Adams v Kennick Trading

Supreme Court of NSW|2002-02-14|Before: Bergin J, Kirby J, Street ACJ, Nathan J

Background 2 The appellant is a director and shareholder of Reme Pty Ltd ("Reme") which on 9 August 1994, became a member of Tradebanc when Tadebanc was a proprietary limited company, Tradebank International Pty Ltd (TIPL). Tradebanc operated a "barter system" which has been helpfully described by Kirby J in Gemtaf Pty Ltd (Trading as "El Paso Motor Inn") v Tradebanc International Pty Ltd (No. 4) [2000] NSWSC 941 as follows, at [2]: Businesses offering goods and services were encouraged to become members of Tradebanc. Once members, they were included in a catalogue which was circulated to other members. The catalogue was updated from time to time. By this means, members were encouraged to satisfy their needs for goods and services from each other. Rather than pay cash, they were permitted to use credit within limits which were set by Tradebanc in respect of each member. At the time of purchase, an enquiry would be made with Tradebanc to ensure that the purchaser was within the credit limit which had been fixed. At the end of each month, Tradebanc furnished each member with an account. The account identified each purchase from other members, and each sale of goods or services to other members. It struck a balance between debits and credits. The balance was required to be within the credit limit. The balance was expressed in trade dollars. A trade dollar was the equivalent of an Australian dollar. 3 During the period August to December 1994 the credit limit on Reme's account was $750. In December 1994 Reme requested Tradebanc to increase its line of credit by $20,000 to accommodate the purchase of certain equipment by Reme for use in its soil agronomy business. Tradebanc agreed to increase Reme's credit limit to $20,750, for a period of twelve months terminating on 15 December 1995. TIPL and Reme, and the appellant and his wife, as guarantors, executed a Deed dated 16 December 1994 (the Deed). The Deed recited that Reme was a member of the Tradebanc system owned and conducted by Tradebanc. 4 Reme agreed to ensure that at the end of the twelve month period the credit limit was brought back to the limit approved by Tradebanc at that time with such new limit being at the sole discretion of Tradebanc (cl.3). The Deed also included the following:

In the event that the aforesaid credit limit is not reduced to the level as required by Tradebanc by the end of the said period then Reme hereby agrees to pay to Tradebanc in cash Australian dollars the equivalent of the trade dollars currently in excess of the aforesaid agreed limit.

In the event that Reme should for any reason breach any of the rules and regulations within the System or be in breach of the contract in which it had entered with Tradebanc upon applying to become a member in the System or should Reme be in breach of any of the terminate the arrangement and the membership within the System whereby the terms and conditions that would normally apply within the System shall be enforceable by Tradebanc.

In support of this Deed and at the request of the Guarantors, the Guarantors hereby unconditionally and irrevocably guarantee the performance and payments referred to this Deed as undertaken by Reme.

The Guarantors, who are Directors of Reme hereby acknowledge that there is adequate and reasonable consideration passing between them and Reme for them to accept the responsibilities hereunder.

Should for any reason Reme not pay or reduce the credit limit in trade dollars as aforesaid and within the time constraints of this Deed then they agree to be severally and jointly responsible therefore.

As a separate undertaking, the Guarantors indemnify Tradebanc against all liability or loss arising from and any costs, charges or expenses incurred in connection with this guarantee and in the event that the said credit limit or payments referred to herein are not recoverable by Reme in accordance with the terms and conditions of the Deed.

This guarantee and indemnity is a continuing security and extends to all the money and trade dollars referred to herein. The Guarantors waive any right that they have of first requiring Tradebanc to proceed against or enforce any other right, power, remedy or security or claim from Reme. 5 TIPL became Tradebanc on 4 December 1996. On 18 March 1997 a document entitled "Agreement" was signed by the appellant and his wife. That document was in the following terms:

Agreement Dated 18th March 1997 Between: Reme Pty Ltd of 5 Sydney Road, Goulburn NSW 2580 And: Tradebanc International Limited Of Suite 3/19 Restwell Street, Bankstown NSW 2200

The guarantors Robert William & Rosalind Mary Cumming, who are directors of Reme Pty Ltd hereby acknowledge that there is adequate and reasonable consideration passing between themselves and Reme Pty Ltd for them to accept the responsibilities hereunder.

The guarantors hereby undertake to personally guarantee all current and future debts incurred by the company Reme Pty Ltd, ACN 002 379 606 with Tradebanc International Ltd, ACN 055 037 459.

