Way's (Aust) Pty Ltd v Partnership Systems Pty Ltd (No 2)
[2004] VSC 330
•20 August 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2049 of 2003
| WAY'S (AUST) PTY LTD (ACN 087 073 925) AND OTHERS | Plaintiffs |
| v | |
| PARTNERSHIP SYSTEMS PTY LTD (ACN 006 957 599) AND OTHERS | Defendants |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 20 AUGUST 2004 | |
DATE OF RULING: | 20 AUGUST 2004 | |
CASE MAY BE CITED AS: | WAY'S (AUST) PTY LTD v PARTNERSHIP SYSTEMS PTY LTD [No. 2] | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 330 | |
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Practice and Procedure – Judgments – Setting aside judgment obtained in absence of ninth defendant – Relevant principles – Costs – Rule 49.02 of the Supreme Court Rules.
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiff | Mr W.J. Martin QC with Mr T.J. McLean | Norman Czarny & Associates |
| For the Ninth Defendant | Mr G.H. Golvan QC with Mr A.P. Trichardt | Rickards Legal |
HIS HONOUR:
This is an application by the ninth defendant to set aside judgment entered in favour of the first plaintiff against the ninth defendant, in its absence, on 21 June 2004 in the sum of $1,238,962.92 together with interest pursuant to statute in the sum of $115,672.81 and an order that the ninth defendant pay the first named plaintiff's costs of the proceeding, including any reserved costs.
The application was made by summons filed 2 August 2004 and although that was strictly outside the time prescribed by r. 49.02 (3) of the Supreme Court Rules, any objection in respect of that point was expressly waived by the first plaintiff. In any event, it seemed to me that a satisfactory explanation had been given for the small delay in making the application.
The application was supported by an affidavit of the sole director of the ninth defendant, Mr Peter Simitzis, an affidavit of Mr Alan Ernest Denning, a former employee of the ninth defendant, who was involved in the matters which led to the litigation, and an affidavit by Ms Lauren Louise Clarke, the ninth defendant's office manager. Affidavits in opposition were filed by Mr Norman Czarny, the solicitor for the first plaintiff.
Where a judgment has been entered irregularly, the party against whom the judgment has been entered is entitled to have that judgment set aside as of right.[1] Mr Golvan QC, who appeared with Mr Trichardt for the ninth defendant did make submissions that this judgment had been entered irregularly, but in the end it seemed to me that those submissions were more directed towards the exercise of my discretion as additional matters to take into account in terms of considering the justice of the matter rather than basing a submission that the defaults or errors that he identified led to the judgment being irregular.
[1]Chitty v Mason [1926] VR 419 at 423 per Dixon AJ; Daly v Silley [1960] VR 353 at 355 per Pape J; Gamble v Killingsworth & McLean Publishing Co Pty Ltd [1970] VR 161 at 168 per McInerney J
In case I am wrong in treating the submissions in that way, I consider that the matters advanced by Mr Golvan, such as that witness statements had not been served or that the experts' witness statement had not been served within the time prescribed by the Rules and other such matters, do not constitute an irregularity in the entry of judgment.
Both parties referred me to a passage from the judgment of Winneke ACJ in Adams v Cronin where His Honour said, with the agreement of Phillips and Hayne JJA, that a court in the exercise of its discretion under r. 49.02:
"will rarely set a judgment aside which has been properly entered against an absent party where that party, being aware of the date of the trial has failed to attend at court".[2]
[2]Unreported, 6 September 1996. See also Conrea Nominees Pty Ltd v Doherty, Southwell J, unreported, 22 July 1992 and Brygel v Stoneham, Batt J, unreported, 4 April 1997.
Other matters that have to be considered are, apart from whether any satisfactory explanation has been given for the absence of the party, whether the defendant has by affidavit shown a prima facie defence on the merits; and whether there would be any prejudice that might be suffered by the first plaintiff by a new trial that cannot be adequately compensated by a suitable award of costs.[3]
[3]Rosing v Ben Shemesh [1960] VR 173
In my view there is no prejudice to the first plaintiff that cannot be adequately compensated by a suitable award of costs and by an appropriate award of penalty interest if judgment is subsequently obtained.
In terms of whether or not there is a defence on the merits, I do not want to say very much because of the course that I am going to adopt. It is inappropriate, in my view, to be expressing further views on the merits having already done so when the matter was undefended.
This proceeding arises out of the sale of the hotel business, which turned out to be a disastrous venture for the plaintiffs in respect of which they have brought their complaint against the ninth defendant for false and misleading conduct and misrepresentations in the negotiations leading up to the sale. The ninth defendant was acting as the agent for the vendors of the business. I accept that, as Mr Golvan put it, there are serious issues as to agency, reliance, the representations, the damages that have been suffered, and causation issues. That is, there is a whole series of issues that, so long as the principal issue in this application is decided in favour of the defendant, should be dealt with at a full hearing and not be resolved against the ninth defendant in its absence.
