Westpac Banking Corporation v Garrett - [2004] SASC 265

SUPREME COURT OF SOUTH AUSTRALIA
(Applications Under Various Acts or Rules)
WESTPAC BANKING CORPORATION v GARRETT & ORS
Judgment of The Honourable Justice White
6 September 2004
PROCEDURE - JUDGMENTS AND ORDERS - AMENDING, VARYING AND SETTING ASIDE - ACTIONS TO REVIEW OR SET ASIDE JUDGMENT
Default judgment entered against defendants - Judgment was expressed to be entered against defendants in their personal capacities and in capacities as trustees - This constituted an irregularity in the judgment - Consideration of discretion to amend judgment to remove irregularity - Consideration of requirement that representative capacity be endorsed on the summons - A trustee acts in a personal capacity rather than representative capacity - Failure to endorse capacity as trustee on summons was not an irregularity - Defendant foreshadowed reasonably arguable defence on the merits - Default judgment set aside.
Supreme Court Rules 9.04, 23.04, 30.02, 53.10, 84.12; Trade Practices Act 1974, s 52, s 87, referred to.
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Watson v Anderson (1976) 13 SASR 329; Fairclough v Strathmont Haulage Pty Ltd (1981) 28 SASR 456, applied.
General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388; Finnegan v Cementation Co Ltd [1953] 1 QB 688; Associated Japanese Bank (International) Ltd v Credit Du Nord SA [1989] 1 WLR 255; McRae v Commonwealth (1951) 84 CLR 377; Taylor v Johnson (1983) 151 CLR 422; Sargent v SAL Developments Ltd (1974) 131 CLR 634; Official Receiver v Feldman (1972) 4 SASR 246; Helvetic Investments Corp Pty Ltd v Knight (1984) 9 ACLR 773; Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1998) 78 ALR 193; ANZ Banking Group v Kostovski SC Vic, Chernov J, 2 July 1997, urep'd BC 9703266; CBA v Buffett (1993) 114 ALR 245; Gemini Property Investments v Woodards Investments [2000] SASC 210; ; Building Guarantee and Discount Company Ltd v Dolejsi [1967] VR 764; City Mutual Life Assurance Society Ltd v Giannarelli [1977] VR 463; ANZ Banking Group Ltd v Luck (1995) 4 Tas R 328; Cooper v Williams [1963] 2 QB 567; Woolworths (SA) Pty Ltd v Cauchi [2001] SASC 48; Metroinvest Anstalt v Commercial Union Assurance Co PLC [1985] 2 All ER 318; JW Carter "An Uncommon Mistake" (1991) 3 JCL 237, considered.

WESTPAC BANKING CORPORATION v GARRETT & ORS
[2004] SASC 265
WHITE J
Introduction and Background

The defendants apply, pursuant to SCR 23.04, to have the judgment entered against them in these proceedings in default of their appearance set aside.
Pursuant to an agreement entered into on 20 November 2002 (“the hire agreement”), the plaintiff (“Westpac”) agreed to hire specified equipment (“the equipment”) to Braidwood Operations Pty Ltd (“Braidwood”) in consideration, principally, of Braidwood paying to it 36 monthly payments of rental. Each of the defendants to these proceedings (along with others) provided guarantees to Westpac in respect of Braidwood’s obligations. The first defendant (Mr Garrett) and the second defendant (Mrs Garrett) provided guarantees in their personal capacities, and in their capacities as trustees of the “Andrew Garrett Family Trust”. The third defendant, Andrew Garrett Wine Resorts Pty Ltd provided a guarantee in its own capacity, and in its capacity as trustee of Springwood Park Unit Trust. The fourth defendant provided a guarantee in its personal capacity only.
Events of default, as that term was defined in the hire agreement, occurred on 15 July 2003 and 17 July 2003 respectively, first when an administrator was appointed to Braidwood, and secondly, when a receiver and manager of the property of Braidwood was appointed by the National Australia Bank.
Westpac then terminated the hire agreement and proceeded to sell some of the equipment. After the sale, Westpac alleges that there was a shortfall of $129,474.22. It demanded that sum from the defendant guarantors.
On 12 February 2004, Westpac instituted proceedings in this Court seeking orders enforcing the guarantee and for payment to it of the sum of $129,474.22 and interest accrued. Each of the third and fourth defendants was served with the proceedings at its registered office on 13 February 2004. Each of Mr and Mrs Garrett was served personally on 18 February 2004.
