GEL Custodians Pty Ltd v RQ Consultants Pty Ltd & Ors [2010] QSC 181

Q Lawrence (self represented) for all applicants/defendants

[1] The plaintiff obtained summary judgment against the defendants on 28 January 2010 in an amount of $1,006,722.32, and an order that it recover possession of two properties. The judgment was obtained in a Brisbane file, BS5064/09. On 3 March 2010 enforcement warrants issued from the Rockhampton registry in respect of the two properties, in Rockhampton files S 161/10 and 162/10. On 20 April 2010 the defendants filed applications and supporting affidavits in Rockhampton, in those files, seeking orders that the summary judgment be set aside, and that the enforcement warrants be stayed.

[2] Their applications were initially heard on 28 April 2010. Following an adjournment by McMeekin J on 7 May, who dealt with them as urgent oral applications for a stay of the enforcement warrants, an order was made on 12 May 2010, accompanied by reasons, that the warrants be stayed until 5 pm on 21 May.

[3] On 21 May Mr and Mrs Lawrence appeared by telephone. Mr Lawrence sought a transfer of proceedings 5064/09 to Rockhampton; continuation of the stay; and, the setting aside of the judgment of 28 January 2010 under UCPR r 302.

[4] In his lengthy reasons delivered on 12 May 2010 McMeekin J:

(a) held that the defendants' application should properly have been brought in Brisbane;

(b) observed that the summary judgment appeared to have been regularly entered;

(c) considered that, in determining the question whether or not a stay should be granted, relevant considerations included the defendants' prospects of success of showing that there was a good arguable case that the judgment ought to be set aside; and the balance of convenience so far as potential disadvantage to either party is concerned;

(d) carefully traversed the history of the proceedings;

(e) analysed the defendants' pleadings and contentions and concluded that "...the issue is whether misrepresentations, or conduct of a type as characterised ... concerning a business by entity A which induces a borrower to enter into a loan with entity B and grant mortgage securities to that latter entity to secure the loan, and further induces that borrower to invest the funds so obtained in that business to facilitate the growth of that business which would be to the benefit of entity A, which business fails because the representations or conduct prove to be misleading or untrue causing the borrower substantial losses and thereby significantly and adversely affecting the borrower's ability to repay the loan, provides any ground on which to resist a demand for repayment of the monies or enforcement of the securities by entity B in circumstances where the two entities are related"[1];

(f) concluded that the defendants had no reasonable explanation for their failure to appear at the application for summary judgment;

(g) observed that, nevertheless, if the warrants were not stayed the third and fourth defendants would be evicted from the home in which they presently reside;

(h) expressed the preliminary view that, if the defendants filed affidavits identifying material facts to support their allegations, they may be able to establish an equitable cross-claim sufficient to impeach the validity of a loan agreement upon which the plaintiff's judgment was based; and that application had a possibility of success.

[5] In particular, at paragraphs [20]-[33] McMeekin J carefully traversed the evidence the defendants would need to adduce to establish a cross-claim for an equitable set-off and pointed out (in paragraph [30], in particular) what would need to be proved. The defendants filed a further affidavit, sworn by the third and fourth defendants, which contains no sign of any apparent attempt by the defendants to address those matters.

For example, there is a lack of particularity as to when the claimed representations were made or the conduct about which they complain occurred. No particulars are provided of the dates of occurrence of the matters detailed in paragraph 14 of the Notice of Intention to Defend or paragraph 26 of the affidavit filed 20 April 2010. So it is not immediately apparent, for instance, how it is that representations said to have been made before they commenced the agency business in 2004 can have some effect on their decision to enter into the loan agreement two years later in October 2006. Nor is it clear how misrepresentations or conduct at an unknown time in respect of the conduct of the home loan business impacted on any decision to take out the loan. Further the 'Wizard Branch Office Agreement' referred to by Mr Blank and which presumably is the agreement in relation to which the defendants make complaint in paragraph 14 of the Notice of Intention to Defend and paragraph 26 of their affidavit filed 20 April 2010 was for a limited time and was terminated, so far as the evidence shows as Wizard Home Loans Pty Ltd was entitled to do, on 1 July 2008. The default under the loan agreement occurred at a subsequent time. It is not demonstrated why breaches of the branch office agreement, or any unconscionable conduct, assuming that is what the complaints amount to, can provide a basis for denying the plaintiff's rights under the loan agreement.

[7] Under r 302 the Court may set aside or vary a judgment given on an application against a party who did not appear on the hearing. The applicant must, however, give a reasonable explanation for its failure, and a sufficient basis for the judgment not to be maintained.[2] As McMeekin J concluded, the defendants' failure to appear upon the hearing of the application for summary judgment was entirely their own fault.[3] Nothing in the defendants' further material addresses that question, or would alter that conclusion.

[8] Nor does their material establish any basis why the plaintiff's judgment cannot be maintained. Their grounds of defence, which were considered by Margaret Wilson J when she gave judgment on 28 January 2010, are best characterised as a claim for an equitable set-off, based on cross-claims against third parties - a proposition first stated by McMeekin J.[4]

[9] The first difficulty the defendants face springs from the documents which lie behind the judgment. Clause 17.18 of the 2006 Loan Agreement provides:

All payments by you under this Contract must, to the extent permitted by Law, be free of any set-off or counterclaim."

[10] White J (as her Honour then was) considered the effect of a similar clause in Daewoo Australia Pty Ltd v Porter Crane Imports [2000] QSC 050 and held that the language of the clause is clear, and its purpose evident: namely, to prevent the defendant from relying on any set-off which it might have to delay the plaintiff's claim for money owing under the agreement (at para [18]). Holmes J (as her Honour then was) agreed with that view in Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2003] QSC 151; [2004] 1 Qd R 122, at 125-26.