Signed by guarantors 6 The "Agreement" was not signed by Tradebanc. It appears that Reme traded within the Tradebanc system for some years. It is apparent (Ex A p 10) that Reme's credit limit was reduced from $20,750 to $5,000 on 1 April 1996 and to zero on 1 June 1996. It was increased to $10,000 on 1 May 1997 and reduced to zero again on 1 December 1997. It appears that the relationship between Tradebanc and the appellant deteriorated significantly in 1998. On 23 April 1998 the Managing Director of Tradebanc wrote to the appellant in the following terms: As a result of your recent trading history and your comments to Tradebanc representatives regarding your apparent refusal to trade until you receive a $20,000 line of credit and your previous threatening manner in regard to the reinstatement of a $20,000 line of credit I wish to inform you that your membership with Tradebanc has been terminated forthwith. Please be notified that in line with the Rules of our Trading Program, you have thirty (30) days in which to trade out your trade deficit of $6,301-47 after which the deficit will become payable in cash. I wish you well in the future. 7 Under the Rules of the Trading Program (the Rules) Tradebanc Exchange Limited is the company that operates the trading program. Rule 1.2 notes that the "Exchange Company acts as a third-party record keeper of trade transactions amongst members, and directs members to each other for the purpose of facilitating trade transactions". Tradebanc was appointed under a Deed of Management and Trust to manage the Exchange Company and the trading program in accordance with the provisions of that Deed. It was referred to in the Rules as the "Manager". 8 Rule 13 requires the Manager to monitor all trade accounts that have a debit balance and ensure that the Members holding those accounts maintain them in accordance with the Rules. It also provides that the Manager is to take all reasonable steps "in the name of the Exchange Company" to pursue recovery of debit balances where the Rules provide that they are recoverable. 9 If the Manager suspects that a Member has breached the Rules it may give notice in writing to the Member of the breach and request the Member to show cause in writing within 7 days as to why its Membership should not be terminated and "may immediately, and without notice", suspend the Members right to participate in the trading program (rule 17.3). 10 Rule 20.2 provided: Termination by Manager. Notwithstanding Rule 17.3, the Manager may in its absolute and unfettered discretion suspend or terminate or suspend and then terminate a Member's right to participate in the Trading Program without notice for a breach of the Rules if: (a) the Member has, on two or on more occasions in the previous twelve months been given a notice under Rule 17.3 (a); (b) the Member is in arrears of Transaction/ Service Fees or any other charges for a period exceeding 14 days; (c) the manager considers that it is not in the interests of the Trading Program that the Member should continue to participate in it. 11 On 22 May 1998 Reme lodged a claim with the Consumer Claims Tribunal in which it claimed that there had been wide and varied problems between it and Tradebanc resulting in operational trading problems for Reme. The claim stated broadly that Tradebanc had failed to meet the undertakings given to Reme since it had joined in August 1994. It also claimed that without notification Tradebanc had reduced Reme's trade credit limit on three occasions on 1 April 1996, 1 June 1996 and 1 December 1997. 12 Tradebanc counter-claimed in the Tribunal seeking payment of $6,317.58. It is apparent from the "reserved decision" of the Tribunal that the appellant was given time to consult with solicitors to see if he wished to "file fresh evidence". It is also apparent that the appellant did not have the assistance of solicitors at that time and filed no further evidence and made no further submissions. On 23 November 1998 the Consumer Claims Tribunal ordered Reme to pay $6,317.58 to Tradebanc by 29 January 1999. 13 On 24 February 1999 Tradebanc filed a Statement of Liquidated Claim, General Claims Division - Part 5, rule 2 - in the Local Court at Wallsend claiming $6,317.58 plus interest and costs totalling $6,868.92 from the appellant. The claim pleaded that the moneys were owed by the defendant to the plaintiff for "money payable under guarantee up to and including 23 November 1998". 14 On 21 March 1999 the appellant wrote to the Tradebanc's solicitor on the record, Tony Simons. That letter was in the following terms: We note receipt of the claim on 20/3/99, when I, as the Director of the Company opened the mail containing the Part 2 claim and draw your attention to the sale of goods for $6,000 credited to Tradebanc following the said sale on 25/1/99. This was credited to a/c #2200 after the sale. Further we note the outstanding amount of $472.50 to our Company by Tradebanc since 9/3/96. I think the matter is finalised. 15 Mr. Simons responded by letter dated 20 April 1999 in which he stated, "I refer to your letter of 11 March 1999 and advise that the alleged sale of goods of $6,000 was rejected as Reme Pty Ltd is no longer a member of my client. Action is being continued forthwith". 16 On 28 April 1999 the appellant wrote again to Mr. Simons in the following terms: We further draw your attention to the transaction for a total of $6,000 that has been placed in this account as previously advised, which together with the amount of $472.50 still owing by Tradebanc to Reme, completes the transaction. Please note that: 1. The transaction (above) was undertaken through the Canberra Office of Tradebanc. 2. The original loan, on a permanent basis, by verbal agreement, was given in Trade Dollars and the residual amount is being re-paid in the same fashion. 3. Please refer to letter trade 2. wsd. If Mr. Rourke prefers, he can send me a cheque for the amount of $6,472.50 and I will then send him a cheque for the amount of $6,317.58. 17 On 29 April 1999 Mr. Simons wrote to the appellant in the following terms: I refer to your facsimile of yesterday and advise that the transaction was rejected. The full amount of the claim is owing and action is being immediately continued. Further, you are hereby on notice that I am in instructed to enforce any judgment obtained against you with Bankruptcy action. It follows that any dealing with your property from now may be seen as a dealing to defeat creditors and, as such, will be void. No further correspondence will be entered into. 18 Default judgment had been entered against the appellant on 22 April 1999 in the sum of $7,109.58. In a certificate dated 7 May 1999 the Registrar noted that Tradebanc had informed the Court that no money had been paid in respect of the judgment debt. Mr. Simons did not inform the appellant of the entry of judgment. Indeed if he knew at the time that judgment was entered his letter of the 29 April 1999 is most unsatisfactory. 