No action was taken by any defendant to file an address for service within the stipulated 21 days from service. Nor was any defence filed within the stipulated 28 days from receipt of the statement of claim.
On 8 March 2004, Westpac obtained judgment in the sum of $133,410.79 against the third and fourth defendants in consequence of their failure to file a notice of address for service. On 18 March 2004 Westpac obtained a judgment in the sum of $133,847.33 against Mr and Mrs Garrett in consequence of their failure to file a notice of address for service. The difference in the judgment sums is explained by the continued accrual of interest. Two separate judgments in respect of the one debt have been entered without either judgment referring to the other. It has not been suggested that the absence of a reference in either judgment to a stay of execution in the event of satisfaction of the other constitutes an irregularity which would require the judgments to be set aside.
On 29 April 2004, each of the defendants applied to have the judgments set aside and the execution of the judgments against them stayed pending the determination of that application. The application was supported by affidavits of Mr and Mrs Garrett each of which was sworn on 29 April 2004, by an affidavit of Mr Garrett sworn 26 May 2004, by affidavits of Brendan Grant sworn 6 May 2004 and 26 May 2004, and by affidavit of Andrew Sandow sworn 6 May 2004. It is not necessary at this stage to refer to the content of those affidavits other than to say that, in the main, they went to matters concerning the defence on the merits which the defendants wish to raise and the explanation for the inaction of the defendants following the service of the proceedings.
It appears that Mr Garrett is the moving force in the two corporate defendants. In addition, Mrs Garrett deposed to having left the decision-making with respect to the litigation to her husband, and that she was accustomed to signing documents presented to her for signature relying on his intimation that it was in order to do so.
Background Circumstances
In about July 2002, Sunburst Properties Pty Ltd (“Sunburst Properties”), a member of a group of companies associated with Mr Garrett, leased a vineyard know as the Fernando Estate Vineyard from a Mr Victor Vallesi. A vineyard had, at that time, already been established on the property. At the same time, Braidwood (which was also a member of the group of companies associated with Mr Garrett) agreed to purchase the plant and equipment as well as the goodwill of the business conducted by Mr Vallesi on the Fernando Estate Vineyard. Having entered into those transactions, Braidwood sought to raise more capital. It retained a finance broker, Pacific Royal Finance Pty Ltd, for this purpose. Braidwood obtained two valuations to assist in the obtaining of finance. The first was dated 11 July 2002 and was a market valuation. The second was dated 9 November 2002 and was an estimated auction realisation valuation. Each valuation purported to be a valuation of the entire plant and equipment on the Fernando Estate Vineyard, including a large quantity of bird netting. The market valuation of the plant and equipment in July 2002 was $437,170. Of that valuation, the bird netting was valued at $175,000. The estimated auction realisation valuation of the plant and equipment was $257,240 of which the bird netting was valued at $80,000.
An entity associated with Pacific Royal Finance Pty Ltd (Terrain Finance Pty Ltd) sought expressions of interest from various financiers including Westpac. The request for expression of interest stated that a facility was required “to assist with the purchase” of all the equipment specified in the two valuations, other than the bird netting. In respect of the latter, it was said that the facility was required “to assist with the finance of approximately 85 acres of double and single row bird netting”. It is unclear why this differentiation was made between the two forms of equipment.
On 11 November 2002, Westpac offered “to fund by way of sale and hire purchase back the recent purchase of various plant and equipment associated with the purchase of the Fernando Estate Vineyard in the Yarra Valley”. It is plain that the Westpac proposal proceeded on the assumption that all of the equipment, including the netting, was to be the subject of the sale and hire purchase back. When Westpac wrote to Terrain Finance on 11 November 2002 offering the facility, it said that the facility was for the sum of $257,240 in respect of equipment described as “various plant and equipment as per valuation dated 7 November”. That is to say, the Westpac proposal did not differentiate between the equipment and the netting as had the request from Terrain Finance.
It was a term of the facility that guarantees be provided, including the guarantees upon which Westpac now sues. In fact, in the original request for expression of interest, Terrain Finance had indicated that guarantees from various entities, including the present defendants, were available.
