Appeal against order setting aside default judgment - Turns on own facts

Magistrates Court (Civil Proceedings) Act 2004 s 40, s 43(7)

Commercial Tenancy (Retail Shops) Agreements Act 1995

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 2 HCA 18

Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362

Capital Bay Investments Pty v Richard Szklarz Architects Pty Ltd (Unreported, WASC, Library No 980503, 8 September 1998)

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989)

Parker v Transfield Pty Ltd [2000] WASCA 382

Perpetual Trustee Company Ltd v Burniston (2) [2012] WASC 383

Re J L Young Manufacturing Co Ltd [1900] 2 Ch 753

Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998)

1 SCOTT DCJ: This is an appeal against an order made by her Honour Magistrate Atkins setting aside a judgment in default which had been entered in favour of the appellant on 4 March 2014 and giving the respondent leave to defend the appellant's claim.

2 Judgment in default was entered by the appellant against the respondent for rent and outgoings alleged to be due pursuant to a lease of retail premises between the parties dated 28 November 2012 (lease).

3 The appeal to this court is made pursuant to s 40 of the Magistrates Court (Civil Proceedings) Act 2004 (MCCP Act).

4 The relevant provisions of s 40 of the MCCP Act are as follows:

(4A) The appeal must be conducted in accordance with Rules of Court made by the District Court

(4) The District Court must decide the appeal on -

(a) the material and evidence that were before the Magistrates Court;

(b) any other evidence that it gives leave to be admitted.

(5) Leave may only be given under subsection (4)(b) in exceptional circumstances.

5 By s 43(7) of the MCCP Act this Court, on the hearing of an appeal, may -

(a) confirm, vary or set aside all or part of the lower court's judgment;

(b) give any judgment and make any order that the Magistrates Court could have given or made.

6 An appeal to this court from a decision of a magistrate is by way of rehearing. As a consequence it is necessary for the appellant to demonstrate error on the part of the learned magistrate.

7 The grounds of appeal in the Amended Notice of Appeal are as follows:

1. The learned magistrate erred in failing to consider the evidence or failing to properly consider the evidence in finding that the respondent had an arguable defence.
2. The learned magistrate erred in finding that the alleged misleading conduct provided an arguable defence because the requirement of payment of a bond did not cause the respondent to suffer detriment because she was granted possession of the premises without paying the bond. In any event she did not pay the bond on the date agreed or at all.
3. The learned magistrate erred in her summary of the evidence to the effect that the respondent was misled into entering into the lease and incurring rental and bond obligations and then discovered that the basis upon which she had so agreed was not as she understood it to be when there was no evidence to that effect.
4. Even if the facts were as stated in par 3 above, the learned magistrate erred in finding that those facts provided an arguable defence.
5. The learned magistrate erred in failing to consider orders as to payment into court, costs of the application or costs thrown away by execution on the judgment.

8 In the amended Notice of Intention the respondent contended that the primary court's decision should be upheld on the grounds relied on by that court.

9 The materials before the learned magistrate on the hearing of the respondent's application to set aside the default judgment were as follows:

1. Affidavit of the respondent sworn 25 March 2014 and annexures 'A' and 'B' (respondent's affidavit).

1. Affidavit of Jay Daniel Poland sworn 6 May 2014 and annexures 'JDP - 1', 'JDP - 2', 'JDP - 3', 'JPD - 4' and JPD - 5' (Mr Poland's affidavit).
2. Outline of submissions.

