Wildflower Electrical Refrigeration Service (WA) v Refrigid Pty Ltd - [2014] WASC 382

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: WILDFLOWER ELECTRICAL REFRIGERATION SERVICE (WA) -v- REFRIGID PTY LTD [2014] WASC 382

CORAM: ACTING MASTER GETHING

HEARD: 15 OCTOBER 2014

DELIVERED : 28 OCTOBER 2014

FILE NO/S: CIV 1327 of 2013

BETWEEN: WILDFLOWER ELECTRICAL REFRIGERATION SERVICE (WA)
Plaintiff
AND
REFRIGID PTY LTD
First Defendant
CAROLYN LEANNE MARTIN
Second Defendant
LEIGH ANDREW MARTIN
Third Defendant
REGISTRAR OF TITLES
Fourth Defendant

Catchwords:

Practice and procedure - Setting aside default judgment

Legislation:

Rules of the Supreme Court 1971 (WA), O 13 r 10

Result:

Default judgments set aside on terms

Category: B

Representation:

Counsel:

Plaintiff:     Mr G M Abbott
First Defendant             :     Mr D F Beere
Second Defendant         :     Mr D F Beere
Third Defendant           :     Mr D F Beere
Fourth Defendant          :     Mr D F Beere

Solicitors:

Plaintiff:     Tottle Partners
First Defendant             :     Lane Buck & Higgins
Second Defendant         :     Lane Buck & Higgins
Third Defendant           :     Lane Buck & Higgins
Fourth Defendant          :     Lane Buck & Higgins

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

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Caffey v Leatt‑Hayter [No 3] [2013] WASC 348
Crayden v Ottaviano [2003] WASCA 20
Glew v Frank Jasper Pty Ltd [2010] WASCA 87
Hall v Hall [2007] WASC 198
Nobile v National Australia Bank Limited (1987) ATPR 40‑787
Palmer v Prince [1980] WAR 61
Parker v Transfield Pty Ltd [2000] WASCA 382
Rollond v Bank of Western Australia Ltd (Unreported, Full Court WASC, Library No 980498, 3 September 1998)
Starrs v Retravision (WA) Ltd [2012] WASCA 67
The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412
Vautier Holdings Pty Ltd v Kagioulis [2014] WASC 209

ACTING MASTER GETHING: By agreement dated 29 August 2011 ('Sale Agreement'), Wildflower Electrical Refrigeration Service (WA) Pty Ltd ('Wildflower') agreed to sell its air conditioning and refrigeration sales and repair business ('Business') to Refrigid Pty Ltd ('Refrigid'). The acquisition price was $180,000 plus GST. The sum of $100,000 was paid at settlement, with the remaining $98,000 to be paid over time. The then directors of Refrigid, Carolyn Martin and Leigh Martin ('the Martins'), guaranteed the obligations of Refrigid under the Sale Agreement. The Martins granted Wildflower an equitable charge over their matrimonial home ('Property') to secure their obligations under the guarantee. The business did not go as well as was expected or, in the Martins' case, as well as they were led to believe. Neither Refrigid nor the Martins made any payment of the balance of the acquisition price.
In February 2013 Wildflower commenced an action in the Supreme Court seeking payment of the $98,000 as well as orders enforcing the equitable charge.
The Martins remain married, but are currently estranged. Ms Martin entered an appearance on 21 March 2013. Mr Martin did not do so. Accordingly, on 3 April 2013 default judgment was entered by Wildflower against Mr Martin in the amount of $98,000 together with interest of $7,795.97 and costs to be taxed. Refrigid also failed to enter an appearance and default judgment was entered against it in the same terms on 24 April 2013. On 24 May 2013, default judgment was entered against Ms Martin for her failure to file her defence. Each judgment was regularly entered.
Shortly after the action was commenced, Wildflower sought and obtained an order to the effect that the net proceeds of the then pending sale of the Property were to be paid into court pending further orders in the action. On 17 April 2013, the Martins paid the amount of $29,924.01 into court pursuant to those orders. In July 2013 this money was paid out to Wildflower in partial satisfaction of the judgment debt.
On 6 March 2014 at Wildflower's request, a property (seizure and sale) order ('PSSO') was issued pursuant to the Civil Judgments Enforcement Act 2004 (WA) against Mr Martin to enforce the balance of its judgment ($74,071.96 plus interest from 3 April 2013). It was executed against Mr Martin on 1 April 2014, though was returned unsatisfied.
On 29 May 2014 Wildflower issued a creditor's petition for the bankruptcy of Mr Martin based on the PSSO executed against Mr Martin being returned unsatisfied. There were hearings of the creditor's petition in the Federal Circuit Court on 30 June 2014, 21 July 2014, 4 August 2014 and 25 August 2014.
On 13 August 2014 Mr Martin commenced an application pursuant to the Rules of the Supreme Court 1971 (WA) ('RSC') O 13 r 10 to set aside the default judgment. Wildflower opposed the application. At the hearing before me on 15 October 2014 counsel for Mr Martin stated that he had recently received instructions to act on behalf of Refrigid and Ms Martin. He sought leave to amend the application to include orders that the default judgments against them also be set aside. For the obvious pragmatic reasons, this application was not resisted by counsel for Wildflower. I granted the order sought on the undertaking by counsel to file and serve the relevant appearances.
For the reasons set out below, I am satisfied that the three default judgments ought to be set aside with costs on terms requiring the defendants to promptly file their defences. I also propose that once this occurs the action proceed immediately to mediation.

