First Plaintiff v Defendants

2 By order made on the Court's own motion and pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 ('Rules'), the Summons has been referred to me for hearing and determination.

3 On 5 June 2020, I made orders that the plaintiffs file and serve any affidavits in respect of the Summons by 12 June 2020; that OBRE file and serve any affidavits in reply and written submissions in respect of the Summons by 19 June 2020; that the plaintiffs file and serve any written submissions in respect of the Summons by 24 June 2020; and that the Summons be decided on the papers on or after 26 June 2020.

4 In support of the Summons, OBRE relies on two affidavits of its solicitor, Michael John Holmes, sworn 27 May 2020 and 19 June 2020. In his 27 May affidavit, Mr Holmes refers to his affidavit sworn 3 April 2020 in respect of another application in this proceeding. OBRE also filed written submissions on 19 June 2020.

5 In opposing the Summons, Mr Vorontsov relies on his affidavit dated 11 June 2020 and filed 12 June 2020. Mr Vorontsov did not file any written submissions. However, without leave or notice to the Court or OBRE and after receiving an email this morning from my Associate that this ruling would be delivered by email at 2.30pm this afternoon, Mr Vorontsov a further affidavit at 11.39am this morning. This was inappropriate. Clearly, OBRE has not had an opportunity to respond to this latest affidavit. However, I have read it and taken it into account and do not consider that OBRE is prejudiced by it, given what I have set out below.

6 I have not referred in detail to the affidavits and submissions filed by both parties, however all evidence and submissions have been taken into account.

7 For the reasons set out below, the Default Judgment will be set aside and the Summons otherwise dismissed.

8 The Default Judgment is that OBRE pay Mr Vorontsov the sum of $56,200 plus $742 for costs. It was entered in default of defence.

9 Rule 21.07 of the Rules applies. It provides that the Court may set aside or vary any judgment entered or given in accordance with Order 21. Rule 21.02 is the applicable rule by which a plaintiff can seek to obtain a judgment in default of a defendant not serving a defence within the time prescribed by the Rules.

10 The case law is well established in this area: see Lubura v Nezirevic[2] and Kostokanellis v Allen.[3] These cases outline four relevant considerations where the default judgment has been regularly entered:

(a) whether there is a defence on the merits;

(b) the reasons for the default;

(c) whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the defendant; and

(d) whether, if the judgment is set aside, a suitable award of costs and the giving of security would be adequate to cover the prejudice to the plaintiff in having the judgment set aside.

12 In the plaintiffs' statement of claim dated 22 October 2019 ('SOC'), the plaintiffs make various allegations against five defendants. In brief, the proceeding concerns a contract for the sale of land located at Unit 11, 40-46 Green Island Avenue, Mount Martha ('Property') entered into on or around 21 July 2018 ('Sale Contract'), between Mr Vorontsov as vendor and the first defendant as purchaser. Pursuant to the Sale Contract, a deposit of $56,200 was paid by the first defendant ('Deposit'). Mr Vorontsov claims, inter alia, that the first defendant wrongfully terminated the Sale Contract. That claim is defended on the basis that a caveat registered by the second defendant was not removed and therefore settlement did not occur as Mr Vorontsov was not able to deliver clear title to the Property. Claims are made by Mr Vorontsov against the second defendant about the presence of the caveat which I do not need to traverse here. Claims are also made against the third and fifth defendants, along with OBRE, as to them either holding the Deposit or releasing it to another person/entity without informing Mr Vorontsov.

13 In his 27 May affidavit, Mr Holmes exhibits OBRE's proposed defence to the SOC. The proposed defence is that it denies the allegations made against it and says that it never received the Deposit or any deposit money in relation to the Sale Contract.

14 Mr Holmes deposes, in his 27 May affidavit, that there was never a relationship between Mr Vorontsov and OBRE and that there was never any agreement between the plaintiffs and OBRE. He says that the real estate agency that had the exclusive sale authority for the sale of the Property was between Mr Vorontsov and Jamelissa Pty Ltd (ACN 084 445 787) trading as Conley Luff Real Estate Services ('Conley Luff'). He states that OBRE never received any deposit money in relation to the Sale Contract and has never had any involvement with the plaintiffs.

15 As noted above, Mr Holmes also refers to an earlier affidavit he swore on 3 April 2020 in relation to an application in this proceeding for summary judgment by OBRE ('OBRE Summary Judgment Application'). I interpose at this point to explain that as well as OBRE, the first, third and fifth defendants have all filed summary judgment applications in this proceeding (with the OBRE Summary Judgment Application, the 'Summary Judgment Applications'). In that 3 April affidavit, Mr Holmes deposes that he is instructed by Kayn Christopher Leslie Luff, who is a director of OBRE Mornington Pty Ltd trading as O'Brien Real Estate Mornington ('OBRE Mornington'). Mr Luff is also a director of Conley Luff which was the real estate agent for Mr Vorontsov in respect of the sale of the Property. OBRE Mornington is a franchise of OBRE.

