Gavin Boyle Constructions Pty Ltd v Fabrok Pty Ltd & Anor [2011] QDC 214

[3] The claim, which is not a large one, is for damages for breach of contract. There is an alternative claim for damages under the Trade Practices Act, but I do not need to say anything much about that because it does not seem to be disputed that there would be a good defence, or at least prima facie, a good arguable defence to that claim. There are, I think, serious difficulties with any claim under the Trade Practices Act. In relation to the claim for damages for breach of contract, however, the plaintiff's case stripped to its essentials is that there was a contract for the first defendant to supply certain goods, namely concrete columns, to the plaintiff, that the columns were supplied under the contract, that there was under the Sale of Goods Act an implied term of the contract that the columns would be of merchantable quality, and the columns supplied were not of merchantable quality because they developed cracks and that therefore the defendant was in breach of the contract, and the plaintiff claimed as damages the costs associated with the rectification of the columns. On the face of it that seems a reasonably straightforward claim.

[4] In correspondence prior to the proceeding being commenced the first defendant had disputed that it had any liability for the columns on the basis that the columns had been manufactured by someone else, apparently the second defendant, and all the first defendant did was simply take an order for the columns and pass that order onto the manufacturer. However, that would not affect liability under the contract, including any term implied by the Sale of Goods Act.

[5] In a draft defence, which has been prepared more recently, it is not admitted that the contract contains the implied terms relied on, but there has been no plausible submission advanced as to why it would not do so. Certainly, there is no material to indicate that there was any basis upon which such liability was excluded. In those circumstances it has not been shown that it was not an implied term of the contract that the columns would be merchantable quality. It is also proposed to deny the proposition that the columns were not of merchantable quality.

[6] In relation to that it seems that this dispute has been going on since some time in 2008, the contract between the parties having arisen in 2007. There were complaints about cracking in early 2008 and it appears that complaints had been made in 2008 to a representative of the first defendant about the cracking. Complaints had evidently also been made to the second defendant.

[7] There was an expert engineer's report obtained in December 2008 which I have seen, which gave details of the location and extent of the cracking in the columns and provided an opinion as to the cause of the cracking and made recommendations for the repair of the cracking. That report did not, I think, directly addressed the issue of whether the columns were of merchantable quality, which is perhaps not the sort of thing that would normally be addressed in terms by an engineer, but did not address the issue precisely of whether the columns would in fact meet the ordinary test for something being of merchantable quality.

[8] In the present case the particular difficulty caused by the cracking of the columns arose because the columns were to be used as mock sandstone columns and had been specially constructed so that their appearance resembled natural sandstone. They had been put in position in conjunction with the use of natural sandstone so that there was no question of any mere superficial cracking being covered up by paint or something like that.

[9] Indeed, a later expert suggested that, because of the aesthetic considerations which were so important for the columns, the only reasonable way to deal with the matter was simply to replace the columns which were showing signs of cracking, which fortunately was not all of them. It does not appear that ultimately that was done, but there were evidently fairly substantial works undertaken to rectify the matter, and I expect it would have been difficult given the importance of the aesthetic aspect.

[10] It occurs to me that a problem of that nature may more readily give rise to an allegation that the columns were not reasonably fit for the purpose for which they were intended, rather than that they were not of merchantable quality, but that implied term was not relied on in the pleadings, so I can really pass over that issue.

[11] I should say that the second expert report obtained in June 2009 seems to me to have been directed principally to the question of what was the appropriate way to deal with the problem. Both of these reports evidently were provided to the first defendant. Up until proceedings were commenced, and indeed as late as September 2010, the solicitors for the first defendant were adopting the line that the plaintiff's complaint related to a manufacturing defect rather than any claim that related to the first defendant, and on that basis denying liability.

[12] This either misunderstood or refused to acknowledge the liability which would arise in contract on the basis of the first defendant being the supplier of the goods. However, on whatever basis it was clear in that letter that the first defendant was denying any liability to the plaintiff and was contemplating that if proceedings were commenced against the first defendant, then they would be defended, because there was a threat to show the correspondence to the court in respect of costs.