Issues arising for determination

Pursuant to RSC O 13 r 10, the 'Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order'. The discretion in this rule is not qualified: Starrs v Retravision (WA) Ltd [2012] WASCA 67 [36] (Allanson J, with whom Pullin JA and Murphy JA agreed); Hall v Hall [2007] WASC 198 [63] (Newnes J). It is to be exercised 'so as to do justice between the parties, having regard to the circumstances of the case': Hall [63]. The defendants 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: Starrs [51]; Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57] (Gaudron, McHugh, Gummow and Hayne JJ); Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46] (Gleeson CJ, Gummow, Hayne and Crennan JJ). There are, however, limits to the extent of the opportunity to be given to the defendants; they are only entitled to an opportunity sufficient to ensure the just resolution of the case: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [98], [102] (Gummow, Hayne, Crennan, Kiefel & Bell JJ). In this regard, in exercising the discretion in RSC O 13 r 10 the case management considerations set out in O 1 r 4A and r 4B are relevant.
Different considerations apply depending on whether or not the judgment was regularly entered: Starrs [36] ‑ [43]. Where, as is the present case, the judgments are regularly entered, the 'most cogent' consideration is whether the defendants have a defence on the merits: Crayden v Ottaviano [2003] WASCA 20 [16], [53] (Templeman J, with whom Murray J and Rolfe AJ agreed); Starrs [36].
In addition to the merits of the proposed defence, the authorities are to the effect that the following factors are relevant:
•The explanation given by the defendants for allowing the judgments to be entered against them.
•The length of the delay between the judgment being entered and the application to set it aside, and the defendants' explanation for that delay.
•The extent of any prejudice, in particular irreparable prejudice, that the plaintiff would suffer if the judgment is set aside.
See generally: Palmer v Prince [1980] WAR 61, 62 (Jackson CJ, with whom Virtue SPJ agreed), 64 (Burt J); Crayden; Vautier Holdings Pty Ltd v Kagioulis [2014] WASC 209 (Master Sanderson).
Each of these factors is considered below, followed by a consideration of where the interests of justice lie.
There is a further issue raised, being the failure on the part of Mr Martin's lawyers to confer with Wildflower's lawyers prior to bringing this application. In this regard, in the application, Mr Martin sought an order pursuant to RSC O 59 r 9(2) which empowers the Court to waive the requirement to confer in O 59 r 9(1) 'in a case or urgency or for other good reason'. The reason proffered by Mr Martin's lawyer for failing to confer was a pending hearing in the Federal Circuit Court which had been adjourned to 4 August 2014 to enable Mr Martin to apply to set aside the default judgment, which was the basis of the bankruptcy petition. His lawyers first received instructions on 22 July 2014, though it was not until 25 July 2014 that comprehensive instructions could be taken. His lawyer formed the view that the priority ought to be given to seeking a further adjournment of the bankruptcy application to allow the present application to be prepared and filed, which occurred on 13 August 2014.
Counsel for Wildflower was not able to identify any practical benefit which could have been achieved by conferral, save perhaps for an agreement as to the orders to program this application to a hearing. The effect of insisting on compliance with O 59 r 9(1) would be to oblige me to dismiss the application and then require the defendants' lawyer to confer with Wildflower's lawyer before recommencing. This seems to be of no utility and would only lead to unnecessary costs being incurred. I am therefore of the view that an order should be made waiving the requirement to confer.
The following issues thus arise for consideration:
•Have the defendants provided an adequate explanation for judgment being entered against them?
•Have the defendants provided an adequate explanation for the delays in commencing the present application?
•What are the merits of the proposed defences?
•Has Wildflower suffered any irreparable prejudice?
•Where do the interests of justice lie?
•What final orders are appropriate?