16 In his affidavit dated 11 June 2020, Mr Vorontsov says that OBRE transferred the Deposit, or deposit monies, to the third defendant. It is also said that the full deposit was not transferred, but only $44,685 was transferred by OBRE. Mr Vorontsov deposes that at some time in 2018 Conley Luff changed its name and started trading as OBRE without advising him. Mr Vorontsov relies on an affidavit and submissions filed in the Summary Judgment Applications on behalf of the third defendant for these statements in his affidavit.

17 In response, Mr Holmes deposes that Conley Luff initially received the Deposit and subsequently transferred part of it to the third defendant on 17 December 2018. On 24 October 2019, the third defendant transferred back to Conley Luff the part deposit which it had received. Mr Holmes also specifically refutes Mr Vorontsov's statements that Conley Luff changed its name and started trading as OBRE.

18 It is readily apparent that ORBE has a defence on the merits. Based on the affidavits of Mr Holmes and the proposed defence, OBRE has a meritorious defence that it did not have a contractual relationship with Mr Vorontsov, that it did not receive the Deposit or any part of it, and that it did not transfer or release the Deposit or any part of it. Mr Vorontsov's evidence to the contrary is based on matters stated in an affidavit and submissions filed on behalf of the third defendant, who is not connected with OBRE, OBRE Mornington or Conley Luff, and so does not have firsthand knowledge of these matters, about which of those three entities is the 'right' defendant.

19 Mr Vorontsov deposes that he served a sealed copy of the writ and SOC on OBRE on 2 December 2019. He states that he provided a sufficient amount of time to file the defence, and he entered the Default Judgment on 20 May 2020. He deposes that OBRE admits holding the deposit because Mr Holmes says in his 27 May affidavit that 'The deposit money remains in the Conley Luff Trust Account'. He says there is no such company as Conley Luff or any records of a trust account under such name provided by OBRE. He also says that as the Sale Contract was terminated without cause and as OBRE is holding the deposit which belongs to him, OBRE has no prospects of success to set aside the Default Judgment.

20 Mr Holmes deposes that on 3 April 2020 he arranged for an appearance on behalf of OBRE to be entered. He says that on 7 April 2020 he arranged for the OBRE Summary Judgment Application to be filed. Mr Holmes also refers to orders which I made on 6 April 2020 in respect of the Summary Judgment Applications ('6 April Orders'). I note that at that date OBRE's application was foreshadowed and had not yet been filed.

21 It is necessary for me to go into some detail here. Amongst other things, the 6 April Orders provided that:

(a) OBRE's foreshadowed application for summary judgment/strike out be filed and served by 9 April 2020;

(b) the plaintiffs to file and serve any affidavits upon which they intend to rely in relation to the Summary Judgment Applications by 23 April 2020;

(c) the defendants file and serve any further affidavits upon which they intend to rely, along with written submissions, by 1 May 2020;

(d) the plaintiffs file and serve any written submissions by 8 May 2020; and

(e) the Summary Judgment Applications be determined after 8 May 2020 by me on the papers.

22 Mr Holmes deposes in his 27 May affidavit that as the OBRE Summary Judgment Application had been filed on 7 April 2020 and as I was to determine the application after 8 May 2020 on the papers, he did not prepare and file a defence for OBRE. He describes this as an administrative oversight on his part.

23 In his 19 June affidavit, Mr Holmes deposes that the Default Judgment is stated to be for a debt, whereas the SOC alleges that Mr Vorontsov has "suffered financial damages from the Third, Fourth, Fifth Defendants in the amount of $56,200 for releasing 'Deposit' to the First Defendant without proper basis". Mr Holmes says that Mr Vorontsov's claim against OBRE is for damages, not a claim for debt.

24 OBRE submits that the Default Judgment should be set aside as having been irregularly entered. In his affidavit filed 26 June, Mr Vorontsov says that the Default Judgment was correctly (i.e. regularly) entered. As far as I understand it, as the amount claimed is quantified and as the prayer for relief in the SOC is for $56,200 from OBRE, this is treated as a claim for debt, even though the SOC may refer to it within the pleading as damages. Without further argument in that regard, I am not prepared to conclude whether the Default Judgment was irregularly entered.

25 In my view, while it is possible under the Rules for judgment in default of defence to be entered as the time for defence had passed, in the circumstances of this case it was tantamount to an abuse of process for Mr Vorontsov to have done so. The OBRE Summary Judgment Application had not only been filed prior to the entry of Default Judgment, it had been filed before OBRE's defence was due.[4] The OBRE Summary Judgment Application was being actively defended by Mr Vorontsov, as he had filed affidavits on 23 April and 11 May 2020 and submissions on 11 May 2020 in the Summary Judgment Applications. Further, by the time he entered the Default Judgment, supported by an affidavit affirmed 19 May 2020, the Summary Judgment Applications were effectively reserved before me. I note that that affidavit makes no reference to the OBRE Summary Judgment Application.

