Graywinter Properties Pty Ltd v Rodway [1998] VSC 177

Supreme Court of Victoria|1998-12-14|Before: Warren J

PRACTICE AND PROCEDURE - Appeal - Leave to appeal refused - Unconditional leave to defend - Condition of financial security - Need to preserve position of plaintiff whilst ensuring that the financial condition imposed does not render the defence impossible - Niemann v. Electronic Industries Ltd. [1978] VicRp 44; (1978) VR 431 - M.V. Yorke Motors (a firm) v. Edwards (1982) 1 All ER 1024; (1982) 1 WLR 444.

The facts surrounding this matter are that upon an application for summary judgment the defendants were effectively granted leave to defend subject to payment of a specified sum into court by a specified date and in default judgment was to be entered for the plaintiff in the sum of $100,000 together with interest and costs. The initial order was made by the Master on 18 August 1997 after a number of adjournments. On three occasions, on 18 September, 16 October and 17 November 1997, the Master extended the time for the payment of the specified sum into court. The condition was not met and upon application by the plaintiff on 27 November 1997 the Master ordered judgment for the plaintiff against the first, second and third appellants (being the first, second and fourth defendants in the proceeding) in the sum of $100,000 together with interest at the rate of 30% per annum from 23 June 1994 fixed at $100,000 together with costs. The Master specifically stated in the order of 27 November 1997 that the order was made in default of compliance with the orders made on 19 August and 17 November 1997.

The detailed history of the orders made by the Master is, as follows:

(1) On 19 August 1997 the Master ordered that unless on or before 19 September 1997 the defendants paid the sum of $120,000 into court, provided a bank guarantee in the same amount or otherwise gave security in that amount in a form acceptable to the plaintiffs, there would be judgment for the plaintiff in the sum of $100,000 together with interest and costs taxed on scale D. The defendants were given liberty to apply in relation to the quantum and times stipulated in the condition.

(2) On 18 September 1997 the Master ordered that the time to pay the amount of $100,000 as provided in the previous order be extended to 17 October 1997 or further order, adjourned the further hearing of the application to 16 October 1997, directed that any affidavit from the defendant be filed by 9 October 1997 and the defendant pay the plaintiff's costs.

(3) On 16 October 1997 the Master further extended the time to pay the sum of $120,000 as previously ordered until 18 November 1997 and made other consequential orders.

(4) On 17 November 1997 the Master refused an application by the defendants for an adjournment and extended the time to pay the conditional sum until 26 November 1997 and made other consequential orders.

(5) On 27 November 1997 the Master ordered in default of compliance with the orders made on 19 August 1997 and 17 November 1997 that there be judgment for the plaintiff.

By notice of appeal dated 3 December 1997 the first, second and third appellants sought leave to appeal and, if granted, to appeal against the orders made by the Master on 19 August 1997 and 17 November 1997. The notice of appeal made no reference to the orders made on 27 November 1997. Subsequently, the matter came on before the judge sitting in the Practice Court of this court three times until it finally came before me where Mr A. Bristow appeared for the first and third appellants and there was no appearance for the second appellant. I was informed that the estate of Garrick Lewis Gray had been declared bankrupt and that Mr Bristow did not appear for that party. I was informed, also, that the third defendant Michael Winter had not been served with any documents in the proceeding.

In essence, the first and third appellants submit that the Master was in error in not granting unconditional leave to defend on 19 August 1997 and insofar as the condition was imposed the Master was in error as the first and second appellants were in such difficult and parlous circumstances that it was impossible for them to meet the condition imposed. The appeal with respect to the orders of the Master made on 19 August 1997 is brought out of time having been filed on 3 December 1997. As the notice of appeal did not include an appeal against the substantive orders made by the Master on 27 November 1997, Mr Bristow on behalf of the appellants sought leave nunc pro tunc to amend the notice of appeal to include an appeal against the orders of the Master made on 27 November 1997. There is no affidavit material before me to support the application for an extension of time with respect to an appeal against the orders made by the Master on 19 August and 27 November 1997 save that the appellants appear to have treated the orders at all times as interrelated and interdependent. Further, I was informed by Mr Bristow that the first and third appellants believed as a result of a summons filed in this court dated 13 March 1998 and which made reference to the orders of the Master on 27 November 1997 that this court has been seized of an appeal concerned with all orders including that made on 27 November 1997. There remains the question, in any event, of leave to appeal against the orders of the Master. It was necessary for me to hear the entire appeal in order to determine whether to exercise my discretion to grant leave to appeal pursuant to order 58.02. The orders made on 19 August and 17 November 1997 were interlocutory. The orders made by the Master on 27 November so far as judgment was entered for the plaintiff was in the nature of a final order and hence it is necessary for me to determine whether the Master was in error, a different test from that with respect to the interlocutory orders of 19 August and 17 November 1997 (see Niemann v. Electronic Industries Ltd, supra).