Have the defendants provided an adequate explanation for judgment being entered against them?

It is incumbent upon the defendants to provide some explanation for the failure to enter an appearance (in the case of Refrigid and Mr Martin) and the failure to file a defence (in the case of Ms Martin). In relation to this factor, Master Sanderson recently observed in Vautier [10]:
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.
Mr Martin filed two affidavits in support of the application, sworn 8 August 2014 and 24 September 2014. In his first affidavit, Mr Martin states that the reason why he did not enter an appearance was that he had agreed with Ms Martin that she would enter an appearance on behalf of all three defendants.
Ms Martin filed an affidavit in support of the present application, sworn 25 September 2014. She deposes that she thought she was lodging a memorandum of appearance on behalf of all three defendants. She states that she has now been advised that she filed an appearance only on her own behalf. She states that she was unfamiliar with the forms and did not understand at the time that she had not filed an appearance on behalf of all three defendants. She goes on to state that she did not understand the fact that she needed to file a defence once she received the statement of claim.
Counsel for Wildflower observed that neither Mr Martin nor Ms Martin state when they had the conversation about who would file the appearances. Mr Martin was served on 15 March 2013. Counsel noted that Refrigid was not served until 25 March 2013, the same day on which Ms Martin filed her appearance, leading him to query when the relevant conversation between Mr Martin and Ms Martin occurred. However, it would have been obvious from the writ served on Mr Martin that he, Ms Martin and Refrigid were all defendants. Counsel also pointed out that Ms Martin had ceased to be a director of Refrigid by this time. He also noted Mr Martin's statement that, at this time, 'we were no longer living together and our communications were somewhat limited'. Further, Wildflower is critical of Mr Martin for not checking to ensure that an appearance had been entered.
This factor does not provide a compelling reason to set aside the default judgments.

Have the defendants provided an adequate explanation for the delays in commencing the present application?

There was a delay of just over 15 months between when judgment was entered against Mr Martin (3 April 2013) and when he made his application to set it aside (13 August 2014).
Mr Martin notes that there was a delay between when the instalments were due (October 2011) and when Wildflower commenced the present action (February 2013). However, delay of this kind is not relevant to the question of whether a default judgment should be set aside: Crayden [38].
Mr Martin's evidence is that he first became aware of the default judgment against him sometime in 2013. He gives three reasons why he took no action to set it aside until August 2014:
(a)he had no funds to employ a lawyer;
(b)in his words, the breakdown of his marriage and the collapse of the Business 'left me in such an emotional state that I was incapable of making any effective business decisions', a position which caused him to seek medical attention; and
(c)he was unaware that he might have a legal defence and counterclaim against Wildflower.
Mr Martin states that he has now been advised by his current lawyers that he has a defence to Wildflower's claim and a counterclaim to have the Sale Agreement set aside as being void ab initio.
Counsel for Wildflower observed that notwithstanding the issues identified by Mr Martin, in November 2013 he commenced an action against Wildflower in the Western Australia Industrial Relations Commission ('WAIRC Proceedings'). In this application, Mr Martin claims from Wildflower unpaid wages of approximately $49,000 for the period of an apprenticeship with Wildflower (which is discussed in more detail below). This does tend to suggest that Mr Martin had more decision making capacity that he appears to assert.
As to Refrigid, on 2 June 2013 it was deregistered pursuant to Corporations Act 2001 (Cth) s 601AD. It has recently been reinstated.
Ms Martin does not provide any explanation for delay in applying to set aside the default judgment. She was present in court on 28 June 2013 when orders were made for the payment out of court of the net sale proceeds paid into court.
I accept that a marriage breakdown and a business collapse are two inherently emotionally distressing events. This, along with the lack of funds to obtain legal representation, is mildly supportive of the application.

What are the merits of the proposed defences?

