HIS HONOUR: On 31 October 2019, Ball J gave judgment for the second plaintiff (Energylink) for $2,555,493 against the defendant (Maxwell), together with costs (the judgment). Energylink subsequently went into liquidation.
Maxwell had been validly personally served with Energylink's Summons and Commercial List Statement, which were issued on 24 September 2019 and initially returnable on 4 October 2019. He did not appear. The proceedings were stood over to 18 October 2019 before his Honour. On that occasion Maxwell also did not appear. The proceedings were fixed for hearing on 31 October 2019. His Honour directed Energylink to notify Maxwell of the hearing date, which it did, but Maxwell did not appear at the hearing.
On 12 February 2020, the Official Receiver issued a bankruptcy notice to Maxwell, which was served on him on 3 March 2020. On 7 August 2020, the liquidator of Energylink filed a creditor's petition in the Federal Circuit Court seeking sequestration of Maxwell's estate. On 12 November 2020, Maxwell filed an appearance in that Court and on 9 December 2020, he filed a notice stating grounds of opposition to the petition.
By motion filed on 16 December 2020, that is more than a year after the judgment, Maxwell moves the Court for an order under the Uniform Civil Procedure Rules 2005 (NSW) r 36.16(2)(b) that the judgment be set aside. That rule provides:
36.16 Further power to set aside or vary judgment or order
…
(2) The court may set aside or vary a judgment or order after it has been entered if -
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(b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or
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The rule gives the Court an unfettered, although judicial, discretion, in the exercise of which it must consider whether any useful purpose would be served by setting aside the judgment and how it came about that Maxwell found himself by a judgment regularly obtained: Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 at 243. The central question is whether it is unjust to let the perfected order stand: Northey v Bega Valley Shire Council [2012] NSWCA 28 at [16]. Exercise of the discretion requires a broad evaluative judgement which involves consideration of the strength of any defence, the adequacy of the explanation for the failure to defend the proceedings, and the length of, and reason for, any delay: Pham v Gall (2020) 102 NSWLR 269, 294 at [110].
Justice requires that the application be dismissed because, decisively, (and I so find):
1. Energylink complied fully with the Court's directions and obtained its judgment entirely regularly; and
2. with knowledge of the proceedings and that the matter was to be heard on 31 October 2019, and believing that he had a defence, Maxwell consciously elected not to defend.
Added to this, a subsidiary consideration which reinforces the conclusion that the application should be refused is that Maxwell has failed to convince the Court that he has a credible excuse for his delay in bringing the application.
Maxwell was the sole director and shareholder of P.F. Maxwell Pty Limited (Maxwell's company) which was incorporated in 2015 and carried on business as a service entity providing staff, premises and equipment to the legal practice Maxwell's Patent and Trade Mark Attorneys and Intellectual Property Lawyers. In advertising material in evidence, Maxwell's describes itself as a leading international intellectual property firm and as a family law firm based in Sydney. The principal of the firm is Mr James Maxwell, Maxwell's brother. It was founded by his father, Mr Peter Maxwell, who appears still to be active in the practice.
After a contested application, Maxwell's company was placed under a winding up order by the Federal Court on 14 August 2019.
Energylink sued Maxwell for damages for breach of a written subscription agreement (the Subscription Agreement) entered into between them on 23 October 2018, under which Maxwell agreed to subscribe for, and Energylink agreed to issue to him, shares for a subscription price of $2,500,000.
After a number of extensions of time for payment were given to Maxwell, the date for completion was 31 May 2019. Maxwell did not complete and Energylink terminated the Subscription Agreement. On 3 September 2019, Energylink, through its solicitors, demanded payment from Maxwell and foreshadowed the institution of proceedings.
Not soon after, Energylink went into liquidation. I infer that Maxwell's default played a part in this. Energylink is represented by its liquidator.
In support of the application, Maxwell relies on three affidavits sworn by him on, respectively, 16 December 2020 (the first affidavit), 23 February 2021 (the second affidavit), and 17 March 2021 (the third affidavit). The first affidavit accompanied the motion.
Energylink relied on two affidavits by its solicitor, Rhys Wilkie, sworn 4 February 2021 and 2 March 2021 respectively. No objection was taken to these affidavits and no issue was taken with respect to the material in the second of these affidavits. Maxwell did not respond to it.
Maxwell's defence broadly appears to be that there was an agreement, or it was represented to him by Anthony Hartman (Hartman), a director of Energylink, or he mistakenly believed, that his obligation to pay under the Subscription Agreement was conditional upon him receiving monies which he expected to receive from an organisation called First Potentia, which monies he did not receive, and he believed the Subscription Agreement was terminated. He also foreshadows a defence under the Contracts Review Act 1980 (NSW).
The material placed before the Court by Maxwell is insufficient to permit the Court to make a meaningful assessment of the strength of his defence.
In paragraph 7 of the second affidavit, Maxwell says, "I did not have the required funds at the time I executed the Subscription Agreement. The only way I could have completed was if and when I received funds from First Potentia". He provides scant, if any, information about this expected source of funds. But more critically, he refrains from saying that he did not receive the funds. His evidence does not support an assertion that the Subscription Agreement was terminated. It also provides no evidentiary basis which might sustain relief under the Contracts Review Act 1980 (NSW). Proposed Commercial List Responses are annexed to both the first affidavit and the second affidavit. They differ in material respects.