[11] Secondly, the defendants still fall short of establishing an arguable case for an equitable set-off. The requirements to establish that remedy in the context of cross-claims was considered by the Queensland Court of Appeal in Forsyth v Gibbs [2008] QCA 103; [2009] 1 Qd R 403. Keane JA (as his Honour then was), with whom the other members of the court agreed, said at 406-7:

"It is important to emphasise that the availability of an equitable set-off between cross-claims does not depend upon an unfettered discretionary assessment of whether it would be 'unfair' in a general sense for a plaintiff to insist on payment of the debt owed to it while the cross-claim remains unpaid. It is essential that there be such a connection between the claim and cross-claim that the cross-claim can be said to impeach the claim so as to make it unfair for the claim to be allowed without taking account of the cross-claim.

In the present case, even if the claims which the respondent seeks to set off were ultimately to be made out against G & S Forsyth Pty Ltd and the male appellant, the liabilities thus established could not in any way be said to impeach the appellants' claim to be repaid the debt for the moneys they lent to the respondent. That is because the transactions which gave rise to the respondent's claims were entirely distinct from the loans in respect of which the appellants sue.

In this regard, there is no suggestion that the respondent was induced to accept the loans provided by the appellants by reason of the misconduct alleged against G & S Forsyth Pty Ltd and the male appellant. There is no evidence that the respondent's loan indebtedness to the appellants arose, or was increased, by reason of any misconduct on the part of the male appellant or G & S Forsyth Pty Ltd or even by reason of the liabilities or losses incurred by the respondent consequential upon that misconduct.

That the misconduct relied upon by the respondent might have contributed in a general way to the respondent's failure to make profits or to its inability to make repayments of the loans is clearly an insufficient connection to give rise to a set-off. So much was indicated by this Court in Hill Corcoran Constructions Pty Ltd v Navarro & Anor. The point is that there must be a connection between claim and cross-claim beyond the mere fact that the payment of the claim has been rendered more difficult than would have been the case had it not been for the matters the subject of the cross-claim."

[12] The application of those principles to the relevant facts in this case mean that in order to establish an equitable set-off the defendants would have to prove, as their pleadings indicate, that they were induced to enter the subject loan agreement because of misrepresentations alleged to have been made by one or other of two entities, GE Money or Wizard Home Loans, in 2004; or, that their loan indebtedness arose or was increased by reason of misrepresentations made by one of those entities; or, that their loan indebtedness arose or was increased because of liabilities of losses they incurred consequent upon the alleged misrepresentations. Even if their evidence established a basis for concluding they might establish one or more of those things, their own pleading suggests it is at least probable that they would yet confront the absence of a sufficient connection with the plaintiff's claim, of the kind identified by Keane JA, to establish a set-off.

[13] Their third difficulty is that, notwithstanding the clear signposts appearing in the judgment of McMeekin J, they have not put forward any further evidence in relation to the alleged cross-claim. On 19 May 2010 the plaintiff's solicitors wrote to them, pointing this out:

"Your application seeks to have the summary judgment set aside. However, your defence and the affidavits filed on 20 April 2010, 6 May 2010 and 14 May 2010 do not clearly state the particulars of the alleged cross-claim or the facts that you intend to rely upon to support the cross-claim. In this regard, we refer you to paragraphs 20 to 33 of the Reasons for Judgment.

Accordingly, we require that you urgently file and serve any further affidavit material on us which you intend to rely on."[5]

[14] They have failed, in particular, to adduce any further evidence to support a cross-claim in respect of misrepresentations alleged in paragraph 14 of their Defence filed 17 July 2009. All their present pleading can be said to assert is that they were unable to make repayments required under the Loan Agreement because the agreement by which they operated the Rockhampton Wizard Home Loans franchise had been terminated; and, that the purpose of the Loan Agreement was to support objectives discussed and agreed with another entity in order to "grow" the branch in accordance with their business plan.

[15] The plaintiff's material establishes, however, that the 2004 Branch Office Agreement was for a three year term which had expired, and Wizard was therefore entitled to terminate it. The defendants do not allege that they entered into the Loan Agreement because of liabilities or losses they incurred due to alleged misrepresentations in relation to the Branch Office Agreement. Again, that failure cements the conclusion that any cross-claim would not establish grounds for an equitable set-off.

[16] In short, the defendants have failed to demonstrate any factual basis why the alleged cross-claim could be said to impeach the plaintiff's claim so as to make it unfair for its judgment to stand. They have also failed, despite an abundance of time and opportunity and plain guidance from the court, to establish any basis upon which the judgment should be set aside. It follows then that the stay of the consequential warrants of execution should be lifted. The further effect of these conclusions is, also, to make the defendants' application to transfer the matter to the Rockhampton Registry unnecessary.

[1] GEL Custodians Pty Ltd v RQ Consultants Pty Ltd & Ors (unreported, McMeekin J, Rockhampton, 12 May 2010, SC161/2010, SC162/2010) at paragraph [24].

[2] McCullough Robertson Lawyers v Sea Slip Marinas (Aust) Pty Ltd [2008] QDC 72.

[3] GEL Custodians Pty Ltd v RQ Consultants Pty Ltd & Ors (supra) at paras [18], and [34].

[5] Affidavit Rose Pamela Newell filed by leave 21 May 2010, exhibit RPN-1.