Overview

In order for it to be appropriate to set aside a default judgment, it must appear from the affidavit material before the court that the defendants' case is not inherently incredible and that if their evidence were accepted at trial they would have a real prospect of success: Rollond v Bank of Western Australia Ltd (Unreported, Full Court WASC, Library No 980498, 3 September 1998), Malcolm CJ (with whom Kennedy and Owen JJ agreed), 36, 41; Parker v Transfield Pty Ltd [2000] WASCA 382 [3] Malcolm CJ (with Ipp and Wallwork JJ agreeing); Hall [67]; The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257; (2007) 35 WAR 412 [55] (Judgment of the Court).
The defendants are required to 'condescend upon particulars' of their defences: Vautier [10]. This may well require the defendants to provide the same level of detail as would be provided if they were responding to an application for summary judgment by the plaintiff: Vautier [10], [11].
There are three aspects to the defendants' proposed defence, being that:
•The Sale Agreement was entered into based on a misrepresentation by the sole director of Wildflower, Michael Moloney, as to the turnover of the Business ('Turnover Representation').
•Mr Moloney represented to the Martins that he or Wildflower would provide Mr Martin with an apprenticeship and that, prior to Mr Martin acquiring his qualification, Wildflower would provide electrical services to the Business ('Apprenticeship Agreement').
•Wildflower and Refrigid agreed that the instalments did not have to be paid until the Business generated sufficient profit to service those amounts, which did not occur ('Deferral Agreement').

Turnover Representation

In the hearing before me counsel for the defendants clarified that their case was that the Turnover Representation was both a representation as to the current turnover of the Business (that is, for the year ending 30 June 2011) and as to the likely future turnover of the Business.
In his affidavit sworn 8 August 2014, Mr Martin states that Mr Moloney told him, prior to the execution of the Sale Agreement, that the income of the Business for the year ending 30 June 2010 amounted to $212,397. Although it is not entirely clear, Mr Martin's evidence is to the effect that he took this to be a representation as to the amount of income being generated immediately prior to the sale of the business (see par 8 of Mr Martin's affidavit). The income from the Business was intermingled with income from an electrical services business operated by Wildflower.
In her affidavit sworn 25 September 2014, Ms Martin confirms this position, though her recollection was that the gross turnover was approximately $212,000. Given the significance of this issue, it is appropriate that I quote the relevant parts of her affidavit:
4.When the discussions between … [m]y husband, myself and Moloney took place with respect to the purchase of the business we asked him to provide us with financials in relation thereto which he did but in doing so told us that the financials did not relate specifically to the business being sold but to that business and the electrical business which he was retaining and therefore the financials did not indicate the gross turnover being received in respect to the refrigeration business. He, however, represented to my husband and myself that the gross turnover for the year ending 30 June 2010 was approximately TWO HUNDRED AND TWELVE THOUSAND DOLLARS ($212,000.00).
5.I asked Moloney to provide me with a breakdown of how he had reached the aforementioned figure and the primary records to support same. He informed me that he was unable to do that and it would be very difficult and time consuming to separate the primary records so he could determine precisely the turnover which related to the refrigeration business. Essentially my husband and myself [sic] relied on what Moloney told us in relation to the turnover of the business.
…
7.Subsequent to the purchase of the business my husband did all of the servicing work and I did the books and it became apparent to me almost immediately that the turnover being generated from the refrigeration work was substantially less than the amount which had been represented by Moloney. My recollection is that the turnover amounted to no more than FIVE THOUSAND DOLLARS ($5,000.00) per calendar month on average for the period which I remained involved in the business which was in excess of twelve months which was less than one third of the figure represented to my husband and I by Moloney. I raised this issue with Moloney but go no satisfactory response.
8.I did get access to the invoices generated by Moloney in relation to the operation of the two businesses prior to the First Defendant acquiring the refrigeration business and I attempted an analysis of those invoices to try and work out what the turnover was for the refrigeration business. The invoice records were not good but as near as I could estimate the turnover of the refrigeration business prior to the acquisition thereof by the First Defendant was similar to the turnover generated subsequent to such acquisition and thus well below the figure represented by Moloney.

