a disadvantage with respect to the plaintiff. There is no merit at all in this argument.
Finally, it is said the defendants have a defence under the principles of misrepresentation. It is somewhat difficult to see how this defence could succeed if a claim of misleading and deceptive conduct could not succeed. But assuming that it is a stand alone defence there is no suggestion of any fraudulent conduct on the part of the plaintiff. The defendants would be limited to damages for misrepresentation. But there is nothing in the evidence which would suggest such a remedy is available and if it was what the damages might have been. The lack of detail in the affidavit evidence which was fatal to the misleading and deceptive conduct defence is fatal to the misrepresentation defence.
On balance then I am not satisfied that the defendants have an arguable case. In the circumstances there would be no utility in setting aside the default judgments. Accordingly the application is dismissed. The defendants should pay the plaintiff's costs including the reserve costs.