Copeland (liquidator), in the matter of Bretkel Pty Ltd v Lovelock

MARKOVIC J: 1 This proceeding was commenced by way of originating process filed on 3 February 2023. It is brought by Brendan Copeland, in his capacity as liquidator of Bretkel Pty Ltd (in liquidation). The defendants are Kellie Ann Lovelock and Brett Charles Shailes. On 19 May 2023, the plaintiff filed an interlocutory process seeking, among other things, the entry of default judgment pursuant to r 5.23 of the Federal Court Rules 2011 (Cth). 2 The defendants, Ms Lovelock and Mr Shailes, are directors of Bretkel which operated a vehicle smash repair service centre. Mr Copeland was appointed as liquidator of Bretkel on 25 May 2022 and formed the view that Ms Lovelock and Mr Shailes traded the company whilst insolvent in contravention of s 588G(2) of the Corporations Act 2001 (Cth). Upon forming that view, Mr Copeland served letters of demand on the directors and thereafter commenced this proceeding. The evidence before me established that: (1) on 7 February 2023, the originating process and supporting affidavit of Mr Copeland was served on the first defendant, Ms Lovelock, by way of email, Ms Lovelock having agreed to receive service of the documents that way; (2) on 9 February 2023, the originating process and the supporting affidavit were served on the second defendant, Mr Shailes, again by way of email. Mr Shailes had also agreed to receive service of the documents that way; (3) on 15 February 2023, the Court made orders by consent that, among other things, the proceeding continue by way of pleadings, the plaintiff was to file and serve a statement of claim by 16 March 2023 and the defendants were to file and serve their defences by 13 April 2023; (4) on 14 March 2023, the plaintiff filed and served his statement of claim on Ms Lovelock and Mr Shailes by email; (5) the directors failed to file and serve their defences in accordance with the orders made on 15 February 2023; (6) the proceeding was next listed for case management hearing on 20 April 2023. There was no appearance by or on behalf of Ms Lovelock or Mr Shailes at that time. Notwithstanding that, orders were made extending the time for them to file and serve their defences to 4 May 2023. On the same day, those orders were served by the plaintiff on Ms Lovelock and Mr Shailes by email; (7) on 11 May 2023, the proceeding was next listed for case management hearing. Once again, the defendants failed to appear. On that day, orders were made granting leave to the plaintiff to file and serve the interlocutory process and any submissions in support on Ms Lovelock and Mr Shailes and for those orders to be served on the defendants both by post and email. Those orders were served on the defendants by email and by post on 11 May 2023 and 12 May 2023 respectively; and (8) upon the matter being called outside the courtroom today, on the hearing of the plaintiff's interlocutory process, there was no appearance by or on behalf of Ms Lovelock or Mr Shailes. 3 That is, the evidence establishes that the originating process and statement of claim were served on Ms Lovelock and Mr Shailes and that each of the orders made by the Court on each occasion that the matter was before it were also served on Ms Lovelock and Mr Shailes. There have also been attempts to discuss the matter with Ms Lovelock and Mr Shailes and, despite those discussions taking place, neither Ms Lovelock nor Mr Shailes have appeared on any occasion, nor have they filed a defence. 4 I note that Mr Shailes did communicate with the Court on 23 May 2023 on his behalf and on behalf of Ms Lovelock, providing a copy of a letter to Mr Copeland, noting that they had been financially unable to engage lawyers and that unfortunately they would be unable to attend today's case management hearing due to the need to attend a funeral. In response, Mr Shailes and Ms Lovelock were informed by the registry of this Court that: the matter remained listed for interlocutory hearing today; and if it were the defendants' intention to file a defence, that would need to be done and a copy of the relevant form, Form 33, was provided together with a link to the Court's website which provides contact details of organisations which may be able to provide free or low-cost legal advice or assistance. No further communication has been received from Ms Lovelock or Mr Shailes by the Court or by the plaintiff. 5 Rule 5.23(2)(c) of the Rules provides that if a respondent is in default, an applicant may apply to the Court, where the proceeding was started by an originating application supported by a statement of claim, for an order giving judgment against the respondent for the relief claimed in the statement of claim. 6 In Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 at [13]-[14] Yates J said the following about the power to enter default judgment pursuant to r 5.23(2) of the Rules: 13 The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27]. There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court's discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding. 14 Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that "on the face of the statement of claim" the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 at [42]. If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met: CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18] - [19]; Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 at [23]. The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; 236 ALR 665 at [45], [48] - [50]; United Broadcasting International Pty Ltd v Turkplus Pty Ltd (No 2) [2010] FCA 1413 at [42] - [44]; Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [62] - [63]. See also Deputy Commissioner of Taxation v Sibai [2015] FCA 1465 at [7]-[8]. 7 The power in r 5.23(2)(c) of the Rules is discretionary and must be exercised with caution. It is enlivened where a respondent is in default, as is the case here. Further, the Court must be satisfied that the applicant is entitled to the relief claimed, in this case, in the statement of claim, in the way described in Chamberlain Group. That is, there is no requirement for an applicant or plaintiff to prove its claim by way of evidence; the facts alleged in the statement of claim are taken to have been admitted. The Court must be satisfied that the applicant or plaintiff would be entitled to the relief sought in the statement of claim. 8 As is clear from the evidence relied on by the plaintiff, the defendants are in default. They have failed to file a defence despite having been given several opportunities to do so over the course of a three-month period since the proceeding was first listed for case management hearing. The plaintiff's statement of claim sets out the alleged facts on which the plaintiff relies, which are taken to have been admitted by Ms Lovelock and Mr Shailes. On my review of the statement of claim, I am satisfied that the plaintiff would be entitled to the relief sought. The plaintiff alleges that: Bretkel was insolvent within the meaning of s 95A of the Corporations Act from at least 21 May 2020 to the date of liquidation; the directors were directors of Bretkel at all material times; the company incurred debts in the sum claimed while it was insolvent; at the time the debts were incurred, there were reasonable grounds for suspecting Bretkel's insolvency; and the directors were aware of the reasonable grounds for suspecting the Bretkel's insolvency and failed to prevent it from incurring those debts. 9 In those circumstances, I am satisfied that the orders sought by the plaintiff in the interlocutory process should be made and that default judgment should be entered against the defendants in the amount sought. 10 The plaintiff also seeks interest on the amount claimed pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) up to the date of entry of judgment and post-judgment interest. In accordance with s 52 of the Federal Court Act, I am satisfied that those orders should also be made. 11 For those reasons, I will make the orders sought by the plaintiff. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

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