If Ms Martin's evidence is accepted at trial, there would be a finding that the turnover was no more than $5,000 per month, around a third of that represented by Mr Moloney. Given that the defendants have not yet had access to the financial records of Wildflower pursuant to the usual discovery processes, they ought to be given some latitude on this issue at this stage in the proceedings. Ms Martin's evidence suggests that the representation as to turnover made by Mr Moloney was either untrue, or not made on a reasonable basis.
In the middle of 2012 Ms Martin sent two emails to Mr Moloney concerning the issues raised in the present action. In the email sent 24 April 2012 she 'begged' Mr Moloney not to place a caveat over the matrimonial home. She was very pleasant and cooperative towards Mr Moloney, stating her intention to work out a repayment plan. She described the Business as a 'good business'. She made disparaging remarks towards Mr Martin. In her affidavit in the present application, Ms Martin sought to retreat from the comments made to Mr Moloney in this email, stating that most of the comments were not true.
The second email was sent on 16 May 2012 and attached a letter. It is in the following terms:
I refer to the contact [sic] of sale for 'Margaret River Airconditioning and Refrigeration'.
Leigh Martin and I hereby state that the contact [sic] of sale is now NULL and VOID due to the various breaches of the contract of sale, both in the actual contract and verbally discussed.
We also dispute that any attempt to recover unpaid funds via way of property are also disputed as they are also null and void due to these breaches of contact [sic] of sale.
The points we address above are:
1.Sales figures provided prior to the sale, for Due Diligence, are far less than what current the business has turned over.
2.Due Diligence was not able to be completed by our accountant, due to your hesitance to split your revenue between your various income streams, electrical, investment property and refrigeration aspects of the business. You stated that it would cost you too much, and we believed your figures.
3.We believed that you were being honest and forthright in relation to the figures provided. This is not apparent now, due to the lack of business.
4.We purchased a Trading Name and a Phone Number and a 'Reputation' - no service contracts or a Pty Ltd business. We believe that the $180,000 (plus gst) is far too much for what we have received in the way of business profits. We feel you took advantage of our inexperience and your rush to speed the sale up was due to you not wanting us to see the actual truth behind the sale.
5.The name and reputation was dismal in the town, and it has seen us obtain little or no work.
6.Verbal condition of the sale was that the electrical side of the business was to be taken over once Leigh was an electrical contractor.
7.You made Leigh and [sic] apprentice but left him alone and while you went to work in Karratha. Amongst other illegal practices.
8.You recently withdrew the electrical apprenticeship stating that 'You didn't have the work in Margaret River'. We feel that this is a blatant breach of contract of the sale.
9.The contract signing was NOT witnessed.
10.We dispute that the caveat lodgement is not valid based on the information above.
The letter concludes with two alternate offers made to resolve the issues.
In the 16 May 2012 letter, the references to issues in relation to turnover seem confused. I suspect that par 1 is misstated, as it is inconsistent with par 3. Further, in her affidavit, Ms Martin states that the 'correct position, so far as I was concerned in relation to the acquisition of the business, is more accurately set out' in this letter. Whilst this material will no doubt provide fertile ground for cross‑examination, in general terms the detail of the 16 May 2012 letter is consistent with the defences currently proposed.
Counsel for Wildflower went into some detail as to the issues with the defendants proposed defence in relation to the Turnover Representation. He was critical of their failure to condescend into particulars.
Wildflower's submission was to the effect that the evidence as to the making of the Turnover Representation is insufficient. However, I am to assume that the testimonial evidence given by the Martins will be accepted at trial.
Wildflower also asserted that there is no evidence of reliance on the Turnover Representation. However, Ms Martin does expressly state that she and Mr Martin relied on what Mr Moloney told them in relation to the turnover of the business. Mr Martin does not, though it is implicit. It is common ground that Mr Moloney gave the Martins accounts relating to the Business for the years ending 30 June 2008, 30 June 2009 and 30 June 2010. Wildflower asserts that this undermines the argument that they relied on the Turnover Representation. However, the evidence of both Mr Martin and Ms Martin is that the accounts related to both the Business which was sold and the electrical services business retained by Mr Moloney. Counsel for Wildflower also noted that Mr Martin worked in the Business prior to acquiring it, so had ample opportunity to observe its profitability, undermining any reliance argument.
Mr Moloney filed an affidavit in opposition to the application, sworn 12 September 2014. However, it is not appropriate to seek to resolve disputed questions of fact on affidavit evidence, untested by cross examination, on an application to set aside a default judgment: Hall [66]; Vautier [4]. Accordingly, I do not propose to traverse Mr Moloney's affidavit in detail and attempt to resolve each of the factual conflicts. It is, however, significant to note that Mr Moloney does not deny making the representations as to turnover asserted by the Martins.
Counsel for the defendants submitted that the Turnover Representation is capable of constituting misleading and deceptive conduct pursuant to the Australian Consumer Law s 18 (being Competition and Consumer Act 2010 (Cth) sch 2) ('ACL'). A misrepresentation as to turnover prior to the sale of a business is a well‑established ground of misleading conduct: see, for example, Caffey v Leatt‑Hayter [No 3] [2013] WASC 348. A contravention of ACL s 18 gives rise to a right to claim damages: ACL s 236. It also enlivens the jurisdiction to set aside the guarantee entered into by the Martins: ACL s 237, s 243. The orders which the court may make under these sections include 'an order declaring the whole or any part of a contract … or of a collateral arrangement relating to such a contract … to be void': ACL s 243(a)(i). Counsel submitted that it is arguable that the Martins as guarantors were a party to the principal contract (that is, the Sale Agreement), for the purposes of ACL s 243. If that argument is not accepted, they are at least a party to a collateral arrangement relating to the principal contract (see, for example, Nobile v National Australia Bank Limited (1987) ATPR 40‑787).
The evidence of Mr and Ms Martin on this issue is not inherently incredible. The defendants' position is supported by the 16 May 2012 letter. The issues raised by Wildflower are legitimate, though they are issues which should be determined on all available evidence and following cross‑examination of the relevant witnesses. In my view, if the evidence of Mr and Ms Martin were accepted at trial, a defence based on misleading or deceptive conduct arising out of the Turnover Representation would have a real prospect of success.