19 The appellant apparently tried to file a defence with the Wallsend Local Court on about 3 May 1999 and was informed that judgment had been entered. He consulted a solicitor on the 5th May 1999 who requested particulars from Mr. Simons by letter dated 11 May 1999. There was correspondence between the appellant's then solicitor, Mr. Lamond, and Mr. Simons between 11 May and 24 May 1999. Although that fact appears from page 22 of Exhibit A before me, the correspondence is not in evidence before me. 20 The appellant filed a notice of motion dated 1 June 1999 in the Local Court at Wallsend seeking orders that the default judgment be set aside and that he be permitted to file a defence to the Statement of Claim. That motion was heard on 23 August 1999 at which time it is apparent that Counsel appeared for Tradebanc and a Mr. Curry (solicitor) appeared for the appellant. On that occasion the appellant was cross-examined at some length. He claimed in his evidence that he had paid the debt by way of $472 which was a credit to Reme's account for some services that were provided to Tradebanc International at their head office in Bankstown. The appellant also gave evidence that the debt had been paid by reason of the credit authorization in respect of goods and services provided to Joseph Pelle. In evidence before the Magistrate was a document entitled "Credit Authorization" which was the Tradebanc copy of the document. 21 It is apparent from the evidence and submissions that Tradebanc kept Credit Authorizations in triplicate with one copy kept by Tradebanc, and a copy sent to the buyer and the seller. The Authorization was issued on 11 March 1999 for "goods and services" in the amount of $5790. Although both the appellant and Mr Simons referred to the transaction at $6,000 the authorisation was in the lesser amount of $5,790, apparently accounting for fees payable to Tradebanc on the transaction. The authorization number on the document was 011013. Such a number is noted to be required on all transactions over what is referred to as the "floor limit". The seller is listed as "Reme Pty Ltd" with a merchant number 2349553 and the buyer is listed as Joseph Pelle with a card number inserted on the document. 22 The appellant was cross-examined about the Credit Authorization before Elliott LCM and it was suggested to him that he knew it had been rejected by Tradebanc. The appellant denied this in evidence. Mr. Pelle's invoice/ statement was issued on 31 March 1999 and was an exhibit before the learned Magistrate. That statement does not include the transaction referred to in the Credit Authorization. The Magistrate reserved his decision and, apparently by arrangement with the parties, faxed it to them after orders were made on 31 August 1999 in court. The last sentence of the Magistrate's written decision stated "Dated 27 August 1999 for delivery by fax". 23 The learned Magistrate was satisfied that the appellant had explained, "the delay in not having filed a defence prior to Judgment". He then addressed what he regarded as the "real issue" as to whether or not the appellant had a bona fide defence. The grounds upon which the appellant sought to have the judgment set aside were set out by his Worship on page 2 of his decision. Those grounds were as follows: A. The debt due by Reme Pty Ltd being the subject of this action has been paid. B. The Judgment debt was obtained against me while I was in the course of correspondence with the plaintiff's solicitor. C. I am not liable for this debt as the Deed of Guarantee relied upon by the plaintiff dated 16 December 1994 is ineffective as: (i) I believe that the plaintiff was not incorporated at the time that the Deed of Guarantee was entered into; (ii) The deed of guarantee does not apply to the debt due by Reme Pty Ltd to the plaintiff. D. I prepared and forwarded a Notice of Grounds of Defence to the Wallsend Local Court on or about 3rd May, 1999, but I was advised by the Court that judgment had been entered against me on 22 April, 1999, without my knowledge. 24 An exhibit before the Magistrate was a certificate of registration on conversion to a public company which led the Magistrate to reject the claim by the appellant that the plaintiff was not incorporated at the time of the Deed of Guarantee. The Deed was entered into by TIPL not Tradebanc two years before the conversion to a public company. It was the Agreement in 1987 that the Magistrate relied upon to reject the appellant's claim that he should be permitted to propound a defence that he was not liable to Tradebanc. In respect of the appellant's claim that the amount claimed had been paid and reliance upon the Credit Authorization document the learned Magistrate said at page 3 of his reasons: Mr. Cumming says that he paid the amount claimed by obtaining a credit for services supplied by Reme to a Joseph Pelle and produced a "Credit Authorization" - in purported confirmation of. That document is dated 11 March, 1999 and when compared with Tradebanc's statement of account of Joseph Pelle it is obviously defective. It does not appear as a transaction in that statement. 25 The Magistrate also concluded that the appellant was unconvincing in his assertion that he believed he could pay the award in Trade Dollars in the alleged transaction with Joseph Pelle "some four months after the Tribunal's decision and reasons were handed down". His Worship concluded: I am satisfied therefore that Mr. Cumming has no bona fide defence to the proceedings and that the motion has not been brought bona fide. 26 On 31 August 1999 Elliott LCM dismissed the appellant's Notice of Motion with costs. It is apparent that the appellant changed solicitors and then instructed Douglas Knaggs, solicitor, who filed a second Notice of Motion seeking to have the judgment set aside. The new grounds that were included in the second application included a claim that the Deed on which Tradebanc relied to pursue the appellant was illegal and void and unenforceable because Tradebanc was in breach of the Corporations Law in failing to comply with Division 5, Part 7.12, Division 2, Part 7.12 and s 9 of the then Corporations Law. 27 The appellant claimed that the Deed and application forms which Reme executed to join the Tradebanc system were entered into by Reme to subscribe for a prescribed (participation) interest namely the Tradebanc's barter scheme and credit limit in which interest was offered for subscription. It was submitted that Tradebanc, offered the interest to the defendant whilst it was not a public corporation in breach of s1064(1), that there was not in force any Deed approved by the Commission in breach of s1065(1), that Tradebanc had no dealer's licence in breach of s 780 and a prospectus for the interest had not been lodged with the Commission in breach of s 1018(1). It was submitted that in those circumstances the Deed and the Agreement were avoidable at Reme's option by notice in writing. That notice was claimed to have been given on 5 October 1999. 28 In a typed decision dated 26 October 1999 the learned Magistrate dealt with these new grounds in the following way: In the circumstances of this case where Reme and Mr. Cumming have acquiesced in the arrangements with Tradebanc during the period of their relationship; where Mr. Cumming unsuccessfully sought relief on behalf of Reme in the Consumer Claims Tribunal; where bankruptcy proceedings are on foot in another jurisdiction, this Court must look scrupulously to the "fresh grounds" of defence to see if they can be bona fide and with merit…

