Jindra v Tech-Rentals Pty Ltd [1999] VSC 206

2. The applicants are defendants to a counterclaim brought by the second defendant as plaintiff by counterclaim and seek to set aside the interlocutory judgment entered by the plaintiff by counterclaim on 14 April 1999 for costs and damages to be assessed. The judgment was entered in default of defence to counterclaim against the first defendant by counterclaim Michael Vondracek ("Vondracek"), the second defendant by counterclaim William Saunders ("Saunders") and the third defendant by counterclaim Peter John McDougall ("McDougall") for damages to be assessed and $2,110 costs. The application by summons dated 23 April 1999 seeks to set aside the judgment on the ground that it was irregularly entered, alternatively it be set aside as an abuse of process, further alternatively, that the judgment be set aside pursuant to O. 21.07 on the grounds that each of the defendants by counterclaim have a defence on the merits.

5. In the substantive proceeding, the plaintiffs are shareholders in the first defendant, Tech-Rentals Pty Ltd ("Tech-Rentals"). They allege that as a result of a shareholder's agreement made between the plaintiffs and the defendants it was agreed that the second defendant (and the relevant plaintiff by counterclaim) Australian Pacific Technology Ltd ("Australian Pacific"), would acquire 49% equity interest in the capital of Tech-Rentals. In summary, it is alleged by the plaintiffs that the defendants breached the terms of the shareholder's agreement and, further, that there are disputes between the parties with respect to the management and administration and financial and accounting control of Tech-Rentals. It is further alleged that the first, second and third plaintiffs have been the subject of oppressive conduct in relation to the management, appointment of directors and the provision of access to accounting records of Tech-Rentals. There are other claims made by the plaintiffs against the defendants that are not relevant for the purposes of the present application save to observe that the plaintiffs in the substantive proceeding seek declaratory orders, injunctive relief and damages.

8. On 9 March 1998 Byrne J made orders ex parte upon an application by Tech-Rentals as the first defendant and Australian Pacific as the second defendant restraining the plaintiffs and Vondracek, Saunders and McDougall from denying Tech-Rentals access to and occupation of its business premises, from interfering with or disrupting the occupation of those premises and/or the conduct of the business of Tech-Rentals and other related orders. The interim injunction was returnable before Beach J on 12 March 1999. On that day the injunction was continued and further orders made including an order that the time within which Tech-Rentals was to serve a notice by counterclaim on Vondracek, Saunders, McDougall and one Paul Lom was extended to 15 March 1999. There were further orders made that Australian Pacific have leave to add Vondracek, Saunders and McDougall as defendants to counterclaim and to file and serve an amended counterclaim by 12 March 1999. Other orders were made, including that the applications by the first and second defendants that led to the orders by Byrne and Beach JJ. were referred to the Corporations List and adjourned to 19 March 1999. On 19 March 1999 Byrne J continued the interim injunction and ordered that any defence to counterclaim be filed and served by 9 April 1999. The orders of Byrne J on 19 March 1999 provided, also, that any amended defence and counterclaim be filed and served by 29 April 1999. A matter of some significance is that on the occasion that each of the orders were made by Byrne J on 9 March 1999, by Beach J on 12 March 1999 and by Byrne J on 19 March 1999 Vondracek, Saunders and McDougall were not present or represented.

11. By counterclaim filed 12 March 1999 Australian Pacific as second plaintiff by counterclaim alleged that Vondracek, Saunders and McDougall were appointed directors contrary to the articles of Tech-Rentals and that they have acted as directors of the company and thereby caused Australian Pacific to suffer loss and damage. Damages, declaratory orders and injunctive relief are sought.

14. On 14 April 1999 Australian Pacific, entered judgment in default of defence to counterclaim as already described. In support of the judgment Australian Pacific filed an affidavit sworn by its solicitor, Andrew Green on 14 April 1999. In the affidavit Mr Green deposed, among other matters:

"On 19 March 1999 orders were made by the Honourable Mr Justice Byrne pursuant to which any defences to the counterclaim of APT were to be filed and served by 9 April 1999."

The reference to "APT" in the affidavit is a reference to Australian Pacific. Throughout the affidavit in support, Mr Green referred to the counterclaim and not the amended counterclaim, a matter of some significance as in fact Australian Pacific served an amended counterclaim on Vondracek, Saunders and McDougall.

19. The manner of pleading in the counterclaim of Australian Pacific is important for the purposes of the application. The counterclaim forms part of a document entitled "defence and amended counterclaim" in which a raft of allegations are made against other parties with respect to alleged representations said to have been made in breach of ss. 51A and 52 of the Trade Practices Act 1974 and ss. 10A and 11 of the Fair Trading Act 1985. By reason of these matters Australian Pacific alleges that it has suffered loss and damage. There are further allegations of breach of warranties and damage claimed as a result. All such allegations are made and pleaded in some detail against parties other than and without reference in any way to Vondracek, Saunders and McDougall. It is further alleged that in breach of the articles of association of Tech-Rentals Vondracek, Saunders, McDougall and Jindra were purported to be appointed as additional directors of Tech-Rentals and that they have purported to act accordingly and interfered with the management and business of Tech-Rentals. It is alleged that by reason of the conduct of Vondracek, Saunders, McDougall and the plaintiff in the substantive proceeding, one Heike Jindra, Australian Pacific has suffered loss and damage. The allegations against Vondracek, Saunders and McDougall are pleaded, as follows:

"50. In breach of Article 59(1), at a purported meeting of members of Tech-Rentals on 9 March 1999 (`the meeting') the plaintiffs purported to appoint Michael Vondracek, William Saunders, Peter John McDougall and Heike Jindra as further directors of Tech-Rentals. 51. Wrongfully, and in breach of the Articles each of Michael Vondracek, William Saunders, Peter John McDougall and Heike Jindra have purported to act as duly appointed directors of Tech-Rentals and have interfered with the management and business of Tech-Rentals. 52. By reason of the conduct of Michael Vondracek, William Saunders, Peter John McDougall and Heike Jindra referred to in paragraph 51, the second defendant has, and will continue to suffer loss and damage unless Michael Vondracek, William Saunders, Peter John McDougall and Heike Jindra are restrained from purporting to act as directors of Tech-Rentals and from interfering with the business of the company.