Apprenticeship Agreement

In his affidavit sworn 8 August 2014, Mr Martin states that part of the air conditioning and refrigeration installation and repair business required work to be done by a qualified electrician. If Refrigid acquired the Business it would need to employ a qualified electrician to do that work, which would have the effect of reducing the profit that might otherwise be made. Mr Martin's evidence is that an arrangement was agreed that:
(a)if Refrigid acquired the Business, Wildflower or Mr Moloney would provide those electrical services until such time as he could obtain the appropriate qualifications; and
(b)the offer to purchase would be subject to Wildflower or Mr Moloney employing him as an apprentice until that time.
Counsel for the defendants characterised this as both a collateral contract and a representation as to future conduct.
On 30 June 2011 Mr Moloney entered into a training contract to commence the apprenticeship with Mr Martin, a copy of which is annexed to the latter's affidavit. This is said by the defendants to have been done pursuant to the Apprenticeship Agreement. On its face, the training contract is expressed to commence on 30 June 2011 and last for 48 months. In his second affidavit, Mr Martin goes into some detail about the arrangements put in place for the apprenticeship. The entry into this training contract is significant as it demonstrates a clear intention to a long term commitment by Mr Moloney to Mr Martin's training.
Mr Martin goes on to give evidence that Mr Moloney represented to him that:
(a)Wildflower would continue to operate as an electrical services provider in the Margaret River area for the period of the four year apprenticeship; and
(b)he would be able to discharge his obligations as Mr Martin's employer in relation to the apprenticeship.
These two representations are reflected in part in a letter dated 26 May 2011 sent by Mr Moloney to Ms Martin, in the following terms:
6.Current Owner
The purchase of Margaret River Air Conditioning and Refrigeration upon full payment for will involve the transfer of Business name. Telephone numbers and Email address as used and or required. Completely negotiable.
Wildflower Electrical Refrigeration will still operate as a Pty, Ltd, as it has properties involved and Electrical work.
A documented contract of separation about Refrigeration work could be drafted and agreed upon if required.
The reason[s] for sale are many. Basically after twenty three years of running a business in Margaret River some time away would be appreciated. By employing Leigh first as a Sub Contractor he can himself experience our work load and viability.
…
In conclusion any information required we will endeavour to respond to. With the possibility of Leigh to be apprenticed as Electrical Trades person to Wildflower Electrical Leigh will be able to see that all work in the Margaret River Region will [be] diverted to himself for Refrigeration and appropriate training and experience would be provided for the transformation into dual trades qualifications for Leigh.
However the Electrical training has nothing to do with the sale of Business Margaret River Air Conditioning and Refrigeration.
As counsel for Wildflower pointed out, in the last sentence Mr Moloney seeks to disconnect the apprenticeship arrangements with the proposed sale of the business. However, this seems inconsistent with the preceding paragraph. Also this letter was sent a month or so prior to the execution of the Sale Agreement.
Ms Martin in her affidavit confirms the evidence of Mr Martin on this issue. The Apprenticeship Agreement is also clearly reflected in her 16 May 2012 letter.
What actually occurred was that approximately 7 months after the Business was acquired, Mr Moloney advised the Martins that he was closing down the electrical business and would cancel the apprenticeship. Mr Martin's evidence is that Mr Moloney moved the electrical business to the north‑west and ceased operating the electrical business in Margaret River.
In his affidavit, Mr Moloney disputes the basis of the apprenticeship arrangement between him and Mr Martin. Again, this raises disputes that are appropriately resolved in a trial context.
The documentary evidence is supportive of the testimonial evidence of the Martins as to the existence of the Apprenticeship Agreement. That agreement is not as clear as it could be. In particular, it is not clear whether Wildflower would pay for any electrical services provided to the Business. However, on balance, I am satisfied that if the evidence of the Martins is accepted, then there is a real prospect that the trial Judge would find a collateral contract to exist to the effect that:
(a)if Refrigid acquired the Business, Wildflower or Mr Moloney would provide any electrical services required until such time as Mr Martin could obtain the appropriate qualifications to do so; and
(b)the offer to purchase would be subject to Wildflower or Mr Moloney employing him as an apprentice until that time.
If the Apprenticeship Agreement was found to exist, there is a real prospect that it would be found to have been breached. The consequences of that breach should be determined in the context of a trial.