…With respect to the issue of a requirement for a prospectus, whilst appropriate respect must be given the Policy Statement issued 19 August 1996, it doesn't follow that an agreement between a Promoter and Guarantor of a member for payment is void if the policy is not complied with. I am therefore satisfied that the "fresh grounds" of defence are not brought bona fide, and in my view would have no chance of success. 29 There was a further alternative ground raised by Mr Knaggs in his written submissions in respect of the purported termination of Reme's membership of the Tradebanc system. He submitted that Tradebanc had not complied with Rule 17 and that the proposed defence that the purported termination was not a valid termination was a bona fide defence on the merits.

The Appeal 30 On the appeal Mr. Knaggs, solicitor, appeared for the appellant, and Mr. Butterfield, solicitor, appeared for the respondent, Tradebanc. Mr. Butterfield indicated that his instructions were to formally oppose the granting of leave to appeal and the appeal but that his client did not wish to take any active part in arguing the appeal. Mr. Butterfield also indicated that should the Court grant leave to appeal and uphold the appeal then he was instructed that his client would consent to the setting aside of the default judgment in the Local Court, rather than have the matter remitted to the Local Court for further decision.

Extension of Time 31 The first order the appellant seeks is an extension of time within which to file the Summons. Section 106(2) of the Justices Act 1902 provides that an appeal is to be made within the period prescribed by the rules. Part 51B Rule 6(1) of the Supreme Court Rules 1970 (the Rules) provides that an appeal must be instituted within 28 days after the material date. If the judgments were effective the material dates were 31 August 1999 and/or 26 October 1999. The original Summons was filed on 3 December 1999 in which an order was sought that the time for filing the Summons be extended to that date. What the appellant is really seeking is an extension of time within which to institute the appeal pursuant to Part 51B Rule 6 (2)(a) of the Rules. 32 Mr Knaggs relied upon an affidavit sworn by him on 29 March 2000 in support of the application to extend the time. When Mr. Knaggs took over the case from Mr. Curry some time after August 1999 he took the view that it was appropriate to raise the further defence in the second Notice of Motion, before filing an appeal. Mr Knaggs had not acted in an appeal from a Magistrate since the procedure changed from a stated case to an appeal by way of Summons after the introduction of the Justices Legislation (Amendment) Act 1998. He was under a misapprehension that he had 35 days instead of 28 days within which to file the Summons. He stated that he learnt of the change in the provisions on 1 December and "hastened" to prepare and file the Summons. 33 In considering whether an extension of time should be granted one matter to be considered is whether there was a significant delay in making the application. Although this matter has had a lengthy history in this Court the application to extend the time was made in the original Summons within a matter of days after the 28 day period from 26 October 1999. It is a longer time from the 28 day period after 31 August 1999 but in the circumstances I am satisfied it is not a "significant" delay. I am also satisfied there has been an explanation for the delay and that the degree of prejudice suffered by the respondent is not such that the extension should be disallowed. I intend to extend the time for instituting the appeal from the decision of Elliott LCM of 27 August 1999 up to and including 3 December 1999. Because of the view I have formed in relation to the validity of Elliott LCM's decision of 26 October 1999 there is no material date and therefore there is no need to extend the time as time would not run. However should it be necessary and to facilitate the argument in relation to the decision of 26 October 1999 I would extend the time up to and including 3 December 1999.

Leave to Appeal 34 Part 5 of the Justices Act 1902, as amended, deals with appeals to the Supreme Court. The appellant submitted that Elliott LCM's decisions were interlocutory and on that basis submitted that it was necessary to seek leave. 35 The proceedings before Elliott LCM were brought under the Local Courts (Civil Claims) Act 1970 and were commenced in the General Claims Division. The proceedings remained in that Division and the Motions were heard in that Division even though the amount of the claim qualified it for entry into the Small Claims Division. Section 104(5) of the Justices Act 1902 provides: (5) Appeals by parties to civil proceedings A party to any proceedings under the Local Court (Civil Claims) Act 1970 may appeal under this Division to the Supreme Court as provided for by section 69 of that Act

36 Section 69 of the Local Courts (Civil Claims) Act 1970 provides: 69 Appeal (1) Subject to subsection (2), all judgments and orders of a court exercising jurisdiction under this Act shall be final and conclusive. (2) A party to proceedings under this Act who is dissatisfied with the judgment or order of the court as being erroneous in point of law, may appeal to the Supreme Court therefrom. (2A) However, in the case of proceedings in the Small Claims Division of a court, an appeal under subsection (2) lies only on the ground of lack of jurisdiction or denial of natural justice. (3) The provisions of Part 5 of the Justices Act 1902, apply, to the extent to which they are applicable, to appeals under subsection (2) in the same way as they apply to appeals to the Supreme Court under those provisions. 37 The question to be addressed is whether Elliott LCM's decisions were "judgments or orders" within s 69 of the Local Courts (Civil Claims) Act 1970. Both decisions purported to dismiss the Notices of Motion in which the appellant sought orders setting aside the default judgment. Subject to what I have decided in respect of the 26 October decision I am satisfied in the circumstances that the 31 August 1999 decision was a judgment and order within the meaning of that term in s 69 of the Act and was thus final and conclusive. In those circumstances no leave is necessary to bring the appeal: Rayhill Mouawad [2001] NSWSC 676, Kirby J, 08/08/01.