10 In her affidavit the respondent purported to set out the facts from which she asserted there was an arguable defence to the appellant's claim. In her affidavit the respondent said:

1. After being served with the claim she did not receive legal advice, she was stressed and did not know what to do. She was not in a strong financial position so it was hard to pay for legal advice. She did not know what a default judgment was and that it could be ordered against her (pars 3 - 6).
2. The appellant told her that the premises had been vacant for one year but she later found out that they had been vacant for five years. Had she known about the very large vacancy she would have reconsidered renting the premises (pars 10 and 11).
3. When the appellant and she negotiated the lease she told the appellant that she would not be able to pay rent straightaway and that she had no money. She said that the appellant told her they [sic] would allow her to pay the bond on 6 January 2014. After she signed the lease it became apparent she would not be allowed to move into the premises until she paid the bond. She thought she would be able to move into the premises straightaway and begin to make money, in order to pay the bond. That was the impression she got during negotiations with the appellant (pars 12 - 15).
4. She did not properly understand the contract she was signing and did not believe the terms were properly explained to her. The appellant rushed her into signing the contract (par 16).
5. She requested copies of the signed contract and the Tenant Guide from the appellant so she could go and get legal advice but never received the copies she requested (pars 17 and 18).

1. The respondent's reasons for failing to lodge a response were unsatisfactory. However in its written submissions (par 3) the appellant accepted that if the respondent had a reasonably arguable defence, judgment ought to be set aside and the respondent should be given leave to defend. If there was only a shadowy defence the court ought to set aside judgment on condition that the amount of the claim be paid into court.
2. As to the assertion that the appellant represented that the premises had been vacant for one year and the respondent 'later found out' that they had been vacant for five years, what the respondent allegedly 'found out' was no more than a bald assertion and carried no weight. The appellant contended that the evidence in pars 3 and 4 of Mr Poland's affidavit made clear that there was no material misrepresentation. That evidence being that the premises were leased for five years from May 2010 and when the lease was surrendered, they were occupied by Sorrento Quay Car Hire until October 2012 - a year and a month before the misrepresentation was allegedly made.
3. As to the issue concerning payment of the bond all of the relevant emails were attached to Mr Poland's affidavit (attachment 'JDP-2'). The appellant submitted that those emails demonstrated that it initially stated that access to the premises was not allowed until the bond was paid however agreement was then reached between the appellant and the respondent in terms that the respondent could pay the bond on 5 January 2014 and could have the keys to the premises on 2 December 2014. Thereafter the respondent took possession of the premises on 15 December 2013.
4. Notice of termination was given to the respondent by notice dated 14 February 2014 at which time arrears of $16,969.38 were owing under the lease. In total the respondent had paid $1,300 to the appellant.

12 The learned magistrate accurately articulated the matters about which she would need to be satisfied before making an order setting aside the default judgment which was regularly entered. Those matters were:

(a) there was a satisfactory explanation for the failure to file a response; and

(b) there should be affidavit evidence which disclosed a defence on the merits.

13 As I say, in par 3 of the appellant's outline of submissions before the learned magistrate whilst the appellant contended that the respondent's reasons for failing to file a response were unsatisfactory, it accepted that if the respondent had a reasonably arguable defence, judgment ought to be set aside and the respondent should have leave to defend.

14 During argument before her Honour no oral submissions were made by the representative of the appellant to the contrary.

15 That being the case the issue which fell for the learned magistrate's determination was whether the respondent, by her affidavit, had disclosed an arguable defence on the merits.

16 In any event the amended Notice of Appeal contains no ground that her Honour erred in not finding there to have not been a satisfactory explanation for the failure to file a response.

17 As a consequence in this appeal the matter for my determination is whether her Honour was in error in finding that the respondent had disclosed an arguable defence on the merits.

18 At (ts 48) there was this exchange between the learned magistrate and the respondent's counsel:

HER HONOUR: On 28 November there is an email from a Murray Archibald, commercial and project manager, that says that the directors were not prepared to allow access until the bond of $4,085 [indistinct] was paid up front. And then on 30 November, $4,485 plus GST, as before, and then she ends - Ms Clark ends up being given the keys on 2 December; correct?

CHRISTOPHER, MR: Yes.

HER HONOUR: So what you are saying, Mr Christopher, is that there is an arguable defence in relation to this matter because of misleading discussions that are said to have taken place between the claimant and Ms Clark prior to her signing the lease?