Nevertheless, I proceed on the hypothesis that he had an arguable defence, sufficient to consider the application on the footing that it cannot be said that setting aside the judgment would serve no useful purpose.
There is no suggestion that Energylink acted other than entirely properly in obtaining its judgment.
I turn then to how judgment came to be entered in Maxwell's absence.
In the first affidavit, Maxwell says that he was of the view, based on representations made to him by Hartman, that the Subscription Agreement was terminated and that both parties had "walked away". He says that as the Subscription Agreement was terminated and, given his discussions with Hartman, he did not take any further action in relation to the matter.
However, it must have been apparent to him that Energylink had not walked away, first when it made demand of him, second when it sued him, and third when he was informed of the hearing. He says that as the shares were worthless, and his understanding was that the liquidators could not enforce the Subscription Agreement, he did not take steps to defend the proceedings. He says that he thought that the Court would not grant judgment given the facts and circumstances of the case, basically that the shares were worthless. (Presumably if he had paid the subscription price, the shares would not have been worthless.)
He thus took a deliberate decision not to appear to defend. This is not a case of misadventure, mishap or negligence which caused the non-appearance and entry of judgment, but one of the conscious making of an election not to appear, with which he is now dissatisfied.
He says that he did call his lawyer (who is the solicitor on the record for him in this application) who is an insolvency specialist in Sydney, but the solicitor was not willing to speak to him until outstanding accounts owed by his brother's business were paid. He says that he did not have funds to engage a lawyer to assist him to defend the matter. He provides no evidence of his financial position. He says nothing of any inability to obtain legal assistance from his brother's law firm or any lack of ability to represent himself. These considerations are, of course, of little moment given his decision not to defend in any event.
In the second affidavit, Maxwell gives different reasons for his delay.
He says that "from about December 2018 to date" he has been under a mountain of personal and financial stress due to a divorce and the failure of his business.
He says that in or about December 2018, he separated from his wife of 28 years and that on 29 July 2019 the Federal Circuit Court of Australia made a divorce order.
He says that he felt as though he fell into a bout of depression, became withdrawn, did not socialise much, and had difficulty dealing with his personal responsibilities.
He says that due to his psychological state at the time, and because he believed that he would not be required to complete the Subscription Agreement, he failed to respond to the claim against him. He says that he put his head in the sand and did not deal with the issues that arose. He was overwhelmed by his financial situation and the fact that a claim had been made against him when he had been told that there would never be a problem.
He says that he was living in far north Queensland and was separated from his children and was unable to travel due to the COVID-19 pandemic which caused him stress, anguish and sadness. He says he did not have any time, or the mental capacity, to deal with other matters but when he received a bankruptcy notice he realised that he had to pull himself together. Although he is still struggling emotionally and financially, he is doing his best to respond to the claim.
The following considerations deprive his later explanation of force:
1. it was not included in his first affidavit and there is no explanation for why not;
2. he provides no medical certificate or other extrinsic evidence of his avowed psychological problems;
3. the affidavit of Rhys Wilkie dated 4 February 2021 pointed out that if Maxwell had separated from his wife in about December 2018 and the divorce decree was made on 29 July 2019, the requirements of s 48(2) of the Family Law Act 1975 (Cth) (which provides that a divorce order shall only be made if the parties have lived separately and apart for not less than 12 months before the filing of the order) would not have been met. Maxwell then swore in the third affidavit that he separated from his wife on 31 December 2017 - that is, a year earlier than the date he gave in the first affidavit as when he separated from his wife and from when he says he started suffering personal stress;
4. the affidavit of Rhys Wilkie of 2 March 2021 annexes extracts from Maxwell's publically accessible Facebook account which reveals that:
1. he was in the company of one Ruth Xolalpa (Xolalpa) on 9 September and 13 October 2018;
2. he was skiing with her at Kosciuszko on 6 July 2019; and
3. he became engaged to her in September or October 2019.
These matters were not disclosed by Maxwell. They do not support his assertion of being withdrawn and not socialising at or about the time of the proceedings; and
1. the affidavit of Rhys Wilkie exhibits a Statutory Report dated 13 November 2019 by the liquidator of Maxwell's company. Maxwell's company was wound up on the application of the Australian Tax Office for a debt of $1.1 million, with total creditors exceeding $2.4 million. First, the report says that Maxwell contested the winding up, which happened in mid-2019. Second, the report records that Maxwell had advised that the company's employees were transferred to Patent House Pty Limited and that the new company had taken over all employees and their entitlements. The new company was registered on 25 June 2019. Maxwell is a director. It therefore appears that the business previously conducted by Maxwell's company is now operated by another company of his. These matters were not disclosed by Maxwell. They undermine his assertion of lack of capacity to deal with other matters.
In somewhat of an understatement, Senior Counsel for Maxwell on the application accepted that Maxwell "hasn't got a great explanation".
The motion is dismissed with costs.
[3]
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Decision last updated: 03 May 2021
Parties
Applicant/Plaintiff:
Andre Lakomy as Liquidator for Energylink Holdings Pty Ltd (In Liquidation)