On 20 November 2002, the hire agreement and associated agreements were executed. Westpac entered into an agreement by which it purchased from Braidwood, for the total sum of $257,240, equipment specified in the schedule. Braidwood issued a tax invoice to Westpac for the equipment which was being sold to Westpac. A list of equipment was contained in the invoice, the total price for which was said to be $257,240. Mr and Mrs Garrett, on behalf of Braidwood, provided a statutory declaration to Westpac declaring that Braidwood had purchased the equipment which was, in turn, being sold to Westpac. Again, a Schedule of the equipment formed part of the statutory declaration. Westpac entered into the hire agreement with Braidwood in respect of the equipment specified in a Schedule to that Agreement. Finally, the guarantees, including the guarantees in issue in these proceedings, were executed.
It appears to be common ground that all parties intended that the plant and equipment sold by Braidwood to Westpac and, in turn, the subject of the hire purchase back to Braidwood, was to be the entire plant and equipment listed in the valuations, including the netting. However, with the exception of the schedule which formed part of the request by Terrain Finance for expressions of interest, the netting was not included in any of the schedules in the documents referred to above.
The affidavit material does not indicate how that came about but it does appear to have been an oversight. It also appears that each of the documents executed on 20 November 2002 was prepared by, or at the request of, Westpac. The effect of the omission of the netting from the various schedules was that the netting was not sold by Braidwood to Westpac, and was not, in turn, hired back to Braidwood. In short, Westpac never became the owner of the netting.
Following the appointment of the receiver and manager on 17 July 2003, Westpac, as it was entitled to, terminated the hire agreement. It proceeded to sell the equipment including the netting. The receiver and manager disputed Westpac’s right to sell the bird netting, pointing out that it had never been sold to Westpac. Westpac has, apparently, conceded that it is not entitled to sell the bird netting. The fate of the bird netting is not known but it appears that it may well have been sold by the receiver and manager, in order to raise funds with which to satisfy other creditors of Braidwood.
In the present proceedings, the defendants assert that they executed the guarantees in favour of Westpac in the belief that all of the plant and equipment listed in the valuations including the bird netting, was being transferred to Westpac and would, in the event of a default by Braidwood, be available for realisation by Westpac, thereby reducing the amount which they may be called upon to pay pursuant to the guarantee. It is that claim which forms the basis of the claim by the defendants that they have, at the least, an arguable defence to Westpac’s claim.
Application for Cross-examination on Affidavits
At the hearing of the application on 28 May 2004, Mr Duggan, for Westpac, applied for leave to cross-examine each of Mr and Mrs Garrett on their respective affidavits. The grant of such leave was opposed by the defendants.
I gave leave to Westpac to cross-examine Mr Garrett. I refused leave to cross-examine Mrs Garrett. Mr Duggan acknowledged that he had no material suggesting that the reliance on her husband to which Mrs Garrett had deposed was inaccurate.
Setting Aside the Default Judgment
The defendant submitted that the default judgments were irregular and should therefore be set aside on that ground alone, without the Court having to consider the question of whether they had an arguable defence on the merits or the significance of the appellant’s delay. It was submitted that the judgments were irregular in two respects:
(i)By the judgment entered on 18 March 2004 the Court ordered that Westpac “recover from the first and second defendants, both in their own capacity and in their capacities as trustees of the ‘Andrew Garrett Family Trust’ the sum of $133,847.33 (inclusive of interest, and its costs of action)”. By the judgment entered against the third and fourth defendants on 8 March 2004 the Court ordered that Westpac “recover from the third defendant, both in its own capacity and in its capacity as trustee of the ‘Springwood Park Unit Trust’, and from the fourth defendant, the sum of $133,410.79 (inclusive of interest) and its costs of action.” It was submitted that the order that there might be recovery from the first, second and third defendants, not only their personal capacities but also in their capacities as trustees of the trust, was an irregularity.
(ii)SCR 9.04(1) requires that “if any party sues or is being sued, in a representative capacity, such capacity shall be endorsed on the summons”. The defendant submitted that as the first, second and third defendants were being sued in their capacities as trustees, SCR 9.04 applied. As there was no endorsement on the summons of the kind required by SCR 9.04, this was a defect which tainted the whole proceedings and made the judgment obtained irregular.