In the statement of claim the plaintiff alleged that he entered into a written agreement on 23 June 1994 to lend the sum of $100,000 to the first defendant, Graywinter Properties Pty Ltd and that the second, third and fourth defendants agreed to guarantee the performance by the first defendant of the loan agreement. The plaintiff alleged that it was a term of the agreement that the principal sum of $100,000 would be repaid by the first defendant to the plaintiff together with interest at the rate of 30% per annum before 29 June 1997 or, alternatively, that the plaintiff could call for repayment of the loan together with interest after the expiration of one year and 60 days. The plaintiff alleged that repayment of the loan was called for on 20 July 1995 to be repaid on or before 30 October 1995 and that the first defendant defaulted on the agreement and, in turn, the second, third and fourth defendants defaulted on the guarantee. Accordingly, the plaintiff claimed the principal sum of $100,000 against each of the defendants together with interest.

The defendants in their defence denied the allegations in the statement of claim. The plaintiff issued a summons for final judgment on 3 January 1997 and filed an affidavit in support deposing to the agreement and guarantee and the breaches thereof by the defendants and exhibited the relevant documents. Subsequent to the commencement of the proceedings the second defendant died. Prior to his death the second defendant, Mr Garrick Gray, swore two affidavits in opposition to the summons for final judgment on 21 February 1997 and 19 March 1997. Those affidavits reveal that the defendants asserted a defence of non est factum, that the agreement and guarantee as exhibited to the plaintiff's affidavit in support of the summons for final judgment did not contain the full terms of the agreement between the parties, that the third defendant, Mr Winter, acted beyond his authority insofar as he was the agent of the defendants, that there was a dispute as to the moneys alleged to be owed and finally that no proper demand had been served on the defendants.

The plaintiff complains that the affidavits of Mr Garrick Gray are superficial, insufficient and, at best, "shadowy" and dubious and that the Master and now this court ought to reject the affidavits as failing to disclose an arguable defence. In addition to the affidavits in opposition of the defendants, there were two further affidavits sworn by the plaintiff's then solicitor, Mr Linacre, on 27 February and 24 March 1997 wherein the matters deposed to in the affidavits of Mr Gray were baldly disputed. I consider the affidavits in support of and in opposition to the summons for final judgment demonstrate a dispute on the facts between the parties. The matters alleged in opposition disclose a weak even "shadowy" defence but are sufficient to give rise to a triable issue on the facts. I am further satisfied that there is an arguable defence in this matter and that the Master properly determined that the defendants should be allowed to defend the matter. I note that in his orders of 17 August 1997 the Master did not specifically grant the defendant leave to defend but so much can be assumed from the balance of the orders in particular the condition imposed on the defendants. I turn now to the condition imposed by the Master in allowing the defendants to defend the proceedings.

The early authority usually cited in support of the imposition of payment of a sum into court as a condition of leave to defend is Jacobs v. Booth's Distillery Co. (1901) 85 LT 262, a decision of the House of Lords, the principle being that the discretion should be exercised sparingly even in cases where the defence appears dubious. The House of Lords revisited the issue in M.V. Yorke Motors (a firm) v. Edwards (1982) 1 All E.R. 1024; (1982) 1 WLR 444. There a defence on an application for summary judgment was approached with scepticism by the learned judge at first instance and regarded as "shadowy" by the Court of Appeal on appeal. A condition of payment of a specified sum into court was imposed at first instance, that amount being reduced by the Court of Appeal. The House of Lords (at p.1027; 449 per Lord Diplock) held that if the sum imposed as a condition of leave to defend is beyond the defendant then the imposition of the condition is a wrongful exercise of the discretion because it would be "tantamount to giving judgment for the plaintiff" notwithstanding that there was an issue to be tried. The House of Lords applied three principles. Firstly, where a defendant seeks to avoid such condition on the ground of impecuniosity the defendant bears the onus to place sufficient and proper evidence before the court. Secondly, a defendant cannot rely simply on the fact that he or she is legally aided. Thirdly, difficulty in fulfilment of a financial condition is insufficient, rather, the condition must be impossible of fulfilment and the evidence of that impossibility must be before the court.