Preliminary Argument - 26 October decision 38 A preliminary argument raised by the appellant was that Elliott LCM's decision of 26 October 1999 has not taken effect because it was not delivered in accordance with the Local Courts (Civil Claims) Rules 1988. 39 Part 3, Rule 8 provides that where a Magistrate reserves a judgment or decision on any question of fact or law, the Magistrate may "give" the judgment or decision in Court (R8(1)(a)(i)&(ii)) or in chambers in accordance with Rule 7 (R8(1)(a)(iii)) or "draw up in writing the judgment or decision, sign it, and forward it to the Registrar" of the Court (R8(1)(b)). 40 If the last mentioned option is adopted the Registrar is required to give at least twenty-four hours notice to the parties and then "read the judgment or decision" at the Registrar's Court at a convenient time specified in the notice (R8(2)). A judgment "given" by a Magistrate under Rule 8(1)(a) or read by a Registrar takes effect on the day on which it was so given or read and is "as valid as if given by the Magistrate... at the hearing of the proceedings to which the judgment or decision relates" (R8(3)). 41 Part 3, Rule 7 provides: RULE 7 CHAMBERS (7) (1) [Magistrate, etc, may give judgment, etc] A Magistrate, Assessor or registrar in chambers may, in respect of any proceedings, give any judgment or decision, or make any order, which the Magistrate, Assessor or registrar could lawfully give in court and which the Magistrate, Assessor or registrar considers may be properly made or given in chambers, whether those chambers are situated at the proper court in relation to those proceedings or at any other court.