In the alternative, it was submitted that the defendant did have an arguable defence. That being so, as the only prejudice identified by Westpac to have been caused by the defendant’s delay was one which could be cured by an order for costs, it was submitted that it would be appropriate for the judgment to be set aside so that the plaintiff’s action might be defended.
Judgment Against a Defendant in its Capacity as a Trustee
In the request for expression of interest in providing a finance facility, Terrain Finance indicated that security was offered to the financier by a hire purchase over “the abovementioned equipment”[1] supported by guarantees from various persons and entities but including, relevantly, “Andrew Morton Garrett, Averil Gay Garrett, Andrew Morton Garrett and Averil Gay Garrett ATFT Andrew Garrett Family Trust, Andrew Garrett Wine Resorts Pty Ltd ATFT Springwood Park Unit Trust and Garrett International Investments Pty Ltd”.
[1]As the Terrain Finance document distinguished between the equipment specified in s (a) and the netting specified in (b), it is possible that Terrain Finance was proposing that the netting should not have been part of the hire purchase arrangement, but that is not the way in which Westpac appears to have understood the request.
In the Schedule to the Commercial Hire Purchase Agreement executed on 20 November 2002, the same persons were named as guarantors, and described in the same way as in the Terrain Finance request, but the address for each was also shown. That address, in each case, was “Main House, Springwood Park, Mount Barker Road, Leawood Gardens, South Australia 5150”.
The execution page of the guarantee made provision for separate signatures by Mr and Mrs Garrett and each placed their signature in the appropriate place. The execution page also made provision for signature by Mr Garrett as trustee for the Andrew Garrett Family Trust. Mr Garrett entered a separate signature on the execution page in his capacity as trustee of that Trust. Likewise, the execution page contained a separate space for signature by Mrs Garrett in her capacity as trustee for the Andrew Garrett Family Trust. Mrs Garrett entered her signature in the appropriate place on the execution page for signature in that capacity.
Mr Garrett also signed on behalf of Andrew Garrett Wine Resorts Pty Ltd but there was nothing on the execution page to indicate that Andrew Garrett Wine Resorts Pty Ltd was signing both in its own capacity and as trustee for Springwood Park Unit Trust. Finally, Mr Garrett signed the guarantee on behalf of Garrett International Investments Pty Ltd.
In General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388, McPherson J declined to enter a judgment by consent against two defendants who were named twice in the draft judgment. The second statement of the name of these two defendants was followed by the words “as trustee of [a named] family trust”. The words “as trustee of …” were found by McPherson J to be intended to give the judgment creditor direct access to the trust assets. A judgment giving such access ought not to be given, it was held, because of the principle that a creditor has no direct right of recourse against trust assets. Whether or not the trustee is entitled to be indemnified from the trust assets depended upon a number of factors which had not been established at the time the judgment was to be entered, eg, whether the incurring of the liability by the trustee was authorised or properly incurred and whether, through some misapplication of trust assets, the trustee was in debit in the trust accounts, and so on. Therefore it was held that the addition of the words “as trustee of the [named] trust” was not a proper method of ordering that satisfaction of the judgment be made from the trust assets.
A trustee who, in discharge of the trust, enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367. In such a case, the trustee is entitled to be indemnified against those liabilities from the trust assets held by it and, for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Octavo Investments at 367. The creditors of the trustee have limited rights with respect to the trust assets. The trust assets may not be taken in execution but in the event of the trustee’s bankruptcy the creditors will be subrogated to the beneficial interest enjoyed by the trustee: Octavo Investments at 367.
Relying upon the decision in General Credits v Tawilla and on the principles outlined above, the defendant submitted that the judgments in this case were, because of the inclusion of the words “in their capacities as trustees of the [named] trust”, or in the case of the third defendant “in its capacity as trustee of the [named] trust”, defective in form and therefore irregular.

It is open to a trustee, by appropriate words, to limit his or her liability pursuant to a transaction to the assets of a particular trust: Helvetic Investment Corp Pty Ltd v Knight (1984) 9 ACLR 773 at 778; and Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1998) 78 ALR 193 per Gummow J at 253 where it was said:
“…the law does permit a trustee to contract with third parties on the basis that his personal liability is limited, for example, to the extent of his right to resort to and apply trust funds for the discharge of liabilities incurred by him in the authorised conduct of the trust. Nevertheless, third parties may, in a given case, not be prepared to deal with a trustee on such a basis and, in any event, clear words are necessary to achieve a result where by what is prima facie the unlimited personal liability of a trustee is so qualified …”
However, that is not this case. Mr and Mrs Garrett have expressly purported to contract in their personal capacities and in their capacities as trustees of a named trust. In the case of the third defendant, the position is a little more uncertain because of the absence, in the execution clause, of any statement that that defendant was contracting not only in its own right but in its capacity as trustee of the named trust.