The approach of the House of Lords in M.V. Yorke Motors has been cited by the English Court of Appeal with approval (see Desert Sun Loan Corp. v. Hill (1996) 2 All E.R. 847, 861) and twice followed by the Full Court of the Supreme Court of Western Australia (see Hazart Pty Ltd v. Rademaker (1993) 11 WAR 26, 30-32; also, Hashoul v. Whyte, unreported judgment delivered 8 April 1997). However, in Hazart, the Full Court expressed the view that even if the "impossibility" test as stated as in M.V. Yorke Motors is not the law in Australia, there must be at least cogent and satisfactory evidence of impecuniosity. The House of Lords authority has been further cited with approval by the Federal Court (see Tomlinson and Anor v. Cut Price Deli Pty Ltd and Ors [1992] FCA 555; (1992) 112 ALR 122, 129).

The High Court has held that the power to order summary judgment should be exercised with great care and not unless there is no real question to be tried (see Fancourt v. Mercantile Credit Ltd [1983] HCA 25; (1983) 154 CLR 87, 99; also, Webster v. Lampard [1993] HCA 57; (1993) 177 CLR 598, 602). The first and third appellants rely upon this principle to support the proposition that as the Master was satisfied at first instance that there is a triable issue, and as I ought be also, they should have been granted unconditional leave to defend. The Master was entitled on the basis of the affidavits before him to assess the validity of the possible defence and to form a view, as seems to have been the case, that in order to be permitted to defend the proceeding the defendants should be subject to an appropriate condition. Indeed, counsel for the first and third appellants acknowledged in argument that the Master had a discretion to impose a condition if the defence was regarded as dubious or shadowy. The defendants' affidavits before the Master contained mostly assertions and very little detail. In particular, the critical defendant party involved in the negotiation and execution of the agreement and guarantee, the third defendant, Mr Michael Winter, did not swear an affidavit to corroborate or detail the matters deposed to by Mr Gray.

When the discretion to grant leave to defend is exercised but made subject to the imposition of a condition of financial security a court should have full flexibility to preserve the position of a plaintiff but at the same time ensure that a defendant is not placed in a position where the financial condition renders the defence impossible. If a defendant satisfies a court on a summary judgment application that there is an arguable defence but the court considers that the defence is dubious or shadowy, the defendant will bear the onus of satisfying the court that a financial condition ought not be imposed or else should be of limited ambit. Where a defendant submits that no condition should be imposed at all it is appropriate that the defendant satisfy the court on the basis of cogent evidence that the imposition of the condition will render the defence impossible.

Turning to the evidence in this matter with respect to the appropriateness of the condition actually imposed the defendants relied before the Master upon affidavits sworn by the third appellant James William Gray on 15 September 1997 and 15 October 1997. Mr James Gray deposed that the defendants had been unable to procure the sum stipulated in the condition by the Master from any source then available to them. He further deposed that the defendants were engaged in expensive litigation in a number of proceedings. These proceedings included an application for special leave to appeal to the High Court against a decision of the Full Court of the Federal Court wherein the defendants stood to recover the sum of $500,000 plus costs. I was informed during argument that since the affidavit was considered by the Master the application for special leave to appeal had been refused by the High Court. Mr James Gray deposed, further, to eight other proceedings in which one or all of the defendants were involved. It was said that six of those matters gave rise to claims against the Legal Practitioners Liability Committee but no explanation was provided as to how the claims arose. A further proceeding at the time before the Master was the subject of an appeal to the Full Court of the Federal Court. I was informed during argument that there is now a special leave application pending before the High Court in early 1999 in relation to that matter. In the affidavit there was reference to another proceeding in the Magistrates' Court to which Mr James Gray is a defendant. Mr Gray in his affidavit deposed that the defendants as a result of all these other proceedings are not in a position to provide the security ordered by the court save that if the proceedings before the High Court were successful funds may become available that could be used in the present proceedings. The matters deposed to by Mr James Gray with respect to the other legal proceedings were generally unsatisfactory. There was no detail of the nature, cost of funding, general stage or financial benefit of those proceedings. The best that could be said is that it could be implied that the sheer numbers of proceedings must inevitably cost the defendants so much that they could not bear the financial burden of defending another matter, namely the proceeding in the County Court. It was left entirely unclear and unsubstantiated as to how this would be the position.