[13] When the proceedings were issued they were served as I have indicated. After the time for filing a notice of intention to defend and defence had expired, default judgment was signed. It is accepted that it was signed regularly. It does appear, however, that no attempt was made before signing the default judgment to make contact with the solicitors who had written the letter in September 2010 to advise them that the proceedings had been served and at least to inquire whether a notice of intention to defend and defence was to be filed.

[14] The failure to do so does not render the default judgment irregular, because there is no rule of law requiring that to be done, though it does seem to me that it is an important practical step, simply because a good deal of unnecessary costs can be avoided, the costs of signing the default judgment and the costs of an application to set aside the default judgment, if that obvious enough step is taken.

[15] It may be that there are many cases where people purport to resist claims in correspondence, but do not file a notice of intention to defend and defence. On the other hand, from my point of view it is all too common that when applications are made to set aside default judgments, they are seeking to set aside judgments which were in fact signed without prior notice to solicitors who were known to be acting in circumstances where the plaintiff's solicitors could reasonably have anticipated that a notice of intention to defend and defence would be filed.

[16] In my view it is bad practice to sign a judgment in those circumstances and that, I think, is a matter which, although not rendering a judgment signed in that way irregular, is relevant to some extent to the issues that arise in relation to the discretion to set aside a regularly obtained judgment.

[17] What it means is in the first place that there is no reason to doubt that if it had not been for the fact that the proceedings were not brought to the notice of the person in control of the first defendant, and were not in fact brought to the notice of the solicitors acting for the first defendant, there would have been a notice of intention to defend and defence filed, and accordingly all of this would have been avoided.

[18] This is not a situation where a judgment has been regularly entered because a defendant has simply failed to organise himself properly to arrange for a defence, or where a defendant was initially not seeking to dispute the matter but subsequently decided that he wanted to do so. This is a case where there is really no reason to doubt that but for the communication difficulty between the accountants and the first defendant, a notice of intention to defend and defence would have been filed. Hence there is, I think, a good explanation in this matter for a failure to file those documents in a timely way.

[19] As to the explanation for the later delay, which is not insignificant, that was put on the basis that there had been changes in the solicitors who were handling the matter. It does certainly appear that in addition there has been a growing realisation on the part of the advisors of the first defendant that something of substance needed to be shown in relation to the existence of a good prima facie arguable ground of defence.

[20] What was said, for example, in the first affidavit filed by the person in charge of the first defendant really said nothing more than that the first defendant would like the opportunity to dispute the plaintiff's claim, which is not sufficient to establish prima facie a good arguable defence on the merits.

[21] Once a regularly entered default judgment is available, it is necessary for there to be an affidavit of merits; that is, evidence that the defendant has prima facie a good arguable defence on the merits. That does not mean that the defendant has to put on all the evidence that would be led at a trial, but I think it is necessary at least to show by evidence that there is some good reason to think that, if he is allowed to defend, the defendant at a trial will have a good arguable defence on the merits.

[22] The difficulty in the present case is that it appears that the only real issue at the trial will be the factual issue of whether the columns were of merchantable quality, at least on the present pleadings. In relation to that, the expert evidence available to the plaintiff suggests that they were not, but as I indicated earlier, does not perhaps directly address that issue in an appropriate way.

[23] There is also the consideration that the first of those reports, at least, does not entirely exonerate installation factors as being involved in the cracking, and as I read the report there is at least on one page the suggestion that such factors may also have been involved, at least in the cracking of some of the columns.