I consider that there is a defect in the form of the judgments entered against Mr and Mrs Garrett and as against the third defendant, at least insofar as the judgments have been entered not only against those persons personally but also in their capacity as trustees of the named trusts. I come to this conclusion for the same reasons as expressed by McPherson J in General Credits v Tawilla. I also accept that this defect is an irregularity. But it does not follow that the defendants are thereby entitled to have the whole of the judgments set aside.
It is not every irregularity which entitles a defendant to have a default judgment set aside as of right. The Court retains a discretion. See ANZ Banking Group v Kostovski SC Vic, Chernov J, 2 July 1997, unrep’d BC 9703266; CBA v Buffett (1993) 114 ALR 245. Relevant to the exercise of the discretion in this case is that the defect does not affect all defendants, and in the case of Mr and Mrs Garrett and the third defendant, does not affect their personal liability under the judgments.
The judgment against the fourth defendant is not affected by the defect. It was sued in its own right. The judgment against it does not contain any of the offending words. Furthermore, the defect should not affect the judgment against Mr and Mrs Garrett and the third defendant in their own right. They are personally liable under the guarantee and the judgment against them in that capacity should not be regarded as affected by the inclusion in the judgment or words purporting to make them liable in an additional capacity.
Mr Duggan applied, in the event that I found an irregularity in the manner of expression of the judgments, for an order amending the respective judgments so as to strike out, in the case of the judgment against Mr and Mrs Garrett, the words, “, both in their own capacities and their capacities as trustees of the ‘Andrew Garrett Family Trust’,” and, in the case of the third defendant the words, “, both in its own capacity and in its capacity as trustee of the ‘Springwood Park Unit Trust’,”.
The Court does have power to amend a default judgment, even where the application for amendment is made after the application to set aside the judgment: Gemini Property Investments v Woodards Investments [2000] SASC 210; SCR 53.10; SCR 84.12. See also Building Guarantee and Discount Company Ltd v Dolejsi [1967] VR 764; City Mutual Life Assurance Society Ltd v Giannarelli [1977] VR 463; ANZ Banking Group Ltd v Luck (1995) 4 Tas R 328.
Were it not for the conclusion which I have reached on the issue of arguable defence, I would have inclined to allow the amendment sought. Such an amendment does not involve a recasting of the judgment: It involves a simple elimination of some words. Furthermore, no prejudice to the defendants, other than the inability to rely on the irregularity in the setting aside application, has been shown. However, it is unnecessary to resolve this issue finally.
The Rule 9.04 Endorsement
The defendants submitted that as Mr and Mrs Garrett and the third defendant were being sued in their capacity as trustee, they were being sued in representative capacity as that term is used in SCR 9.04. As the summons issued by Westpac did not include any endorsement to that effect, it was submitted that the summons contained an irregularity which tainted the whole proceedings, including the respective judgments.
The defendants rely on Finnegan v Cementation Co Ltd [1953] 1 QB 688. However, in that case, the representative capacity in which the plaintiff sued, and with which the writ was endorsed, was held to be a capacity which the plaintiff did not possess. The proceedings were, accordingly, held to be a nullity. That is very different from this case. Moreover, in Finnigan, the proceedings were held to be a nullity before any judgment had been entered.
Where an endorsement required on a summons is not included, the proceedings may be irregular: Cooper v Williams [1963] 2 QB 567. But the irregularity, in an appropriate case, may be cured by amendment: Cooper v Williams; Woolworths (SA) Pty Ltd v Cauchi [2001] SASC 48.
A trustee who is sued for a debt incurred by it in its capacity as trustee is not, by reason of the trusteeship only, sued in a representative capacity. The trustee in such circumstances is the representative of neither the beneficiaries nor of the trust assets nor of the “trust” itself. The liability asserted against such a trustee is a personal liability: Octavo Investments Pty Ltd v Knight at 367.