Deferral Agreement

The third aspect to the defendants' defences relates to the balance of the purchase price of $80,000 (or $98,000 if the GST on the purchase price is included) in the Sale Agreement. It was agreed that Refrigid would pay this amount by instalments of $4,402 per month from 1 October 2011. Mr Martin's evidence is that it was also agreed that the payments would be deferred until the Business generated sufficient profits to service the amounts to be paid. This never occurred as the Business never generated sufficient funds.
Counsel for the defendants characterised the Deferral Agreement as both a collateral contract and a misleading statement.
Again, Ms Martin in her affidavit gives evidence to the same effect as Mr Martin. Ms Martin's evidence is to the effect that the Deferral Agreement was made prior to the parties entering into the Sale Agreement. However, Ms Martin does not refer to the Deferral Agreement in her 16 May 2012 letter, which would have been an obvious place to have done so.
Counsel for Wildflower was again critical of the lack of particularity on this defence. He also submitted that cl 18 of the Sale Agreement may provide a complete defence. It relevantly provides:
18.General
18.1Amendment
No variation or waiver of, or any consent to any departure by a party from, a provision of the Agreement is of any force or effect unless it is confirmed in writing signed by the parties and then that variation, waiver or consent is effective only to the extent for which it may be made or given.
18.2Waiver
The failure, delay, relaxation or indulgence on the part of any party in exercising any power or right conferred upon that party by the Agreement does not operate as a waiver of that power or right, nor does any single exercise of any power or right preclude any other or further exercise of it or the exercise of any other power or right under the Agreement.
…
18.4Entire Agreement
The Agreement and these Conditions constitute the sole and entire agreement between the parties and a warranty, representation, guarantee or other term or condition of any nature not contained or recorded in the Agreement or these Conditions is of no force or effect.
However, counsel for Wildflower did concede that there may be an opening for a misleading conduct claim to circumvent cl 18. However, he states that there was no evidence of reliance.
This ground of defence is by far the weakest on the information before me. I am not satisfied that, if the Martins' evidence was accepted, it has a real prospect of success. The fact that it was not referred to in Ms Martin's letter of 16 May 2012 is significant in coming to this conclusion. Were this the only ground of defence, it would not have been appropriate to set aside the default judgments.

Has Wildflower suffered any irreparable prejudice?

The fact that Mr Martin has allowed enforcement processes to be issued against him before commencing the application is a significant factor against setting aside the judgment. However, this can be dealt with by way of costs, so as to place Wildflower in the position it would have been in had Mr Martin entered an appearance and defended the action from the outset.
As to the overall delay, that can be addressed by way of interest should Wildflower be successful in its claim.
As I have noted, Wildflower has received the net proceeds of the sale of the Property. Counsel for the defendants stated that, if the judgments were set aside, this amount could be retained by Wildflower pending the outcome of the trial. This would be an appropriate way in which to mitigate the prejudice otherwise incurred by Wildflower.
Counsel for Wildflower did not submit that it would suffer any other prejudice, nor any irreparable prejudice, if the judgments were set aside.