I turn then to the principal issue as far as I see this case and on which the application turns. That is whether the situation that led to the non-appearance of the ninth defendant at the trial is such to take it out of the general principle as stated by Winneke ACJ.
The hearing was set for trial on 8 June, 2004 before me sitting in the Commercial list. On the previous Friday there was a directions hearing and Mr Isaac Szmerling, the solicitor then acting for the ninth defendant, sought leave to cease acting for that company. That leave was granted. On 8 June when the matter was called on there was no appearance for the ninth defendant. Most of that day was spent in negotiations between the parties present at the hearing and at the end of the day I made orders by consent disposing of the dispute as far as the plaintiffs and the first eight defendants were concerned. These orders also involved me striking out notices of contribution and a third party notice against one of the other defendants brought by the ninth defendant.
The plaintiffs then indicated that they wished to proceed against the ninth defendant but as they were now relying on a further amended statement of claim which had not been served, I made orders that that statement of claim and a copy of the order be served on the ninth defendant at its last known place of business and gave directions for the filing of a defence to the further amended statement of claim and adjourned the hearing to 21 June. On 21 June there was still no appearance by the ninth defendant and after hearing evidence, judgment was given in favour of the first plaintiff, as I have recited.
Mr Simitzis, who is clearly the guiding principal in control of the ninth defendant, deposed that on 5 June, being the Saturday before the trial was to commence, he felt a twinge in his back. The pain increased and he had to cease working and he returned home and took Panadol Forte for the pain. Mr Simitzis said that for the last four years he had suffered from lower back problems. On the Monday he returned to work but in the afternoon the pain in his back returned. It was severe and he had difficulty walking. He went home in an attempt to rest and continued to take Panadol Forte for the pain.
Mr Simitzis said that it was his intention to attend the trial to represent Simms and he had discussed with his solicitor the continued involvement of Mr Szmerling's firm but because the ninth defendant was then undergoing financial stress in terms of a substantial claim by the Australian Tax Office the decision was made not to incur the expense of further legal representation. Mr Simitzis said that he was intending to attend court to represent the ninth defendant and that he was not aware that, strictly, companies could not be represented by non-legally qualified people.
On the morning of 8 June, Mr Simitzis said, his condition was worse and he was bedridden and in extreme pain despite taking pain killers. He remained in bed, or at least at home until the early afternoon. He agreed that he foolishly failed to notify the court that he was indisposed and would not be able to attend. In the condition that he was then in he did not get beyond thinking about his own difficult situation and did not think to arrange for anyone else to go to court. He also deposed that he was, in any event, very confident the matter was going to settle.
He said that at 1.30 p.m. on that day he was urgently called to the office for a short time as there were matters which required his urgent attention including cheques which needed to be signed that day. His wife drove him to the office and at about 2.00 p.m. whilst he was there he received a telephone call from Mr Norman Czarny. Mr Simitzis says that Mr Czarny told him that the parties were discussing a settlement, suggested that he should come to court to participate in the discussions and that he, Mr Simitzis, told Mr Czarny that due to his back problems he was in no position to come that day, and that he could call him with a settlement proposal. Mr Simitzis said that he expected that if the ninth defendant was to be requested to make any contribution to the settlement he would be contacted by Mr Czarny. The contents of that conversation was disputed by Mr Czarny in his affidavit. He deposed to a much briefer conversation. He said that he rang Mr Simitzis and invited him to come to court to participate in settlement discussions in the hope of bringing them to finality and that Mr Simitzis said to him "this matter is nothing to do with me, I am not coming in, you can do whatever you want". I accept that Mr Czarny's version of the conversation is more likely to be correct. He was not cross-examined about it.
As I have said, the plaintiffs did settle with the other eight defendants on 8 June. Mr Simitzis says that he did not hear from Mr Czarny again and he therefore assumed that the proceeding had settled without the involvement of his company, which did not surprise him because he had always been of the view that his company had no possible liability because it was acting as disclosed agents on behalf of the vendor in the sale of business transaction.
The following morning, which was 9 June, at about 5.00 a.m. he attempted to get out of bed to go to the bathroom and because of very severe back pain he blacked out and fell, in the course of which he banged his head on the television cabinet in the room and gashed his right ear lobe. This caused significant bleeding and he was unconscious for a short period. His wife took him to the Xavier Cabrini Hospital emergency department and there is evidence of that in the form of the account from the hospital. Mr Simitzis said that the doctor told him that apart from putting stitches in his ear and prescribing stronger pain killers there was very little he could do for his back and that he should consult his massage therapist.
