Yuruga Nursery Pty Ltd v Australian Tea Tree Management Limited and Stevens and Wass

[2000] QSC 297

SUPREME COURT OF QUEENSLAND

CITATION:

Yuruga Nursery Pty Ltd  v Australian Tea Tree Management Limited and Stevens and Wass  [2000] QSC 297

PARTIES:

YURUGA NURSERY PTY LTD
(Plaintiff)
v
AUSTRALIAN TEA TREE MANAGEMENT LIMITED
(First Defendant)
CLARENCE JAMES STEVENS
(Second Defendant)
IAN PHILIP JEFFERSON WASS
(Third Defendant)

FILE NO/S:

 No  6 of 1999

DIVISION:

Trial

PROCEEDING:

Civil Application

COURT:

Supreme Court at Cairns

DELIVERED ON:

29 August 2000

DELIVERED AT:

Cairns

HEARING DATE:

15 May 2000

JUDGE:

Jones J

ORDER:

1.   Judgment by default for unliquidated damages to be assessed entered on 18 January, 2000 be set aside.

2.   The second and third defendant each have liberty to file and serve within 14 days a defence and counterclaim to the plaintiff’s claim for damages conditioned upon payment to the plaintiff of the amount of the judgment in the sum of $177,140.00 for the liquidated demand together with interest on the amount of the judgment at 10% per annum from 18 January, 2000.

3.   The hearing of the plaintiff’s application to assess damages is adjourned to be brought on upon 7 days notice to other parties, in the event that the defendants’ defences and counter-claims are not filed within 14 days hereof.

4.   The second and third defendants forthwith pay to the plaintiff its costs of and incidental to these applications, including the costs (if any) thrown away by the adjournment of the application to assess damages on 15 May, 2000.

5.   The parties given liberty to apply.

CATCHWORDS:

COUNSEL:

JUDGMENTS AND ORDERS - SETTING ASIDE - Application to set aside Judgment - Exercise of the Court’s Discretion - Defendant failed to enter an appearance - Explanation - Significant delay by Defendant - Whether there exists a prima facie case on the merits - Judgment for damages set aside

Mr K. Priestly for the plaintiff / respondent
Mr D. Morzone for the second defendant / applicant
Mr M. Sumner-Potts for the third defendant / applicant

SOLICITORS:

Braes Apel for the plaintiff / respondent
MacDonnells for the second defendant / applicant
Gadens Lawyers for the third defendant / applicant

1. JONES J:  On 18 January, 2000 the registrar entered judgment by default against the second and third defendants in the sum of $177,140.00, a liquidated demand for goods sold and delivered and interest, and a further judgment for damages to be assessed in respect of breach of contract for the future supply of goods.

1. The second and third defendants were sued in their capacity as guarantors of the first defendant’s performance of its contractual obligations to the plaintiff.  The plaintiff did not pursue the first defendant because by that date the first defendant was subject to external administration pursuant to the Corporations Law.

1. The first defendant (hereinafter “ATTM”) was a company in a group of companies controlled by The Oil Fields Pty Limited ACN 068 823 316 (“the oil fields group”).

On 1 September, 1999 four companies (including the first defendant) were admitted to external administration by the directors of the group pursuant to s.436A of the Corporations Law. [1]

[1]See ex. “A” to the affidavit of Daniela Parlapiano

1. On 17 December, 1999 in accordance with s.439A of the Corporations Law the creditors of ATTM resolved to enter into a deed of company arrangement.  That deed provided for payment of a dividend to ordinary creditors of 100 cents in the dollar with an initial distribution of 50¢ in the dollar and then a later issue of convertible notes.  ATTM was unable to make the initial payment and the deed lapsed on 7 January, 2000.  At a further meeting on 17 April, 2000 the creditors resolved to vary the deed of arrangement to provide in general terms for the payment of the dividend of 100 cents in the dollars payable.

1. The judgment by default was entered in the period between the two resolutions on 18 January, 2000.

1. The administrators appointed called for proofs of debt from the ordinary creditors of the group to determine whether the objectives of the varied deed would be met.  To date the plaintiff has not submitted a proof of debt in respect of the amount which it seeks from the guarantors of the first defendant.