[24] It may well be that with the benefit of some additional expert evidence the position could be clarified one way or the other. The issue of whether something is of merchantable quality may be an issue of some complexity depending on the nature of the thing in question. In circumstances where the defendant is at least foreshadowing the possibility of there being further expert evidence at a trial from the first defendant on the issue, I think that it is difficult to say that this is a case where there would be no useful purpose in setting aside the judgment, which is of course the alternative to setting it aside on the basis that the defendant has prima facie a good arguable defence on the merits.[1]

[25] It is, I think, however, unsatisfactory that despite so much time that has passed the first defendant has failed to gather any such evidence. Apart from anything else it may well be much more difficult to gather evidence about the columns and their state and the cause of any problems with them and things like that in circumstances where the columns were installed in 2007. Such rectification work that was done was apparently done in 2008 and 2009; mostly, it seems, in 2009.

[26] So, anything could have happened to the columns since then, and it might be very difficult to be able to say anything sensible as a result of any investigation, even assuming people who now own the columns are content to allow experts to come and examine the columns close up. However, I think it is not the sort of case where I could say comfortably on the material that's presently available that there is no real point in giving the first defendant the opportunity to defend, and so in those circumstances I think that there has been shown prima facie a good arguable defence on the merits.

[27] At least in the pleading sense there was clearly a good defence shown, in that the defendant disputes that the columns were not of merchantable quality, and if that is correct then that would be a good defence of the claim as it is currently pleaded, for damages for breach of contract. I think it is necessary to go further than simply to demonstrate that it is possible to plead a good defence, but as to that I think that there is at least the prospect that there may well be argument or grounds for argument about whether the goods were of merchantable quality at the time.

[28] As I say, the issue is perhaps not as straightforward as might appear and is perhaps not as straightforward as the more immediate issue that was addressed in the expert reports that are currently available. So, it is difficult to say with any confidence that the defendant will not succeed on this point at the trial. In those circumstances I think that the first defendant has shown enough by way of a good arguable defence on the merits to justify setting aside the default judgment, particularly bearing in mind the other factors to which I have referred.

[29] I order that the default judgment signed against the first defendant on 21 December 2010 be set aside, and I extend the time for filing and service of the notice of intention to defend and defence of the first defendant to 27 September 2011.

[30] In relation to the question of costs, ordinarily where an application succeeds to set aside a regularly entered judgment, it is on terms that the defendant pay the plaintiff's costs of signing the judgment and setting it aside. I think that proposition was mentioned in Troiani v Alfost Properties Pty Ltd [2002] QCA 281. Now, Ms Anderson has advanced an argument about that based on Coburn v Brotchie [1890] VicLawRp 4; (1890) 16 VLR 6.

[31] Rule 5 states:

"The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense. Accordingly, these rules are to be applied by the Court with the objective of avoiding undue delay, expense and technicality, and facilitating the purpose of these rules."

[32] The failure to inquire as to whether the proceeding will be defended prior to signing default judgment has certainly led to a good deal of unnecessary expense one way or the other in terms of the costs of signing the default judgment and costs of the application to set it aside. It has also, I suspect, had the effect of delaying the filing of a notice of intention to defend and defence by a period of some months. So, it may be that r 5 would encourage me to act so as to pursue the objective of avoiding such delay and expense. That might provide some support for the view that that approach should be adopted.

[33] There have been problems on both sides, and ordinarily the fact that an email which had apparently been transmitted had not in fact been transmitted, would not affect the question of the costs between the parties. My concern is rather that all of these proceedings and all the costs would have been avoided if there had been some contact before the default judgment was signed.

[34] I am concerned that there has been a good deal of fault on the other side as well in failing to apply expeditiously to have the default judgment set aside and, indeed, in pursing for too long an untenable legal position, but I think these are not really things that impact on the costs that have been incurred. In my view it is legitimate to take these factors into account in relation to costs. I have the encouragement that there is at least one reported case where such a factor was taken into account, Coburn v Brotchie (supra), and it is certainly an approach that I would endorse.

[35] So, I think I am justified in this case in departing from the ordinary order that the defendant pay the costs thrown away by signing judgment and the costs of the application, and so I will make no order as to the costs thrown away by signing judgment or the costs of this application.

[1] See Jiona Investments Pty Ltd v Medihelp General Practice Pty Ltd [2010] QCA 99 at [34]- [36].