Mr James Gray deposed that the defendants had other claims pending against the Legal Practitioners Liability Committee and if successful would give rise to funds being available to the defendants. Again no detail was given to support such assertions. In a further affidavit sworn 15 October 1997 Mr James Gray deposed that no financial institution was prepared to lend money to the defendants as they were unable to provide any security. No details were provided of attempts to borrow money and the alleged responses of any financial institution. He deposed, further, that the first and third appellants had sold their respective homes and that none of the defendants had any assets that could be used as security for the conditional sum. No details were provided of the financial circumstances of any of the defendants including as to when properties were sold and how proceeds of sale were applied. He deposed that the third defendant is an undischarged bankrupt and that the first, second and third defendants had been left to defend various claims that had been made jointly and severally against all four defendants and that they had used their incomes to pay expenses and debts of all the defendants including the third defendant. However, no detail was provided describing these "various claims" and as to how the first and third appellants were effected. Mr James Gray deposed that the defendants had no income or assets that could be used to pay into court. He deposed that the various proceedings had been a heavy drain on the financial resources of the defendants. Again, no detail was provided. Furthermore, the appellants have not used the time between the last hearing before the Master on 27 November 1997 and the hearing before me (a period of 12 months) to rectify or improve the deficiencies in the evidence.

In M.V. Yorke Motors there was evidence that the defendant did not have a house of his own and was living with family members, was unemployed and in receipt of supplementary social security benefits. In that matter the defendant swore that he did not have the amount stipulated in the security sum nor was there any likelihood of his raising that or any similar sums. The court at first instance observed that the fact that a person does not have capital of his or her own does not mean that the person is unable to raise any capital, rather, the person may be able to call upon friends, business associates or relatives in the hour of need. Lord Diplock (at p.1028) indicated that it was not open to the Court of Appeal to infer that although it might be difficult it would not be impossible for the defendant to find security. The issue arises, therefore, in the present matter as to whether it was appropriate in the exercise of the discretion by the Master to fail to take account of or allocate sufficient weight to the matters deposed to by Mr James Gray in his two affidavits with respect to the financial circumstances of the defendants. In his affidavit Mr James Gray made broad assertions but did not establish that it was impossible for the defendant to meet the condition. He did not provide evidence as to approaches to financial institutions for the purposes of obtaining security, he did not indicate whether attempts have been made to borrow sums of money from relatives or friends, he did not depose as to the financial circumstances of the first defendant. In particular, in his affidavits Mr James Gray did not depose as to the circumstances of each of the legal proceedings to which he referred rather he made sweeping statements that as a result of these proceedings the defendants were unable to meet the security sum imposed under the condition.

On the basis of the tests laid down by the High Court it was appropriate that the defendants have leave to defend. The next step is to consider the imposition of the condition. The test applied by the House of Lords in M.V. Yorke Motors, in my view, is the appropriate test. As matters stand and indeed stood before the Master, the defendants did no more than demonstrate that compliance with the security condition would be difficult. They did not go so far as to satisfy the court that compliance would be impossible. It is not enough for a defendant in such circumstances to make bald assertions. It is necessary for a defendant to spell out in detail and provide cogent evidence of the surrounding circumstances to support the assertion that compliance with the condition is impossible. In those circumstances, therefore, I consider that there was no error on the part of the Master and it follows that leave to appeal against the orders of the Master made on 19 August 1997 and 17 November 1997 is refused. It follows, further, that it is unnecessary for me to consider the application for leave to extend the time to institute an appeal against the orders made by the Master on 19 August and 27 November 1997.

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