26 To have entered the Default Judgment when an application for dismissal of Mr Vorontsov's claims against OBRE had been made and the decision in respect of it effectively reserved is sharp at the least and an abuse of process at the worst. I observe here that Mr Vorontsov is not represented in these proceedings and may not have had occasion to consider whether it was appropriate in circumstances such as these to enter the Default Judgment. Therefore, I will refrain from making a formal finding of abuse of process.

27 Nonetheless, the reason for the delay in filing a defence has been well and truly explained, and I accept that explanation. In my view, there is nothing in that delay which stands in the way of the Default Judgment being set aside.

Has the application to set aside the Default Judgment been made promptly after it came to the knowledge of OBRE?

28 In my view, this is satisfied. The Default Judgment was entered on 20 May 2020. I do not know when it was served on OBRE or otherwise came to its attention, but the Summons was filed on 27 May 2020. One week between the entering of judgment and applying for it to be set it aside is an application made promptly.

If the Default Judgment is set aside, would Mr Vorontsov be prejudiced in any respect which could not be adequately compensated for by a suitable award of costs and the giving of security?

29 No evidence was given or submissions made of any prejudice to Mr Vorontsov if the Default Judgment is set aside.

30 For all the reasons set out above, the Default Judgment should be set aside.

31 In its written submissions, in relation to the Default Judgment OBRE seeks orders that:

(a) The Default Judgment be set aside;

(b) OBRE have leave to file and serve a defence in the form of exhibit MJH-2 to Mr Holmes' 27 May affidavit; and

(c) there be no order as to the costs of the Summons.

33 While it is common in applications to set aside default judgments for there to be orders made that the defendant pay the plaintiff's costs thrown away, in my view it is not appropriate to make such an order here. Mr Vorontsov, properly advised, ought not have sought to enter default judgment.

34 Having entered the Default Judgment and received the Summons and supporting material, properly advised Mr Vorontsov ought to have consented to orders setting aside the Default Judgment. That may well have been sufficient for OBRE to seek and obtain an order for its costs of the Summons. However, it does not do so.

35 In all the circumstances, I consider it appropriate that there be no order as to costs.

36 The debt which is the subject of the Statutory Demand is the judgment debt as set out in the Default Judgment.

37 In his affidavit filed 26 June 2020, Mr Vorontsov says that OBRE failed to file and serve a "correct" originating motion to set aside the Statutory Demand, so after the "21 days period" expired, he filed an application on 19 June 2020 in the Federal Court of Australia to wind up OBRE. Mr Vorontsov's affidavit also contains matters which are scandalous and irrelevant, and I therefore have not referred to them in this ruling.

38 An application to this Court to set aside the Statutory Demand must be made by way of originating process under the Corporations Act 2001 (Cth) ('Act') in the Commercial Court and in accordance with the Supreme Court (Corporations) Rules 2013 ('Corporations Rules'). It is not able to be made in an existing proceeding in the Common Law Division.

39 Accordingly, no orders are able to be made on the Summons in respect of the Statutory Demand.

40 Given that the Default Judgment has been set aside, there is now no judgment debt, and given the circumstances set out above in respect of the OBRE Summary Judgment Application, it is difficult to conceive how it could be said that there is no genuine dispute as to the debt claimed in the Statutory Demand.

41 If Mr Vorontsov does not withdraw the Statutory Demand, then there is no impediment to OBRE making an application pursuant to s 459G of the Act and in accordance with the Corporations Rules.

42 I note that as the Statutory Demand was served after 25 March 2020, the temporary relief measures in respect of statutory demands on corporations as set out in the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) apply, such that the time for making any such application has not yet expired. That Act amended sections of the Corporations Act 2001 (Cth) and the Corporations Regulations to provide for a 6 month period to comply with a statutory demand or to make a s 459G application to set it aside, for statutory demands served on or after 25 March 2020. The temporary relief measures apply until 25 September 2020.

43 While the fate of the winding up application filed by Mr Vorontsov is a matter for the Federal Court, Mr Vorontsov ought to consider whether that application is able to be proceeded with.

44 For the reasons set out above, I have made orders in the proceeding as follows:

(a) The Default Judgment be set aside;

(b) OBRE have leave to file and serve a defence in the form of exhibit MJH-2 to Mr Holmes' 27 May affidavit by 13 July 2020;

(c) The Summons otherwise be dismissed;

(d) There be no order as to the costs of the Summons.

[1] This is how the fourth defendant is named in the writ.

[2] [2013] VSCA 215; (2013) 42 VR 43.

[3] [1974] VicRp 71; [1974] VR 596.

[4] Rule 14.04 requires a defence 30 days after a notice of appearance is filed.