(7) (2) [Adequate notice] A Magistrate, Assessor or registrar shall not proceed in chambers under sub rule (1) unless the Magistrate, Assessor or registrar is satisfied that all parties appearing and all other persons properly interested have adequate notice of the intention to so proceed and will have adequate notice of any judgment, decision or order that the Magistrate, Assessor or registrar is likely to give or make in chambers. 42 In dealing with the acts of a Magistrate the law presumes that all acts required to be done by a Magistrate have been done "rightly and regularly". This presumption of regularity applies until the contrary is shown by evidence sufficient to overturn the presumption: X v Deputy State Coroner for New South Wales (2001) 51 NSWLR 312 at par [57] & [58]; Rich v Shell Refining (Australia) Pty Ltd, VIC SC, unreported, Nathan J, 31 August 1995; Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154. 43 The appellant submitted that the Magistrate did not "give" the judgment in Court pursuant to Rule 8(1)(a) and did not proceed pursuant to Rule 8(1)(a)(iii) and Rule 7 in Chambers. It was submitted that the Magistrate proceeded under Rule 8(1)(d), but that there was no notice to the parties nor was there a reading of the judgment by the Registrar pursuant to Rule 8(2). Under those circumstances, the appellant submitted, that the judgment could not "take effect" as it was not given or read (R 8(3)). 44 On 26 October 1999 the plaintiff's solicitor Mr. Knaggs received a facsimile from the Local Court Wallsend which simply identified Mr. Knaggs as the recipient of the fax and Mr. Elliott as the sender of it, together with the date and the heading, "Judgment Tradebanc v Cumming". 45 Mr. Knaggs subsequently corresponded with the Local Court to ascertain the mode of delivery of the judgment. On 23 June 2000 the Clerk of the Local Court wrote to Mr. Knaggs in the following terms: I confirm receipt of the above, and advise that after consulting with the presiding Magistrate, and can inform you of the following chronology of the matter: 1. Originating summons issued 24/2/99. 2. Default Judgment 22/4/99. 3. Motion & Affidavit in support to set aside filed on behalf of Debtor Cumming filed 3/7/99. Listed 7/7/99, adjourned 19/7/99, adjourned 23/8/99 for decision on 31/8/99. 4. Magistrate prepares written decision dated 27/8/99, matter mentioned before the Court 31/8/99, and bench papers marked by Magistrate "BY ARRANGEMENT NO PARTIES-SEE WRITTEN DECISION." 5. Motion on behalf of creditor Tradebanc filed 29/9/99 seeking submissions be made in relation to costs for matter dealt with 31/8/99 dealt with in Chambers 28/9/99. 6. Motion to set aside filed on behalf of Debtor Cumming filed 1/10/99. Magistrate indicates the issues were dealt with by decision dated 27/8/99 and parties informed 5/10/99. 7. Affidavit by debtor Cumming in support of motion filed 1/10/99 filed 11/10/99 and Registry lists before the Court 13/10/99. Adjourned 20/10/99 and adjourned to the 26/10/99. 8. Written decision regarding 2nd Motion handed down in Court. 26/10/99 in the absence of parties by arrangement. Decision faxed to parties same date. Further, orders for costs in relation to the first Motion to Set Aside and second Motion to Set Aside were given in writing that date. 46 The Clerk of the Court enclosed copies of the "relevant bench sheets". Those bench sheets in relation to the second Notice of Motion note the appearances of the plaintiff and defendant on 13 October 1999 and the fact that the matter was adjourned to 20 October 1999. On 20 October 1999 there is a notation "NA" for "no appearance" on that date. On 26 October 1999 there is a "" (tick) next to representatives for plaintiff and defendant and above it a notation "B/A". In the bottom right hand corner of the bench sheet there is an entry: "I assess the J.C's costs on the 1st motion @ $4,300 and on the 2nd motion @ $3,300." That is signed by Elliott LCM. 47 On the appeal in Exhibit A there is a letter dated 26/10/99 from the Local Court at Wallsend to Tradebanc in the following terms: Please note that at the hearing on 26/10/99 the Court made the following order in respect of the above matter: On first notice of motion: Judgment creditors costs assessed at $4,300. On second notice of motion: Judgment creditors costs assessed at $3,300. 48 The plaintiff's solicitor, Mr. Knaggs, made further enquiries with the Local Court and on 10 August 2000 the Clerk wrote to Mr. Knaggs in the following terms: 1. On the 31st August 1999 the matter appeared on the Court list and the short transcript of the mention of the matter is enclosed herewith. 2. Exhaustive checking reveals that the matter was not on the Court list on the 26/10/99, and checks of all the tapes recording proceedings for that day indicate the matter was not specifically mentioned during the Court sitting that day. The Magistrate did, however, complete the bench sheet dated that day indicating that by arrangement there was no appearance by the parties and making orders as already outlined. The most likely scenario is that the Magistrate prepared the formal finding on the second motion, which was handed to the registry from where it was faxed to the parties that day. 49 The transcript enclosed with the letter indicated that in court on 31 August 1999 Elliott LCM stated: "Tradebanc International, that's marked "no parties, stood out of the list" and I formally dismiss the motion with costs to be agreed or assessed. And my reasons are attached to the file." The last sentence of those reasons stated "Dated 27 August 1999 for delivery by fax". 50 On 13 October 1999 the second motion was argued before Elliott LCM by Mr. Spencer, for Tradebanc and Mr. Knaggs, for the appellant. The transcript of the proceedings before Elliott LCM is Exhibit G on the appeal. At the end of the argument on that day Elliott LCM indicated that he would receive written submissions from Mr. Knaggs which needed to be filed promptly because he "proposed to hand down a decision next Wednesday. I don't need anybody here but I'll have the decision". It appears that the word "have" in the transcript should probably be "give". His Worship allowed Mr. Knaggs until Tuesday 19 October 1999 to file further submissions indicating that he would "give a decision Wednesday". He concluded the proceedings by saying, "So it will be adjourned to 20 October for determination". 51 Mr. Knaggs was late in filing his written submissions. They are dated 22 October 1999 and are Exhibit L on the appeal. I did not know how any arrangement was made with Elliott LCM as to the later filing of the submissions nor what arrangements, if any, were made for the decision to be given on 26 October 1999. The note on the bench sheet under the date 26/10/99, "B/A", read with the letters from the Clerk of the Court would suggest there was an "arrangement" with the parties in relation to the delivery of the decision on 26 October 1999. I raised this matter with Mr Knaggs during submissions but he was unable to point to any evidence of an arrangement. I reserved my judgment on 14 February 2002 and on 19 February 2002 Mr Knaggs contacted my Associate to apply in writing to tender further documents on this point. Mr Butterfield's position in respect of this application to reopen to tender further material was as stated in a letter from his firm, Marsdens Law Group, to Mr Knaggs dated 15 February 2002. It is that Tradebanc neither opposes nor consents to the tender. Such position was noted to be "in the context of our non-participatory appearance" on the appeal on 14 February 2002. 52 I allowed the reopening for the purpose of the tender of five facsimile sheets and the fax records of their transmission to Elliott LCM at the Wallsend Local Court on 20 October 1999 and 22 October 1999. They became Exhibit N. The first fax dated 20 October 1999 stated "I got back from leave yesterday but faced a welter of problems and have not quite finished these submissions in reply- may I send them through as I finish them? I formally seek an extension of time from 4 pm yesterday and also for cost submissions for the first hearing. My apologies." There is nothing within Exhibit N from the Court to Mr Knaggs. The next three fax cover sheets enclose the pages of submissions as they are completed and each is dated 20 October 1999. The last fax sheet is dated 22 October 1999 and encloses submissions on costs in relation to the first Motion to set the default judgment aside. From this evidence I am able to infer that there was an extension of time but it does not assist in ascertaining what, if any, arrangement was made between the Court and the parties in respect of the delivery of the 26 October 1999 decision. 53 The letter to Tradebanc from the Court refers to the "hearing" on 26/10/99 yet "exhaustive checking" revealed nothing in the records and nothing on the tapes of the hearings conducted that day. 54 The appellant submitted that his Worship did not proceed in Chambers under Rule 7. That course could only have been followed if his Worship was satisfied (1) that "all parties appearing and all other persons properly interested" had adequate notice of his intention to "give any judgment or decision or make any order" in Chambers and (2) that "all parties appearing and all other persons properly interested" would have adequate notice of any judgment or order his Worship was "likely to give or make in chambers". On 13 October 1999 when Elliott LCM announced the date as 20 October for his decision, the parties would reasonably have understood that the decision would be given in Court by reason of the statement "I'd propose to hand down a decision next Wednesday, I don't need anybody here, but I'll have (give?) the decision". The Bench Sheet noted that it was "adjourned to 20/10/99". There is no order dismissing the Motion on the Bench Sheet in October. In the first Motion the Bench Sheet of 31.8.99 noted "See Written decn." and noted that there were no parties "B/A". However on that occasion Elliott LCM made the orders in Court on 31 August 1999. 55 On the evidence before me I am satisfied that it is more probable than not that Elliott LCM reserved his decision then wrote his judgment and did not deliver or "give" it in Court. The facsimile heading on the fax to Mr Knaggs is dated 26 October 1999 at "09:20". The conclusion of the reasons state: "Delivered 26 October, 1999". There is the letter to Tradebanc referring to the costs assessment having been made at the hearing on 26 October 1999 however there is no mention of any orders dismissing the Motion having been made at the "hearing". Applying the presumption of regularity to that record and the Bench Sheet, as there is nothing in the records in relation to the orders I am of the view that such documents prove that there were no orders pronounced in Court. It seems to me that the "most likely scenario" as proffered by the Clerk of the Court in the correspondence with Mr Knaggs that the Magistrate "prepared the formal finding" and then "handed it to the Registry for faxing to the parties" is what probably occurred. 56 Once the learned Magistrate drew his decision up in writing and signed it and forwarded it to the Registrar, the Registrar had the obligation of giving at least twenty-four hours notice to the parties of the time at which he intended to read the judgment or decision in Court. The Clerk of the Court's correspondence advising that all court lists of 26 October 1999 were checked and tapes of that day listened to without finding any record relating to the decision is also evidence that the orders were not made in Court and the Registrar did not read the judgment. 57 Section 75A of the Local Courts (Civil Claims) Act 1970 deals with "irregularity" and provides that a failure to comply with the Act or Rules "in the purported commencement of any proceedings or at any stage in the course of or in connection with any proceedings" is to be treated as an irregularity and does not nullify the proceedings, judgment or order. I am not satisfied this section applies to the failure to "give" or "read" the decision. The Local Court Rules provide that the judgment or order is effective from the date it is "given" by the Magistrate or "read" by the Registrar. I am of the view that these provisions should be strictly construed: Palmer v Clarke (1989) 19 NSWLR 158 per Kirby P at 165-166 & 173. I am of the view that the decision has not taken effect as it has not been "given or read" pursuant to Part 3, Rule 8 of the Local Courts (Civil Claims) Rules 1988: Ex parte Hall; Re Howie & Ors (1932) 50 WN (NSW) 30; Ex parte Currie; Re Dempsey & Ors (1969) 91 WN (NSW) 34. 58 In those circumstances the appeal from the decision of 26 October 1999 is incompetent. The parties indicated that if I reached this conclusion, rather than have the matter remitted to the learned Magistrate, presumably for him to "give" the decision in Court or have the Registrar "read" the decision to give an effective judgment, they asked that I proceed to express a view on the substance of the appeal as if the judgment had been effective.