Mr Simitzis said that, in the period up to 22 June, he heard no more about the proceeding, that he was not informed by anyone, in particular Mr Szmerling, that the matter had been adjourned to 21 June and that throughout that period he consulted his massage therapist six occasions. An unsworn statement from the massage therapist confirming that she had treated Mr Simitzis on those dates was exhibited to Mr Simitzis' affidavit.
Pursuant to my order, the further amended statement of claim and the order adjourning the matter to 21 June were served at the principal place of business of the first defendant in St Kilda Road, and also served at the registered office of the ninth defendant, in Hawthorn. Ms Clarke, the office manager, gave evidence that in accordance with her standard practice, when she received the court documents she looked at it in sufficient detail to realise that it is involved legal proceedings, which she understood were being handled by Mr Szmerling, and that she removed the first three pages of what was a very large bundle of documents, because of the lengthy further amended statement of claim, and faxed those documents to Mr Szmerling, and that she then filed the documents away in the relevant file dealing with that litigation. In her affidavit she confirmed that Mr Simitzis was suffering from back trouble on 8 June, when he came in to sign the cheques. Ms Clarke stated that at no stage did she inform Mr Simitzis of the documents she had received, believing that Mr Szmerling would be looking after the matter.
The submission by the ninth defendant therefore was that in terms of the failure to appear on 21 June, which was said to be the critical date, there was no deliberate decision not to appear, because the ninth defendant, through Mr Simitzis, did not become aware of the adjourned hearing date.
Mr Martin, QC, who appeared with Mr McLean for the first plaintiff made a number of powerful submissions as to the gaps in the evidence presented to the court on behalf of the ninth defendant. First, he submitted that Mr Szmerling should have been called to give evidence about whether or not he had communicated to Mr Simitzis the fact that the matter had been adjourned. Mr Szmerling knew this, of course, because he received the faxed documents from Ms Clarke and he also had a conversation with Mr Czarny on 11 June. In addition, by virtue of the subpoenaing of telephone records, it is now known that there were telephone calls placed between Mr Szmerling's office phone and Mr Simitzis' mobile telephone on three occasions, and one call between Mr Szmerling's mobile phone and Mr Simitzis' mobile phone, between 8 June and 21 June. One of those calls, at 11.41 a.m. on 8 June lasted for twenty-two seconds. Another at 1.53 p.m. on 10 June lasted for twenty seconds, according to the records. The third, at 11.16 a.m. on 11 June was said to have lasted for two minutes and thirty-nine seconds, and the fourth, at 2.45 p.m. on 15 June, for two minutes and fifty-two seconds.
Apart from the call that was placed between Mr Simitzis' mobile and Mr Szmerling's mobile, which on the probabilities, one would have to say was probably a call between those two gentlemen, the fact that calls were made to or from a solicitor's office to Mr Simitzis' phone does not really advance the matter very far, in my opinion. Mr Simitzis has given evidence, which was not challenged, that despite ceasing to engage Mr Szmerling's services in this litigation, he continued to act for this company and other companies in which Mr Simitzis had an involvement, in a number of pieces of litigation and other commercial transactions. So that the fact that there could be conversations between Mr Simitzis and the office of Chadwicks, which is Mr Szmerling's firm, is hardly surprising. The length of time does not persuade me that there was any detailed discussion in any of these conversations, which is what one might have expected if Mr Szmerling was, in fact, discussing the adjourned date with Mr Simitzis. Nevertheless, one might have thought that Mr Szmerling could have clarified some of the matters, about which the bench and counsel have engaged in some speculation.
One matter that I think is important, that was drawn to my attention in reply, was that Mr Simitzis said in his affidavit that Mr Szmerling had informed him when all of this came out, that he thought that Mr Simitzis was aware of the adjournment since the court order had been faxed to him from the ninth defendant's office on 9 June. So one can see how assumptions could be made which are based on erroneous starting points.
Mr Martin submitted that in addition the masseuse should have been called, and that the wife of Mr Simitzis should have been called, because of their involvement. He also raised the question as to what had happened to the documents served at the registered office. Apart from Mr Simitzis saying, in his affidavit, that he had searched for those documents and not been able to locate them at his office, they remain a mystery. This is a little surprising, given that those acting at the place of a registered office would surely understand their need to act responsibly in respect of documents received by them.
Other submissions were made by Mr Martin pointing out weaknesses in the ninth defendant's explanation for the non-appearance. However, it is not necessary to refer to them. It is fair to say, I think, that there are a number of unsatisfactory aspects about the explanation. But at the end of the day it seems to me that Mr Simitzis, whatever his attitude might have been on 8 June, as to his company's exposure and his lack of willingness to be involved, would, if he had indeed been told of the adjourned hearing date, in circumstances where his company was now the sole defendant, have treated the matter differently. I cannot accept that he, in those circumstances, has deliberately decided to stay away.