CHRISTOPHER, MR: Yes, that's right.

HER HONOUR: And as a result of those discussions, which you say were misleading, she entered into the lease and incurred the rental obligations and the bond obligations and once she was in there, she discovered the nature - the basis upon which she had agreed to take up the lease was not as she understood it to be?

CHRISTOPHER, MR: Yes, your Honour.

HER HONOUR: As she had been told?

... I've listened to submissions in relation to this matter. The default judgment entered on 4 March 2014 is set aside and as far as that is concerned, the application dated 24 March 2014 is, therefore, granted.

20 I do not consider that the learned magistrate did more than summarise, in this exchange, the arguments put by the respondent's counsel. She made other observations during submissions from the representative of the appellant.

21 Although the learned magistrate did not succinctly state the reasons for her decision, I consider it implicit from her conclusion that she was of the view that the matters put forward by the respondent in her affidavit disclosed an arguable defence.

Grounds 1, 2 and 4 - Whether there is a defence on the merits

23 In Vautier Holdings Pty Ltd v Kagioulis Trading Pty Ltd [2014] WASC 209 [10] Master Sanderson summarised the relevant principles saying:

(1) The decision whether or not to set aside the judgment must have as its paramount consideration the interests of justice. It is an essential principle of civil ligation that a party should be entitled to put their case to the court.

(2) Simply because a judgment is regular does not provide grounds for refusing to set it aside. What is important is the merits of the defence raised by the party against whom judgment is entered.

...

(4) The test to be applied in determining whether the judgment should be set aside is similar to the test applied on summary judgment. The defendant must establish there is a serious question to be tried.

(5) A defendant who seeks to have a judgment set aside should 'condescend upon particulars' of the defence. In other words, on an application to set aside a default judgment a defendant ought provide the same level of detail as would be provided if the defendant was responding to an application for summary judgment by the plaintiff.

24 The respondent must present a credible defence demonstrating that, if the default judgment were set aside and the matter were argued on its merits, the respondent would have a real prospect of success_: Parker v Transfield Pty Ltd_ [2000] WASCA 382 re-stating the test enunciated by Malcolm CJ in Rollond v Bank of Western Australia Ltd (Unreported, WASCA, Library No 980498, 3 September 1998).

25 The court is not required to form a provisional view as to probable findings of fact at trial. What is required is that it must appear from the affidavit material before the court that the respondent's case is not inherently incredible and that if the respondent's evidence were accepted at trial, the respondent will have a real prospect of success.

26 There must be in the affidavit evidence in support of the application, material of some real substance, more than mere assertion, to show that there is a serious question to be tried as to the existence of a genuine dispute about the debt or a genuine claim which maybe put against the appellant. If such material is available the application will succeed even though there might appear in the affidavits filed on the part of the appellant to be a completely contrary view as to the relevant facts. The court may not and is not required to resolve that kind of factual disputation upon the affidavits. See Capital Bay Investments Pty v Richard Szklarz Architects Pty Ltd (Unreported, WASC, Library No 980503, 8 September 1998) (Murray J).

27 The application to set aside a default judgment is an interlocutory application and as a consequence affidavits may contain statements of information and belief.

28 The statements of information or belief should not include bald allegations unsupported by material facts and must include a statement of the source of the information and the grounds for the belief: Lewkowski v Bergalin Pty Ltd (Unreported, WASCA, Library No 7675, 26 May 1989).

29 Where there is a provision in an affidavit relying on a statement of information and belief which does not state the source of the information or belief, that provision is irregular and therefore inadmissible as evidence: Re J L Young Manufacturing Co Ltd [1900] 2 Ch 753, 754; Phillips v Mineral Resources Development Pty Ltd [1983] 2 Qd R 138, 145.