1. Schedule 8 of the varied deed provides as follows:-

“8. Subdivisions A, B, C and E of Division 6 of Part 5.6 of the Corporations Law apply to claims made under this deed as if the references to the liquidator were references to the administrator of this deed.”

1. The objectives of the varied deed are to be met by 30 September, 2000. Consequently there is yet time for the plaintiff to prove its debt in accordance with the deed. Failing any such action by the plaintiff it is incumbent on the administrators themselves to assess what is that debt. See s.554A(2) of the Corporations Law.

1. The assessment of damages referred to in the judgment by default was listed for hearing on 3 May, 2000 but this date was not notified to the second and third defendants and consequently the matter was adjourned to 15 May to allow this step to be taken.  On the resumed hearing, an application was made by the second and third defendants for the judgment by default to be set aside and for leave now to deliver a defence and counterclaim.

Background facts

1. The plaintiff company carries on the business of a commercial plant nursery supplying to both the wholesale and retail trade.  Mr. Peter Radke and his wife are the directors of the plaintiff company and Mr. Radke is its principal officer and controlling mind.

1. Prior to November, 1997 the plaintiff had orally agreed to supply to the first defendant a number of batches of Melaleuca seedlings.  Each batch consisted of approximately 600,000 plants.  The supply of these batches were duly paid for by the first defendant.

1. On 1 November, 1997 the plaintiff and the first defendant recorded their agreement for the future supply of seedlings in two formal documents.  The first of these is styled the “Supply Agreement” which relevantly sets out terms relating to the procedures for plant production, to the monitoring by ATTM, to plant quality and delivery.  The plants were to be cloned from cuttings taken from particular melaleuca trees supplied by ATTM and the property in the cloned plants remained at all times with ATTM. The price per plant was 4 cents payable by ATTM to the plaintiff at the time of placing the order.

1. The second document was styled “Research and Development Agreement” (hereinafter referred to as “R D Agreement”).  Pursuant to this agreement ATTM  agreed to pay fixed amounts on dates which coincided with the last day of the scheduled delivery periods for various batches.

1. The payments were to be made as follows:-

31 March 1998 (2 batches)  $252,000

30 April 1998 (1 batch)  $126,000

31 May 1998 (1 batch)  $126,000

30 June 1998 (1 batch)  $126,000

31 July 1998 (2 batches)  $252,000

The R D Agreement further provided:-

“7.4 ATTM is not required to make payment to the Nursery under clauses 7.2 or 7.3 if the Nursery is in breach of this agreement or the Supply Agreement.  ATTM must act reasonably in making payment to the Nursery if the breach is remedied in a manner and within a time which is acceptable to ATTM.”

1. The plaintiff was entitled to be paid for each batch of plants $24,000 at the time ATTM placed the order and a further $126,000 upon timely delivery.

1. The second and third defendants agreed to be liable for “the due and punctual performance by ATTM of the terms” of the respective agreements. [2]  The same defendants also guaranteed “the due and punctual performance of ATTM’s obligations”.[3]  The duties and obligations which flow from this were considered in Sunbird Plaza Pty Ltd v Maloney [4] particularly by Mason CJ at p.255 as follows:-

“So it is that a creditor’s rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed.  If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount.  If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.”

[2]See Affidavit of Radke filed 13/3/2000 – ex “PDR1” Clause 10.3 and ex. “PDR2” Clause 11.3.

[3]Ibid – clauses 10.4 and 11.4 respectively.

[4][1987-8] 166 CLR 245

1. The initial order was made on 1 November 1977 for 4.2 million plants (7 batches) and the first defendant paid the required $168,000.00 payable at the time of ordering.  These plants were delivered before the end of 1998 and payment was made to the plaintiff.

1. On 2 February, 1998 a further 1.2 million (2 batches) was ordered and the amount of $48,000.00 paid in accordance with the Supply Agreement.  The plants were ready for delivery in the first half of 1999.