The existence of a right in the trustee to indemnity from the trust assets in respect of such liability does not convert the trustee into a representative of the trust or its assets. The defendants did not cite any authority apart from Finnegan in support of their submission. The submission on this ground should be rejected.
This conclusion makes it unnecessary to consider the question of whether an irregularity occasioned by the absence of any endorsement on a summons has the effect of making any judgment entered in those proceedings irregular (cf CBA v Buffett (1993) 114 ALR 245; Metroinvest Anstalt v Commercial UnionAssurance Co PLC [1985] 2 All ER 318) and the reliance in that respect by Westpac on SCR 30.02.
A Reasonably Arguable Defence
The principles which should guide a court asked to exercise its discretion to set aside a default judgment appear in the following passage from the judgment of Walters J (with whom Mitchell J agreed) in Watson v Anderson (1976) 13 SASR 329 at 341:
“… a mere statement by a defendant that he has a good defence is not sufficient to justify a review of the exercise of a judicial discretion. He must go further and demonstrate ‘a very compelling reason’ for his failure to appear in the action, and, further, that he has a plausible defence either in law or in fact. True it is that on an application to set aside a judgment by default, the Court does not pronounce on the law or the facts, but it seems to me that before allowing a defendant to come in and defend, the Court should have before it materials which enable it to say how it came about that the defendant found himself bound by a judgment regularly obtained; that the defendant genuinely desires to be allowed to come in and present his case; and that issues are raised in such a form as to require serious consideration of the defence that he would put forward. In the words of Jenkins LJ in Grimshaw v Dunbar[2] ‘the Judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success’.”
[2] [1953] 1 QB 408 at 416.
Thus, the defendants need to demonstrate that they have a reasonably arguable defence to Westpac’s claim. I will address the question of delay separately.
One matter relied upon by the defendant can be dealt with quite shortly. The defendant submitted that Westpac had not disposed of the equipment which had been transferred to it at the best price reasonably obtainable, and therefore that the indebtedness of Braidwood to Westpac should be fixed at a lower figure than asserted by Westpac. There is scarcely any evidence to indicate that that contention is reasonably arguable. This ground of defence need not be considered further.
The principal matter relied on by the defendants to establish a reasonably arguable defence was the mistake which resulted in the netting not being included in the equipment purchased by Westpac and hired back to Braidwood. As noted above, it appears to have been the common intention of the parties that the netting was to be included. It also appears to be the case that the mistake as to its exclusion was mutual, ie, common to Westpac and to Braidwood and to the defendants (with Mr Garrett’s state of knowledge being the relevant state of mind for all defendants).
Mr Garrett deposed to being unaware that the netting had been included in the Schedule to the guarantee executed by him and his wife. He does not specifically depose to a belief that the netting was included in the equipment sold to Westpac and hired back by Braidwood but that is implicit in his affidavit. Mr Garrett said that he would not have signed the guarantee in his own right, or as trustee of the Andrew Garrett Family Trust, nor on behalf of the third and fourth defendants, nor would he have presented the guarantee to his wife for her signature, had he realised that the netting was not also being transferred to Westpac.
Whilst the reliability of Mr Garrett’s evidence was undermined by Mr Duggan’s cross-examination, it would not be appropriate to find, at this stage, as a fact, that Mr Garrett’s statement in his affidavit on this topic was incorrect. What is plain is that Mr Garrett did know, by at least 26 August 2003, of the fact that the netting had not been sold to Westpac. The evidence does not indicate however, when and how he first obtained that knowledge.
The defendants submitted that the common mistake as to non-inclusion of the netting meant that the contract of guarantee was void at common law or open to rescission in equity. They relied on Associated Japanese Bank (International) Ltd v Credit Du Nord SA [1989] 1 WLR 255. The circumstances of the transaction in that case were somewhat similar to those of the present case. Equipment had been sold by the debtor to a financier and leased back to the debtor. A third party had been induced to guarantee the performance of the debtor’s obligations under the lease agreement. Both transactions were induced by a fraud by the debtor as the equipment which was the subject of the transactions did not exist. Steyn J found the guarantor not liable to the creditor on two bases. First, the contract of guarantee was subject to an express, or in the alternative, an implied, condition precedent that the lease related to existing machinery, and, because the machinery did not exist, the condition precedent was not satisfied. Secondly, the contract was void at common law because, by reason of the non existence of the machinery and therefore, the absence of the security which both the creditor and the guarantor believed existed, the subject matter of the guarantee was materially different from that which each had reasonably believed at the time the contract was made. Steyn J also found that he would, had it been necessary, have found that the guarantee should be set aside on equitable principles by reason of the common mistake.