Grounds of Appeal 59 Although a number of grounds are contained within the Further Amended Summons for Appeal the main ground argued on the appeal was that the leaned Magistrate erred in law in holding that the appellant had no bona fide defence to the proceedings. 60 The appellant claimed that the debt, the subject of the default judgment, had been paid by way of provision of goods and services to Pelle in Trade Dollars. That proposed defence was supported by evidence that services had been provided to Mr. Pelle in January 1999 and a Credit Authorization had been issued by Tradebanc in March 1999. The learned Magistrate compared the Authorization provided to the appellant by Tradebanc in the amount of $5,790 Trade Dollars as a credit with the statement for Mr Pelle for the March period. After comparing those documents, the Magistrate reached the conclusion that the Credit Authorization was "obviously defective". 61 The only basis upon which Elliott LCM concluded that the Credit Authorization was "obviously defective" was the comparison with Mr Pell's Statement. He did not consider the equally available conclusion on such an approach that Mr. Pelle's statement was "obviously defective" because it did not include the transaction the subject of the Credit Authorisation. That finding should have been left to the trial of the matter at which the appellant wished to raise the defence that the debt sued upon had been paid by way of Trade Dollars credited to the company account of Reme. 62 The learned Magistrate also concluded that the appellant was not "impressive in cross-examination" and was "unable to explain how it could possibly be that in March 1999 Reme could pay the debt in Trade Dollars - even if the transaction with Pelle had been valid." The learned Magistrate then said, "He was unable to do so and consequently his bona fides were adversely affected". 63 A number of issues may arise in respect of the Credit Authorization. Those issues may be both factual and legal, some of which may include (a) how the Credit Authorization came to be issued with an authorization number issued by Tradebanc, (b) what happened to the copies of the Credit Authorization and to the copy retained by Tradebanc, (c) the system adopted by Tradebanc in respect of crediting or debiting Member's accounts, (d) whether Tradebanc, having issued an authorization, can or did "reject" such a transaction without notice to the Member or former Member, (e) whether the issuing of the authorization amounted to an acceptance of a reduction in the debt in Trade Dollars and thus an extinguishment of the alleged debt. 64 The learned Magistrate seems to have concluded that the appellant had not brought the motion bona fide by reason of a finding in the Consumer Claims Tribunal that Reme was liable for its outstanding trade deficit "converted in actual money terms". In those circumstances the learned Magistrate regarded the appellant's assertion in his evidence before him that he believed he could pay the award in Trade Dollars as "unconvincing". 65 Between 20 March 1999 and 29 April 1999 the appellant was communicating with the solicitors for Tradebanc about the nature of the claim and indicating that his position was that the amount in the Statement of Claim had been paid. I am of the view that in the letter of 20 April 1999 the solicitors should have informed the appellant that the plaintiff intended to apply for judgment and that in the letter of 29 April 1999 they should have informed the plaintiff that judgment had been applied for and entered. To not so inform the appellant in the circumstances was in my view against good faith. 66 Under Part 26, Rule 3 the Court may set aside a judgment or order on terms "on sufficient cause being shown" if the judgment was "given or entered up or the order was made, irregularly, illegally or against good faith". Additionally under the same Rule a judgment or order of the Court may be set aside if the parties to the proceedings consent (R3 (2)). 67 In my view the learned Magistrate erred in the application of the test for the setting aside of the default judgment. Although his Worship identified the "real issue" as whether or not the defendant had a bona fide defence" he embarked impermissibly upon the adjudication of the truth or otherwise of the case the appellant would seek to make upon the defence: Reinehr Industrial Lease & Finance Pty Ltd v Jordan NSW CA, Street ACJ, Hardie & Glass JJA, 4 June 1974; Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503. 68 The appellant claimed in his supporting affidavit that he had paid the amount claimed in trade dollars and there was evidence that Tradebanc had issued the Credit Authorisation. Once the learned Magistrate embarked on the comparison of the Credit Authorisation with the Pelle Statement and found that the Authorisation was deficient he embarked on deciding the "truth or otherwise" of the case. His Worship erred in trying the issues of fact arising upon the proposed defence. The court's task was to evaluate the evidence to see whether in the interests of justice a defendant who for some procedural default has been deprived of a right to due determination of his defence, should nevertheless be put back into the position of enjoying that right: Reinehr per Street ACJ. 69 Having regard to the way in which judgment was entered against the appellant without notice when he was corresponding with Tradebanc's solicitor and the error of law I have identified in the learned Magistrate's decision I am satisfied that the appeal should be allowed. 70 In the second Notice of Motion Mr Knaggs made further detailed submissions on the proposed defence in his written submissions delivered by fax to the Local Court on 20 October 1999 (Ex. L par 4). These set out the terms of the ASIC Statement 111 in which it was stated that the Law required a promoter amongst other things to be a public corporation and to enter into an approved deed. It was submitted that once Reme joined the Scheme it had a participation interest. Elliott LCM stated in his written decision The guarantee for payment given by Mr Cumming was by Deed. With respect to the issue of the requirement for a prospectus, whilst appropriate respect must be given the Policy Statement issued 19 August 1996, it doesn't follow that an agreement between a Promoter and Guarantor of a member for payment is void if the policy is not complied with. I am therefore satisfied that the "fresh grounds" of defence are not brought bona fide, and have no chance of success. 71 This was in my view an error of law. The Magistrate failed to take into account the proposition that if the original scheme involved the offer of and subscription for a participation interest and the Corporations Law had not been complied with in respect of such an offer the defence that the appellant's guarantee was not enforceable was a bona fide defence on the merits. There was in my view evidence before Elliott LCM which established that when Reme entered into the Scheme Tradebanc was not a public company. Whether the Deed and the later Agreement were inextricably bound with each other and the application forms of Reme on joining the Scheme such that if the scheme failed then they too were not enforceable, were matters properly the subject of the proposed defence: Gemtaf Pty Ltd & Ors v Tradebanc International Pty Ltd [No 4] [2000] NSWSC 941 Kirby J, 10/10/00, at pars [25]-[70]. 72 To decide that unenforceability "did not follow" the non compliance with the ASIC statement and to thus conclude there was no bona fide defence was in my view an error of law. The learned Magistrate once again purported to decide the case that day as opposed to deciding whether there was a bona fide defence that the appellant should be allowed to propound in the circumstances of the case. If the decision of 26 October 1999 had taken effect I am satisfied that once again the Magistrate failed to apply the test appropriately. There were a number of other matters raised in submissions before me in respect of the 26 October 1999 decision. It was submitted that Elliot LCM did not deal with the purported termination argument in alleged breach of Rule 17.3 at all. That is true, however because of the view I have formed in relation to the merits of this appeal I do not need to deal with this submission. Tradebanc was able to proceed under Rule 20 if certain pre-conditions had been established. These will presumably be the subject of evidence in the trial of the matter. In a short submission Mr Knaggs noticed that by reason of Rule 13 it may have been prudent to take the point that the proceedings should have been brought "in the name of the Exchange Company". This matter was not argued before the learned Magistrate at either Motion and "the point" was not raised before me. 73 If the 26 October 1999 decision had taken effect I would also have allowed the appeal from that decision on the basis of the error of law I have identified in respect of the new grounds raised in the 2nd Notice of Motion. 74 In those circumstances I am satisfied that the appeal should be allowed and but for the consent approach adopted by the parties the matter would be remitted to the learned Magistrate to decide the application to set aside the default judgment according to law. However as the parties agreed that if I allowed the appeal there would be consent to the setting aside of the judgment in the Local Court I make the following orders:

I extend the time for instituting the appeal from the decision of Elliott LCM of 31 August 1999 up to and including 3 December 1999. 2. The Appeal from the decision of Elliott LCM given 31 August 1999 is allowed. 3. By consent I do not remit the matter to the Magistrate on the basis that the parties will file a consent order with the Local Court at Toronto that the default judgment entered against the appellant on 22 April 1999 be set aside and the defendant be allowed in to defend the action. 4. I will hear argument as to costs of the Appeal if the parties are unable to agree on a costs order.

Last Modified: 02/22/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : ROBERT WILLIAM CUMMING V TRADEBANC INTERNATIONAL LTD [2002] NSWSC 70 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 12937/99 HEARING DATE(S) : 14 February 2002 JUDGMENT DATE : 21 February 2002

COUNSEL : SOLICITORS : D. Knaggs (Appellant) Marsdens Law Group (Respondent) CATCHWORDS : [JUDGMENTS] Presumption of Regularity - Whether a judgment "faxed" to the parties took effect under the Local Courts (Civil Claims) Rules 1988 - [APPEAL] Appeal from refusal to set aside default judgment - Whether Magistrate embarked upon deciding the truth or otherwise of the case the Appellant would seek to make upon the proposed defence. Local Courts (Civil Claims) Act 1970 Local Courts (Civil Claims) Rules 1988 LEGISLATION CITED : Justices Act 1902 Justices Legislation (Amendment) Act 1998 Supreme Court Rules 1970 Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 Ex Parte Currie; Re Dempsey & Ors (1969) 91 WN (NSW) 34 Ex parte Hall; Re Howie and Ors (1932) 50 WN (NSW) 30 Gemtaf Pty Ltd (Trading as "El Paso Motor Inn") v Tradebanc International Pty Ltd (No.4) [2000] NSWSC 941. CASES CITED : Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154. Palmer v Clarke (1989) 19 NSWLR 158 Rayhill v Mouawad [2001] NSWSC 676, 8 August 2002, Kirby J. Reinehr Industrial Lease & Finance Pty Ltd v Jordan NSW CA, Street ACJ, Hardie & Glass JJA, 4 June 1974. Rich v Shell Refining (Australia) Pty Ltd, VIC SC, unreported, Nathan J, 31 August 1995. X v Deputy State Coroner of New South Wales (2001) 52 NSWLR 312. DECISION : Appeal allowed.

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