Notwithstanding the rejection of Mr Golvan's submissions about irregularities, it seems to me in the circumstances of this case that the justice of the matter is best served by having the dispute between the first plaintiff and the ninth defendant fully investigated at a trial at which both parties are present and participating and able to put whatever they want to say in respect of their case, and in opposition to the other side's case.
Having concluded that the appropriate result is that the judgment should be set aside, I want to point out that this, in my view, has occurred through no fault on the part of the plaintiff and that means that the ninth defendant will have a considerable costs burden to meet as part of the terms of any order setting aside the judgment. Subject to hearing further from counsel as to the precise formulation of such a costs order, it seems to me that any costs incurred by the first plaintiff but thrown away by reason of the setting aside of the judgment in the period from the end of the hearing on 8 June 2004 up to the entry of judgment consequent upon the hearing on 21 June 2004 should be paid by the ninth defendant on an indemnity basis, so that the plaintiff is not out of pocket.
Not to order on that scale seems to me to penalise the plaintiff for a situation which was not its fault, because any other order would mean that it would be still bearing some of those costs which have now been totally thrown away.
In addition, any costs thrown away by the first plaintiff in relation to its statutory demand and its opposition to the ninth defendant's application to set aside such statutory demand should also be paid by the ninth defendant on an indemnity basis.
I turn then to the question of the costs of this application itself. As I have attempted to make clear in my reasons, part of the just outcome of an issue such as this is that the innocent plaintiff should not be left out of pocket and that therefore led me to make an order that the costs thrown away, relating to the hearing date or 21 June 2004 and the entry of judgment and so on, should be paid on an indemnity basis.
The question I now have to decide is whether I should make an order for costs of the application in favour of the first plaintiff, and if so on what basis. Mr Golvan submitted that one approach would be to reserve the costs of the application to await the outcome of the eventual trial. In my opinion, that is not an appropriate course. The eventual outcome of the trial is not relevant, in my opinion, to the costs of this application.
One factor that weighs heavily on my mind is that the first plaintiff has incurred further costs in resisting that application and as Mr Golvan has said the first plaintiff was not successful. But part of the submissions of the ninth defendant which were no doubt exchanged some days ago, because they were sent to me some days ago, was that the ninth defendant sought its costs of this application. As I have already stated, there was a submission which on its face said that the judgment was not regular and should be set aside which may well have entailed an order for costs against the first plaintiff if it had been accepted.
It therefore seems to me that the plaintiff was entitled to resist the application. It was only during the course of the argument that it became clear to me, and I would assume also the first plaintiff, that the argument about the judgment being irregular was not perhaps being put in the way it read. So I have no doubt that the first plaintiff should be entitled to its costs of this application, save for the fact that Mr Golvan drew to my attention a settlement offer that was made yesterday by letter from the ninth defendant's solicitor to the first plaintiff's solicitor.
That offer read, "My client offers to settle its current application on the following basis: the first plaintiff consents to set aside the judgment of Mr Justice Habersberger made 21 June 2004 subject to the ninth defendant paying the first plaintiff's taxed costs of this proceeding thrown away including the costs of this current application and any reserved costs." Mr Golvan first said that that offer was very close to the result that had been determined by me. In my view that is not correct, because the offer does not include any offer to pay the plaintiff's costs thrown away on an indemnity basis and in the absence of any specification of the basis on which the costs were to be taxed, in my view, one would treat that as a offer based on a party and party taxation. Therefore, the first plaintiff has finished up with a result that is significantly better than the offer.
There is also the argument, which I did not consider necessary to explore, that the ninth defendant's settlement offer was made too late to affect any costs order.
Mr Martin submitted that plaintiff was entitled to costs on an indemnity basis in accordance with the principle set out by Tadgell J (as his Honour then was) in Australian Guarantee Corporation Limited v. DeJager[4] where His Honour referred to a party's conduct being a "high handed presumption".[5] In my opinion, that is not an authority which assists me deciding the question of costs today.
[4][1984] VR 483
[5][1984] VR 483 at 502
However, in the circumstances of the way in which this application has been fought and resolved I consider that the only fair result is for the plaintiff to be fully indemnified in respect of the costs of this application. It is part of the price which the ninth defendant has to pay for the indulgence it has obtained by the setting aside of a regularly obtained judgment. Accordingly, I will order that the ninth defendant pay the plaintiff's costs of and incidental to this application, including any reserved costs, on an indemnity basis.
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