30 Counsel for the appellant correctly in my view, submitted that it was clear from the emails between the parties (attachment 'JDP-2' to Mr Poland's affidavit) that although the appellant initially told the respondent that it required the bond to be paid before she took possession, it resiled from that position. The matter was resolved on 2 December 2013 by agreement being reached by the parties that the bond would be paid on 5 January 2014 and the respondent could pick up the keys to the premises on 2 December 2013. The respondent then took possession of the premises on 15 December 2013 being the commencement date in the lease.

31 Counsel for the respondent submitted that notwithstanding that the appellant may have resiled from its initial stance, if the lease had been brought about by an induced misunderstanding on the part of the respondent as to the circumstances upon which it was made then that would form a basis for the lease to be set aside.

32 I do not agree. It is difficult to understand what the 'induced misunderstanding' was. A representation made by the appellant before the lease was entered into that the respondent could pay the bond on 6 January 2014 could not in the light of the contents of these emails, amount to a misrepresentation or conduct on the part of the appellant which was misleading or deceptive thereby entitling the respondent to any relief.

33 Even if there was a basis for the respondent to rescind the lease, which I do not consider there to have been, she did not do so.

34 Instead she entered into possession of the premises after the issue relating to the bond had fallen away and by so doing elected to affirm the lease.

35 In my view no arguable defence was raised by the respondent with respect to this issue.

36 Counsel for the respondent then referred to par 15 of the respondent's affidavit in which she said:

I thought I would be able to move into the Premises straight away and begin to make money, in order to pay the bond. That was the impression I got during the negotiations with the Claimant.

37 Counsel submitted that this meant that there was a defence which was not inherently improbable that a representation was made on behalf of the appellant that the respondent could move in to the premises on 28 November 2013 (when the lease was signed), which amounted to a misrepresentation such that the respondent would be entitled to an order that the lease be set aside.

38 I do not consider that there is any merit in that submission because:

(a) Paragraph 15 of the respondent's affidavit contains no more than a bald assertion as to what the respondent 'thought' and a conclusion, being her 'impression' about which there is no factual foundation. Further, the respondent does not depose as to the sources and grounds for her beliefs. These assertions by her are not admissible as evidence.

(b) In any event the respondent by entering into possession of the premises on 15 December 2013 affirmed the lease.

39 Further, although during this appeal counsel for the respondent pressed me to find that the respondent may have suffered loss by reason that she was unable to take possession until after 28 November 2013, there was no evidence adduced by the respondent that she suffered any loss.

40 No arguable defence was raised by the respondent with respect to the matters raised in par 15 of the respondent's affidavit.

41 This matter is raised in pars 10 - 11 of the respondent's affidavit where she said:

1. The Claimant told me that the premises had been vacant for one year but I later found out that it had been vacant for 5 years.
2. If I had known about the very large vacancy I would have reconsidered renting the premises.

42 The words 'but I later found out that it had been vacant for 5 years' are not admissible as evidence. These are statements of the respondent's information and belief the sources and grounds for which are not stated.

43 In pars 3 and 4 of his affidavit Mr Poland said:

• The premises were leased for five years from May 1 2010 to April 30 2015 by Dawn Till Dusk Pty Ltd.
• That lease was surrendered by agreement and the premises were then licenced to Sorrento Quay Car Hire who occupied them till in or around October 2012. At the time I spoke with the defendant (respondent) the premises had been vacant for just on a year.

44 It is true that the period of occupancy of Dawn Till Dusk Pty Ltd is not made clear in par 3 of Mr Poland's affidavit. His evidence is merely that the premises were leased for five years as and from 1 May 2010.

45 Be that as it may the representation alleged by the respondent to have been made on behalf of the appellant was that 'the premises had been vacant for one year'. That representation was, on the only admissible evidence before the learned magistrate, materially true.

46 There is no evidence from which any arguable defence arises with respect to this issue.

47 In par 16 of the respondent's affidavit she says:

1. I did not properly understand the Contract I was signing and I don't believe the terms were properly explained to me. The Claimant rushed me into signing the contract.