Where do the interests of justice lie?

In considering where the interests of justice lie, the Court is to consider all the specific factors set out above and undertake a balancing exercise. The fact that if the Martins' evidence were accepted at trial, they would have a real prospect of successfully defending Wildflower's claim based on the Turnover Representation and the Apprenticeship Agreement is a most cogent consideration in support of the default judgments being set aside. Put slightly differently, I do not have the high degree of certainty about the outcome of the case should it go to trial that would justify denying the defendants the opportunity to proceed to trial in the ordinary way: Starrs [51]; Agar [57]; Batistatos [46].
The explanations for the failures which led to the default judgments being entered are based on the lack of familiarity of Mr Martin and Ms Martin with court procedures. As they were not represented, they should be given some leniency for this: Glew v Frank Jasper Pty Ltd [2010] WASCA 87 [10] (Judgment of the Court).
The explanation for the delay in commencing the present application is unsatisfactory. However, in considering whether the Martins have, to date, had sufficient opportunity to defend the case, I do give weight to their personal circumstances and constrained finances.
The prejudice which Wildflower has suffered can be mitigated by costs orders and tight case management orders. It has suffered no irreparable prejudice.
In these circumstances, the interests of justice lie in setting aside the default judgments on terms.

What final orders are appropriate?

As I have set out above, I am satisfied that it is appropriate to make an order waiving compliance with the requirement to confer in RSC O 59 r 9.
Each of the three default judgments are to be set aside. However, in view of the delays, the judgments will only be set aside upon the defendants filing and serving a substantive defence. Once that occurs, the action should proceed immediately to mediation.
My preliminary view is that orders along the following lines are appropriate:
1.The requirement for conferral in RSC O 59 r (1) in relation to the application dated 13 August 2014 be waived.
2.Subject to the order in par 5, the default judgment obtained against the first defendant on 24 April 2013 be set aside.
3.Subject to the order in par 5, the default judgment obtained against the second defendant on 24 May 2013 be set aside.
4.Subject to the order in par 5, the default judgment obtained against the third defendant on 3 April 2013 be set aside.
5.The orders in pars 2, 3 and 4 only take effect upon each of the defendants filing and serving a defence pleading the turnover representation and the apprenticeship agreement as set out in these reasons for decision.
6.If all of the defendants have not filed and served a defence by 28 November 2014, then the orders in pars 2, 3 and 4 lapse.
7.If the judgments are set aside, then orders in pars 8 to 12 apply.
8.The action be referred to mediation pursuant to Pt VI of the Supreme Court Act 1935 (WA).
9(a) The defendants advise the plaintiff not later than 28 November 2014 of the dates on which they are unavailable for mediation.
(b) The plaintiff lodge not later than three days after receiving the advice referred to in the preceding subpar a request for appointment in the approved form, completed so as to show one list of all parties' available dates.
(c) Without limiting the power of the Court to make any order for costs of the action or the mediation, the plaintiff should pay the fee prescribed when lodging the request for an appointment for mediation.
(d) At least 14 days prior to the mediation conference the solicitors for the parties give their client a copy of the Court booklet 'Mediation Programme - A Guide for Litigants'.
10.Each party shall attend the mediation in person or by appropriately authorised corporate representative.
11.At least 14 days prior to the mediation conference the solicitors for the parties give their respective clients a memorandum setting out:
(a) the exact costs and disbursements to the date of the memorandum;
(b) the estimated future costs and disbursements up to and including a mediation conference lasting no more than one day;
(c) the estimated future costs and disbursements to and including trial, and the length of trial assumed in making that estimate; and
(d) the estimated party and party costs recoverable by, or payable by, the party in the respective cases of success or failure at trial.
12.If the action has not been concluded by 28 February 2015, the action be remitted to the District Court, with liberty to apply to the case manager as to the timing of this order.

The proposed orders are designed to facilitate the efficient and cost effective resolution of the action through mediation. Given the issues relating to the equitable charge have been resolved, the amounts in issue make the District Court the appropriate jurisdiction for the action to be tried if it cannot settle.
I am of the preliminary view that the defendants should pay the costs of the application. I am also of the preliminary view that Mr Martin should pay the costs thrown away in this Court in seeking to enforce the judgment, and should do so on an indemnity basis, but payable in any event. I will hear from counsel on the issue of costs.
I will also hear from counsel on whether any orders ought to be made in relation to the money paid out of court to Wildflower.