1. Before the delivery of this order (batches 8 and 9) was made prior to June, 1999, some difficulties appear to have arisen.  There were disputes between the parties which from the second and third defendants’ point of view, are identified in their respective draft Defence and Counterclaim.  Essentially these documents allege that the plaintiff did not comply with delivery timetables and that it delivered plants which did not meet the required quality standards.

1. The plaintiff denies these allegations and maintains that at all times it had plants available for delivery, that the taking of delivery was a matter determined by the first defendant.  The plaintiff alleges that the failure of ATTM to take delivery was due to “cash flow problems” – a fact conceded by the first defendant’s operations manager.

1. The substance and accuracy of these allegations is much in dispute and they do not rise for determination on this application.  Whatever was the true nature of the concerns it did lead to a “round table” discussion between the representatives of the plaintiff and the first defendant.  The outcome of these discussions was the execution of the Deed of Variation dated 2 June 1999.  This agreement provided for a new delivery schedule as follows:-

2.4 million plants (4 batches) – by 30 June, 1999

2.4 million plants (4 batches) – by 9 August, 1999

The payment under the R D Agreement was now to be made not on delivery but within 14 days of receipt of invoice.

1. In his affidavit filed on 12 May, 2000 Mr. Radke particularises some 13 deliveries made between 7 – 24 June, 1999 totalling in excess of 1.3 million plants. [5] The plaintiff was duly paid for these deliveries.  However, for the next set of deliveries between 24 June – 8 July 1999 totalling 653,510 plants (Invoice Nos. 166-174) no payment was made.  The assessed amount of the default judgment - $177,140.00 – was the price (plus interest) of these plants of which ATTM took delivery.

   [5]Affidavit Peter David Radke (12.05.2000) – ex. E.

1. The plants had previously been inspected by three different horticultural experts –

Mr. Deo Singh-               who had inspected the plants periodically until April 1999 when he expressed the view that the plants were ready for delivery and met the quality requirements. [6]

[6]Ibid – ex. A

Mr. Bodman-                 who inspected plants on 21 April 1999 and expressed the view that the plants complied with the quality requirements. [7]

Mr. Ken Morris-             who inspected the plants on 11 May 1999 and estimated there were approximately 3 million plants available for delivery and that they met the quality requirements. [8]

[7]Ibid – ex. B

[8]Ibid – ex. C

1. Mr. Radke claims that the reason why only 1.3 million plants were delivered to the end of June 1999 rather than the 2.4 million plants required by the Deed of Variation, was that he was requested by ATTM’s farm manager not to deliver the plants which had been prepared and packed for the delivery. The delivery times of the further plants to the 8 July was similarly determined by ATTM.

1. In May 1999 ATTM too had arranged for an expert, Mr. Handreck, to assess the quality of the plants being propagated by the plaintiff.  His opinion was to the effect that a high percentage of the plants had root deformity which he attributed, principally, to a failure to use copper treated seedling pots.  He suggested some remedial measures.  Notwithstanding these concerns ATTM took delivery of the plants referred to in paragraph 24 above.

1. Reports of the abovementioned experts were reviewed by Mr. Gordon, lecturer in ornamental horticulture at the University of Queensland. He disagreed in part with each of the other experts and raised concerns about the meaning and effect of the quality requirements set out in Clause 5 of the Supply Agreement. The issues centres on what was described as a “root coiling” problem. In Mr. Gordon’s view the problem arose, not from a failure to use copper treatment, but from a failure to store the plants in a way which permitted air pruning to occur [9]. If that view was accepted it seems to me the relocation of the immature plants might have remedied the problem, such remedial action being within the contemplation of Clause 7.4 referred to in para. 14 above. However, these divergent expert views are not matters for consideration on these applications.

   [9]Report 13.7.99 ex.”A” to affidavit of Wass filed 2 May 2000

1. It follows from this short discussion that as between the parties there remains serious issues about the delivery of plants and their quality which are relevant to the assessment of the damages sought by the plaintiff.  The quality issues were well known to ATTM prior to the execution of the Deed of Variation on 2 June 1999 and acceptance of deliveries up to 8 July 1999.  That Deed provided an agreed method of dealing with roof coiling problem (see clause 3.1(a)(ii)) and a reservation of rights and warranties set out in the earlier agreements (see clause 3.1(a)(v)).