48 In my view the respondent in this paragraph does no more than make mere assertions. The respondent does not depose to any facts such as for example:

(a) what it was about the lease that she did not 'properly understand'

(b) what it was about the lease that she 'did not believe' was properly explained to her; and

(c) the facts upon which she relied in her assertion that the claimant 'rushed' her into signing the lease.

49 The inadequacy of these mere assertions which were made by the respondent is made more evident by the fact that during the course of argument in this appeal counsel for the respondent accepted that it was not asserted that a disclosure statement in accordance with the provisions of s 6(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1995 was not provided to the respondent at least seven days before the lease was entered into.

50 By that disclosure statement a copy of the form of the proposed lease and the Tenant Guide was required to be attached. In addition, in the disclosure statement the key terms of the proposed lease were required to be set out.

51 It was incumbent upon the respondent to condescend to particulars which she failed to do.

52 In my view there was no arguable defence raised by the respondent with respect to this issue.

Respondent's request for copies of the signed lease and Tenant Guide

53 This matter is raised in pars 17 and 18 of the respondent's affidavit.

54 On the assumption that the respondent's request was not complied with there is no relief which might flow in favour of the respondent by any such request not being complied with.

55 The issue of unconscionability was first raised by counsel for the respondent during this appeal.

56 Although that issue was not specifically raised before the learned magistrate it is perhaps appropriate to deal with it as a matter of completeness.

57 The doctrine of unconscionable conduct in equity requires proof of three matters:

1. A party to a transaction was under a special disability in dealing with the other party leading to an absence of any reasonable degree of equality between the parties;
2. That disability was sufficiently evident to the stronger party to make it prima facie unfair or unconscientious to procure or accept the weaker party's assent to the transaction;
3. With the onus then moving to the stronger party, that the transaction was not fair, just and reasonable.

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 per Deane J.

58 The requirement of special disability refers to a special disadvantage which has the effect that a party is 'unable to judge for himself/herself or is unable to make a worthwhile judgment as to what is in his/her best interest': Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, 392 (McTiernan J); Amadio at (461) (Mason J) and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 2 HCA 18 [12] Gleeson CJ.

59 In Perpetual Trustee Company Ltd v Burniston (2) [2012] WASC 383 Edelman J said at [323] - [324].

In equity, there have been cases where the passive receipt of a benefit, obtained from a person labouring under some special disadvantage, has been characterised as unconscionable without any degree of moral disapprobation. But without any limiting factor, and without any need for moral disapprobation, a conception that conduct is against conscience would introduce a general discretion for a judge to invoke a wide range of remedies, which discretion would be almost unreviewable.

For this reason, in a line of cases, intermediate courts of appeal have insisted upon the presence of a 'high', or perhaps 'significant' or 'real', degree of moral obloquy.

60 Counsel for the respondent submitted that it is evident from the email correspondence attached to Mr Poland's affidavit that the respondent does not have a good command of the English language. He asserted that that coupled with her evidence in par 16 of her affidavit that she did not properly understand the lease she was signing and that she was rushed into signing it gives rise to a reasonable prospect of a finding at trial that the respondent would be entitled to relief against the appellant taking an unconscionable advantage of her disabling condition or circumstance. I have already made a finding about the inadequacy of par 16 of the respondent's affidavit.

61 It is arguable from the email communications that the respondent may have difficulty with her written English expression. There is however no evidence from the respondent that she had any difficulty in reading or understanding English.

62 In the event that the respondent asserted that she had a difficulty in understanding the English language or was at any other relevant disadvantage she was required to provide at least the substance of those facts in her affidavit. She failed to do so.

63 There was no evidence advanced by the respondent which could give rise to any arguable case for relief in favour of the respondent based upon the principle of unconscionability.

64 In my view the learned magistrate erred in finding that any of the matters raised by the respondent on the admissible evidence before her disclosed an arguable defence on the merits such that if the default judgment was set aside the respondent would have a real prospect of successfully resisting the appellant's claim.

66 I will hear counsel concerning the appropriate orders including orders for costs.