Grace Fashion Pty Limited (In Liquidation) v Miss Cherry Fashion Pty Ltd

1. Judgment for the plaintiffs against the defendant.
2. Pursuant to s 588FF of the Corporations Act 2001 (Cth), the defendant pay to the first plaintiff the sum of $240,252.56, being the amount of $206,228.37 together with pre-judgment interest on that sum from 17 September 2014 to 13 June 2017 totalling $34,024.19.
3. The defendant pay the plaintiffs' costs of the proceeding, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 On 31 March 2017 the plaintiffs, Grace Fashion Pty Limited (in liquidation) (Company) and Stewart William Free, in his capacity as liquidator of the Company, filed an originating process commencing this proceeding. They seek recovery of payments made to the defendant, Miss Cherry Fashion Pty Limited (Miss Cherry). 2 The proceeding is brought by the Company and Mr Free under ss 588FA, 588FE and 588FF of the Corporations Act 2001 (Cth) (Act) to recover payments received by Miss Cherry from the Company in the six month "relation-back" period prior to Mr Free's appointment as an administrator of the Company on 22 April 2014. Those payments are said to constitute an unfair preference from a company in liquidation. 3 The evidence establishes that the originating process, two affidavits in support and a genuine steps statement were served on Miss Cherry on 10 April 2017 by serving them on a current director of that company, Yiping He. There has been no appearance filed on behalf of Miss Cherry in the proceeding and the plaintiffs, by interlocutory application filed on 1 June 2017, now seek an order for judgment against Miss Cherry pursuant to r 5.23(2) of the Federal Court Rules 2011 (Cth) (Rules). 4 Before proceeding further, it is of assistance to set out the relevant rules pursuant to which the order is sought by the plaintiffs and the applicable principles. Rule 5.22 of the Rules provides: 5.22 When a party is in default A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. And r 5.23(2) of the Rules provides: 5.23 Orders on default … (2) If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for a debt or liquidated damages - an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or (d) an order giving judgment against the respondent for damages to be assessed, or any other order; or (e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order. 5 The applicable principles have been considered by this Court on previous occasions. In Deputy Commissioner of Taxation v Sibai [2015] FCA 1465 Gleeson J, summarising the comments in Speedo Holdings B.V. v Evans (No. 2) [2011] FCA 1227, said at [7]: In Speedo Holdings BV v Evans (No 2) [2011] FCA 1227, the Court outlined a number of principles relevant to the discretion to enter default judgment, including the following (at [20]-[25]): First, the power … remains discretionary. … Just as the discretion must be exercised [cautiously] where it is the applicant that is in default … the same caution must be exercised where it is the applicant who is seeking orders as against a defaulting respondent. Second, the discretionary power to enter a default judgment is enlivened when (as in the present case) an applicant applies to the Court for an order. Rule 5.23(2) provides that where a respondent is in default "an applicant may apply to the Court". … Third, there is a difference in the terms in which the ambit of the power conferred by the former r 3(2)(c) ("the relief… that the applicant appears entitled to on the statement of claim") and the wording of the current r 5.23(2)(c) ("the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled"). Notwithstanding that difference in language, the requirement imposed is not that an applicant prove by way of evidence the claim sought to be advanced; the requirement is that the Court needs to be "satisfied" on the face of the statement of claim that the applicant is entitled to the "relief" claimed…. The facts as alleged in the statement of claim are deemed to have been admitted by a respondent: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2007] FCAFC 146 at [42], 161 FCR 513 at 523 per Moore, Dowsett and Greenwood JJ. … Fourth, to be satisfied that an applicant "is entitled" to the relief claimed in the statement of claim, the Court needs to be satisfied that "each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim": Macquarie Bank Ltd v Seagle [2005] FCA 1239 at [24], 146 FCR 400 at 406 to 407 per Conti J …. Fifth, in addition to the facts alleged in a statement of claim, the Court may permit recourse to limited further evidence. But it may not admit evidence which would alter the case as pleaded. 6 Relevantly, once a respondent is in default, an applicant is not required to prove the claim by evidence but is only required to establish: first, that on the face of the statement of claim there is a claim for the relief sought; and, secondly, that the claim falls within the jurisdiction of the Court: see Yeo v Damos Earthmoving Pty Ltd, in the matter of Beachwood Developments Pty Ltd (in liq) [2011] FCA 1129 at [9]. 7 There is no question here that Miss Cherry is in default. As I have already observed, the proceeding was commenced by the filing of an originating process on 31 March 2017. The originating process, two supporting affidavits and the genuine steps statement were served on Miss Cherry on 10 April 2017. Miss Cherry has not filed a notice of address for service as required by r 5.02 of the Rules, nor has it filed a defence as required by r 16.32 of the Rules. It clearly has taken no step in the proceeding. 8 The originating process was first listed before the Court on 4 May 2017. Prior to that date, on 2 May 2017, the solicitors for the plaintiffs received a letter from Patrick Ferguson, a solicitor who wrote on behalf of Mr He, the director upon whom the originating process and other documents had been served, and Miss Cherry. That letter relevantly provided: Mr He has also advised that he has received a copy of the documents enclosed with your letter. Miss Cherry Fashion Pty Ltd denies that the payments received by it were unfair preference payments. However, it does not have sufficient funds to defend the claim. There will therefore be no appearance on behalf of the Respondent on 4 May 2017. 9 There was, as foreshadowed by Mr Ferguson, no appearance by or on behalf of Miss Cherry at the directions hearing which took place on 4 May 2017. It is clear that Miss Cherry does not intend to defend the proceeding and, in any event, there is no doubt that Miss Cherry is in default. 10 The next question to consider is whether, on the face of the statement of claim, there is a claim for the relief sought. In my opinion, having considered the originating process that has been filed by the plaintiffs, it is apparent that there is a claim for the relief sought. The claim against Miss Cherry is for payment to the Company of money previously paid by the Company to it. The elements of a claim under ss 588FA, 588FE and 588FF of the Act are properly pleaded in the originating process. 11 The final question concerns the jurisdiction of this Court. It is beyond question that this Court is a "Court" within the meaning of the Act and clearly has jurisdiction in respect of the claim that is made in the proceeding. 12 The plaintiffs seek judgment for a liquidated amount. The quantum sought is $206,228.37, giving Miss Cherry the benefit of the "running account" relationship provided for by s 588FA(3) of the Act. The way in which the quantum claimed has been calculated is explained by Mr Free in his affidavit affirmed on 27 March 2017. I am satisfied that the quantum claimed has been properly calculated and that the plaintiffs are, and, in particular, that the first plaintiff is, entitled to judgment in that amount. 13 The plaintiffs also seek pre-judgment interest on that sum in accordance with s 588FF(1)(c) of the Act or s 51A of the Federal Court of Australia Act 1976 (Cth), r 39.06 of the Rules and the Interest on Judgments Practice Note (GPN-INT). They claim interest from 17 September 2014, which is the date upon which Mr Free, in his capacity as liquidator of the Company, first made a demand on Miss Cherry. The plaintiffs are entitled to interest from that date: see Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83 at [143]-[150] (per Gordon J) (with whom Heerey J agreed at [1] and with whom Lindgren J agreed on the issue of the date from which interest should be calculated at [84]). The total interest claimed from 17 September 2014 to 13 June 2017 is $34,024.19. I have been informed that that amount has been calculated in accordance with the Rules and the Interest on Judgments Practice Note. I am satisfied that an order should be made entitling the plaintiffs to interest in that amount. 14 In the circumstances, I will make the orders sought by the plaintiffs on this application. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.