1. The notice of 13 July 1999 purportedly terminating the agreements is based only on an alleged failure by the plaintiff to meet delivery targets.  There is no reference to quality issues in the correspondence that immediately followed the giving of that notice.[10]

   [10]See ex. “C” Affidavit of Wass 2 May 2000

1. The chronology of important events which followed the purported determination are identified as follows:-

1999

10 August  Claim issued

1 September                 ATTM placed in external administration

28 September               Second meeting of creditors of ATTM

17 December                Meeting of creditors to accept Deed of Arrangement which ultimately was not signed by administrator.

2000

14 January  Plaintiff advised intention to seek default judgment

18 January  Default judgment entered

25 February                  Bankruptcy Notice served (on third defendant)

1 March  Discussion between plaintiff and defendants to arrange meeting.  No further proceedings pending such meeting.

24-26 March                Meetings held.  No resolution

17 April  Meeting of ATTM creditors.  Defendants made aware of assessment of damages hearing.

27 April  Letters between solicitors concerning material to be relied upon for assessment of damages.

2 May  Solicitors’ letter foreshadowing an application to set aside judgment.

15 May  Application to set aside.

Application to set aside judgment

1. This application is made pursuant to rule 290 of the Uniform Civil Procedure Rules (UCPR) which provides –

“290  The Court may set aside or amend a judgment by default under this division, and any enforcement of it, on terms, including terms about costs and the giving of the security, the Court considers appropriate.”

1. The judgment was conceded to be regularly entered and therefore would be set aside only in the exercise of the Court’s discretion.  This involves different considerations to the judgment on the liquidated demand and the judgment for damages to be assessed.

1. The matters which generally call for consideration in an application of this kind were identified by McPherson J (as he then was) in National Mutual Life Association of Australia Limited v Oasis Developments Pty Ltd [11] where the following appears:-

“In Aboyne Pty Ltd v Dixon Homes Pty Ltd [1980] Qd.R. 142, Kelly J. regarded an application to set aside a judgment, when regularly entered, as requiring the court to consider whether the defendant had given a satisfactory explanation of its failure to appear; any delay in making the application; and whether the applicant/defendant had a prima facie defence on the merits. Speaking generally, it may be said that it is the last of these considerations that it (sic) is the most cogent. It is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending, even though a lengthy interval of time had elapsed provided that no irreparable prejudice is thereby done to the plaintiff: Atwood v Chichester (1878) 3 Q.B.D. 722; Rosing v Ben Shemesh [1960] V.R. 173.”

[11][1983] 2 QdR 441 at p.449. See also to similar effect Bratic v Toohey [1988] 2 Qd R 140; FAI  Leasing Finance Pty Ltd v Beinit Pty Ltd (unrep. 13C 9304054)

1. The defendant’s failure to enter an appearance is explained by their respective beliefs that, because of prior discussions and negotiations, the judgment would not be entered against them.  However, the evidence before me shows they were put on notice by the solicitors for the plaintiff after the failure of the receivers to execute the first Deed of Arrangement. [12]  No notice of intention to defend was filed notwithstanding that warning.  The explanation given by the second defendant was that he took no action because he did not wish to alienate a creditor prior to the upcoming meeting of creditors.

   [12]Ex. PDR10 to Affidavit Radke sworn 10.3.2000

1. Further to that there has been significant delay by the defendant in making this application.  It was filed in fact on 15 May 2000 by leave.  Here the reason given is that action was delayed to await the outcome of the March 1999 meetings, because of illness of staff, his own professional commitments and delay in obtaining documents from the administrator.  One consequence of this is that the plaintiff has continued to bear the expense incurred in maintaining the plants, in attempting to sell and, finally, in having to dispose of the plants.  Whilst these sums are claimable as damages the burden of this outlay may have been lessened if there had been a more timely reaction to the judgment by the defendants.  Given the direct involvement of the second and third defendants in the earlier discussions with the plaintiff I do not accept that difficulty in gaining access to documents held by the administrators provides an adequate explanation for delay.  However, the delay is not of itself sufficient to defeat the application and adequate explanation has been given.