There are, as Mr Duggan pointed out, significant factual differences between Associated Japanese Bank v Credit Du Nord and the present case. In the former, the goods simply did not exist at all. In the present case, it was simply a mistake as to whether the netting was the subject of the transaction. In the present case, the defendants had contributed to the mistake by the signing of the statutory declaration on behalf of Braidwood, and the issuing of the tax invoice to Westpac when neither included the netting as an item of property being transferred.
In any event, in Australia, following the decision of the High Court in McRae v Commonwealth (1951) 84 CLR 377 and Taylor v Johnson (1983) 151 CLR 422, there is little, if any, scope for a common mistake by the parties to have the effect of voiding a contract at common law, and equity will not set aside a contract in circumstances of common mistake unless there is some unconscionability involved in one party seeking to enforce the contract notwithstanding the mistake. Further still, the decision in Associated Japanese Bank v Credit Du Nord, insofar as it was based on a finding that the contract contained a condition precedent, has been the subject of trenchant academic criticism: J W Carter “An Uncommon Mistake” (1991) 3 JCL 237.
In my opinion, therefore, the decision in Associated Japanese Bank v Credit Du Nord provides an uncertain basis upon which to conclude that the defendants have a defence which is reasonably arguable.
However, the defendants submit that Westpac’s conduct, in preparing and submitting documents by which effect was given to the transactions, implicitly represented to them that it was the whole of the equipment, including the netting, listed in the valuations which was the subject of the transaction and therefore available to Westpac (and the guarantors) as security. This, it was submitted, constituted misleading or deceptive conduct contract to s 52 of the Trade Practices Act 1974, which entitled the defendants to an order, pursuant to s 87 of the Act setting aside, or at least varying, the terms of the guarantee.
There are a number of issues which arise in relation to this foreshadowed defence. First, it is, strictly speaking, not a defence at all but rather an assertion of an entitlement to relief which, if granted, would preclude Westpac enforcing the guarantee. However, I am prepared to accept that the assertion of such an entitlement is, in the context of an application to set aside a default judgment to be considered as a possible defence. Secondly, there are issues as to the precise nature of any representation made by Westpac when presenting the documents for execution: was it an implied representation that all the equipment specified in the valuations had, as a matter of fact, been included in the schedules? Alternatively, was it merely an implied representation that Westpac believed that all such equipment had been included? Thirdly, there are issues about causation. Fourthly, it may be doubtful that an order setting aside the guarantees would be made in the present context unless Westpac was first restored to the position which it held prior to 20 November 2002.
Whilst all these matters raise doubts as to the availability of the foreshadowed defence, I do not think it can be said that the foreshadowed defence is unarguable so that the defendant should be shut out from pursuing it.
Mr Roder, who presented the argument for the defendants on this point, submitted that an alternative from of relief may be available, namely, that the guarantees would be varied so as to preclude Westpac from recovering from the defendants that amount which it should reasonably have been able to recover from the sale of the netting had the netting been included in the transactions. Again, I do not think that possibility can be excluded and that, too, supports the availability of an arguable defence.
Mr Duggan raised one matter, which he submitted would make it inappropriate for the Court to set aside or vary the contract of guarantee. This was an apparent affirmation of the contract of guarantee by Mr Garrett in March 2004.
Before considering this submission, it is necessary to consider the admissibility of the evidence upon which Westpac relies on this point.
On 11 March 2004, Mr Garrett telephoned Westpac’s solicitor, Mr Jarvis. There is a dispute as to what precisely was said in the course of that conversation. It is undesirable, in the present application, that I express a concluded view about that dispute. That is something which may have to be determined later, after a full hearing. For present purposes I propose to act on the basis that Mr Jarvis’ account of the conversation is correct. During the course of the telephone conversation, Mr Garrett told Mr Jarvis that he wished to meet with him and discuss payment of the debt to Westpac over time; that he could demonstrate that there was equity in the Springwood Park property and that he could pay over time; that he did not dispute the liability under the guarantee and was not trying to back away from the guarantee. Mr Jarvis told Mr Garrett that he would obtain instructions from Westpac as to whether he should meet as requested by Mr Garrett.
As it happened, Mr Jarvis was instructed not to meet with Mr Garrett. That decision was communicated by Mr Jarvis to Mr Garrett on 6 April 2004.
Mr Quick QC submitted that, by virtue of s 67C of the Evidence Act 1929, this evidence was inadmissible. That section makes inadmissible (save in specified circumstances) “evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute”. It was submitted that the statements made by Mr Garrett to Mr Jarvis in the course of the telephone conversation were of that character. I take a different view. Mr Garrett was not seeking to negotiate the settlement of a civil dispute about the guarantee nor the obligations which arose under it. Rather, he was seeking to negotiate the terms of the payment required by that guarantee. Put slightly differently, having acknowledged that there was no dispute, Mr Garrett was then seeking to negotiate the consequences of that position. In my opinion the evidence relied upon by Mr Duggan for this point is admissible.
As I understand it, Westpac’s submission was that in this telephone conversation, Mr Garrett should be understood to have been speaking for all the defendants. I will proceed on that basis. The submission was, in effect, that the conduct of the defendants, through the person of Mr Garrett, meant that there had been an affirmation of the contract of guarantee after the defendants had become aware that the netting had not been included or, in the alternative, and there had been such a delay in seeking relief on that account as to make it unlikely that an order pursuant to s 87 of the Trade Practices Act would be made in their favour. I consider that there is force in this submission. However, there is a distinction between having knowledge of the facts giving right to an entitlement to rescind or other relief, on the one hand, and knowledge that those facts do give rise to that right on the other. There is some authority indicating that it is knowledge of the latter type which is required before a party can be taken to have affirmed the contract: Sargent v SAL Developments Ltd (1974) 131 CLR 634 at 656; Official Receiver v Feldman (1972) 4 SASR 246 at 270 – 273. Mr Garrett’s statements will not therefore necessarily be construed as an affirmation of the contract of guarantee. In these circumstances, I do not think it can be said that the entitlement to forms of relief claimed by the defendants pursuant to s 87 of the Trade Practices Act are not reasonably arguable.
I am therefore satisfied that the defendants have made out a defence which is reasonably arguable.
Delay
The defendants should provide a good explanation for the delay and, in particular, not having entered a notice of address for service and delay within the time stipulated by the Supreme Court Rules.
There is little to be said for the defendants in this respect. At the time the proceedings were served, Mr Garrett and other members of the Garrett group of companies were involved in litigation. Mr Garrett was then in regular communication with lawyers acting for members of the group. Mr Garrett did speak to a lawyer, Mr Beissel, who was acting for his wife and members of the group in other litigation.

The following explanations were put forward for the delay. First, it was said that Mr Garrett was overwhelmed by the nature and extent of the litigation which he and his companies were then facing. Secondly, it was said that his health was impaired, but the evidence about this is scant. Thirdly, it was alleged that he and his companies did not have the financial resources to fund litigation of this kind. Fourthly, it was submitted that he and the other defendants, although aware of the omission of the netting from the Schedules, were not aware of the potential legal significance of that omission.
These explanations are not really satisfactory. However, Westpac acknowledged that it had not suffered any prejudice by the delay other than a prejudice which could be cured by an order for costs. In Fairclough v Strathmont Haulage Pty Ltd (1981) 28 SASR 456 at 457, King CJ (with whom Mohr and Matheson JJ agreed) said that:
“Where a defence on the merits is adequately deposed to by the affidavit of merits and where the failure to enter the appearance and any delay which has occurred in applying to set aside the judgment has caused no prejudice which cannot be made good by an order for costs, it seems to me that the default judgment ought usually to be set aside, and that a proper exercise of the discretion which reposes in the Magistrate to whom such an application is made will usually require, in those circumstances, that the judgment be set aside.”
I think that is the principle which ought to guide me in the present case. It is a principle which places less emphasis on the need, referred to by Walters J in Watson v Anderson at 341, for a “very compelling reason” for the failure to enter an appearance in the action to be shown. For this reason, I do not consider that the absence of a “compelling reason” for the delay disentitles the defendants from an exercise of the discretion in their favour.
Conclusion
For the reasons given above, there will be an order that each of the default judgments be set aside.