1. The success of the application turns then on the third consideration – whether the defendants have made out a prima facie defence on the merits.  The affidavits filed in support of their application identify issues relating to the plaintiff’s performance of its contractual obligations.  As referred to above there is a clear dispute as to the timing of deliveries and the timely supply of plants by the plaintiff.  There is also a very significant dispute as to the quality of the plants delivery.  This is an area of new technology, this fact raises technical matters in respect of which experts are likely to disagree and in respect of which the assessment of damages in both the plaintiff’s claim and the defendants’ counterclaims will have special difficulties.

1. Even without these proceedings, the plaintiff’s unliquidated claim for damages would in any event have to be considered by ATTM’s receivers. Whether or not the plaintiff lodges proof of debt before 30 September, 2000 the administrators would have to quantify the amount owing by ATTM for the purposes of their administration. By Clause 8 of the varied Deed of Arrangement the provisions of Division 6 Sub-division B of the Corporations Law is to apply.  With the present level of disputation about the plaintiff’s claim the likelihood of a referral by administrators or an appeal to the court is quite high.[13]  The relevant sections of the Corporations Law provide:-

   [13]See Corporations Law s.554A (2)

554A(2) The liquidator must:

(a)     make an estimate of the value of the debt or claim as at the relevant date; or

(b)     refer the question of the value of the debt or claim to the Court.”

(3)     A person who is aggrieved by the liquidator’s estimate of the value of the debt or claim may, in accordance with the regulations, appeal to the Court against the liquidator’s estimate.”

1. For obvious reasons the risk of different courts determining the same issues should be averted.  The most expeditious means by which finality of this dispute can be achieved is to allow the parties to proceed in this action.  Here the pleadings are able to be exchanged within a short time frame and an early date of hearing can be arranged once the parties signify their readiness to go to trial.

1. Considering all these circumstances I would set aside the judgment for the damages to be assessed.

1. In relation to the judgment for the liquidated demand I take the view that different considerations apply.  The plants, the subject of this demand, were sold and delivered to ATTM, they were accepted by ATTM after a number of quality inspections.  The propagation of the plants involved novel procedures and was done under the general supervision of ATTM who had the opportunity to suggest changes if thought necessary.  The total number of the plants delivered to 8 July 1999 was approximately 2 million against a projected 2.4 million.  Even if it’s claims about late delivery are correct, ATTM was required pursuant to the Supply Agreement to give the plaintiff a reasonable opportunity to remedy the matter and this does not appear to have been given.  Any damage which ATTM can establish as flowing from alleged failure in respect of this particular delivery can be absorbed in the broader claim for breach of contract raised in the defendants’ respective counterclaims.

1. For these reasons I am not prepared to set aside the judgment for $177,140.00.  As a condition for the granting of leave to deliver a defence and counter-claim, this judgment debt should be paid by the second and the third defendants forthwith together with interest at the rate of 10% per annum from 18 January, 2000.

1. The applicants should pay the plaintiff’s costs of and incidental to this application, as well as the costs thrown away by the adjournment of the application to assess damages on 15 May 2000.

1. My orders are –

1.     Judgment by default for unliquidated damages to be assessed entered on 18 January, 2000 be set aside.

2.     The second and third defendant each have liberty to file and serve within 14 days a defence and counterclaim to the plaintiff’s claim for damages conditioned upon payment to the plaintiff of the amount of the judgment in the sum of $177,140.00 for the liquidated demand together with interest on the amount of the judgment at 10% per annum from 18 January, 2000.

3.     The hearing of the plaintiff’s application to assess damages is adjourned to be brought on upon 7 days notice to other parties, in the event that the defendants’ defences and counter-claims are not filed within 14 days hereof.

4.     The second and third defendants forthwith pay to the plaintiff its costs of and incidental to these applications, including the costs (if any) thrown away by the adjournment of the application to assess damages on 15 May, 2000.

5.     I give the parties liberty to apply.