These are the only allegations against Vondracek, Saunders and McDougall. There are no particulars of the allegations. In the prayer for relief, the relief sought against Vondracek, Saunders and McDougall is damages, a declaration that their appointment as directors of Tech-Rentals is void and of no effect, that they be restrained from purporting to act as directors of Tech-Rentals and be restrained from denying Tech-Rentals access to its premises and otherwise be restrained from interfering with the business of Tech-Rentals.

24. I turn to the first basis upon which the application is made, that is, to set aside the judgment as irregularly entered. It is a well established principle of law that a plaintiff obtaining judgment by default must comply strictly with the rules of court in every respect. If the plaintiff does not, the judgment ought be set aside as irregular. (In Hamp-Adams v Hall [1911] 2 KB 942 where at 944, Vaughan Williams J said:

"Where proceedings are taken by a plaintiff in the absence of the defendant it is most important that there should be at every stage a strict compliance with the rules, therefore it is a reasonable and proper thing in the case of proceedings by default to treat non-compliance with such a rule as Order IX, r. 15, not as a mere irregularity which can be waived, but as a matter which prevents any further proceedings from being taken on the writ." In Clayton v Th. C. Denton & Co Pty Ltd [1972] VicRp 5; [1972] VR 46, Crockett J. said: "The right of a plaintiff to enter judgment without proof of his claim upon non-compliance with a time limit is a measure giving a special privilege to the plaintiff and operating to the drastic disadvantage of the defendant. Accordingly, rules providing such a right ought to be construed strictly as against a plaintiff." In Lam v Gulic (1979) 25 ACTR 46, Blackburn CJ considered an application to set aside a judgment entered in default of an appearance. The amount for which judgment was entered exceeded the amount claimed. His Honour said at p. 48: "In my opinion, it makes no difference that the irregularity is in the amount of the judgment, nor that the reason for the irregularity was a careless slip by the plaintiff's solicitors. I do not think there are degrees of irregularity in judgments; a judgment is either regularly or irregularly entered. The contention of the plaintiff's counsel, that I should exercise my discretion to allow him to move for an order under the slip rule, made, as it is, as a last minute method of shutting out a defence which on the evidence appears to have some merit, appears to me to be out of accord with procedural justice. The entry of judgment in default is a serious and important step, and if the judgment is vitiated by an error which could have been avoided by proper care on the part of the plaintiff's solicitors, it does not lie in the mouth of the plaintiff to say that the defendant should not be allowed to enter an appearance which she could have entered at any time before the entry of valid judgment."

28. Mr Kendall who appeared with Mr A. Phillips for the applicants submitted that in the present matter there was not strict compliance with the rules in that judgment was entered in default of defence to the counterclaim in the proceedings whereas the defendants against whom the judgment was entered were not parties to the counterclaim but the amended counterclaim. Reliance is placed upon the fact that in the affidavit in support of the judgment Mr Green incorrectly omitted to describe the counterclaim as an "amended" counterclaim but rather referred to it simply as "counterclaim". The judgment entered on 14 April 1999 recites that the judgment was obtained "In default of defence to counterclaim" rather than "In default of defence to amended counterclaim".

31. After the issue of the summons by the applicants seeking to set aside judgment in default Australian Pacific issued a summons dated 29 April 1999 seeking an order pursuant to the slip rule that the order made on 19 March 1999 by Byrne J be rectified by inserting the word "amended" before the word "counterclaim". In my view the application could not be made out in all the circumstances, in particular, given that Vodracek, Saunders and McDougall were absent on the occasion of the orders being made on 19 March and the fact that the application to amend by virtue of the slip rule was made after the entry of judgment on 14 April 1999. Further, the prevailing ambiguity with respect to the orders made on 19 March 1999 is such that I cannot be satisfied there was a "slip" in the order that warranted the application of 0.2.01. of the Rules in any event.

34. Mr Glick who appeared for the respondent, Australian Pacific, submitted that the alleged irregularity constituted no more than a slip and insofar as it would be necessary he would seek to rely upon the slip rule to have the judgment rectified. In my view this position of itself constitutes an admission that there is an error in the form of the judgment. The issue for me to determine is whether the error constituted an irregularity such as to warrant the setting aside of the judgment. In my view it does qualify as such. In the present matter the omission of the word "amended" before counterclaim in the recital in the judgment constitutes an irregularity and it is a matter that should lead to the plaintiff by counterclaim losing the benefit of its judgment. In my view the circumstances fall squarely within the principle expressed by Crockett J in Clayton, supra, and Blackburn CJ in Lam, supra.

37. It is submitted further on behalf of the applicants that the judgment was entered prematurely. As already described, in the orders made on 19 March 1999, Byrne J ordered that any defence to counterclaim be filed by 9 April 1999 but further ordered that any amended defence and counterclaim be filed by 29 April 1999. In the present instance it is clear that there was an ambiguity with respect to the orders made on 19 March 1999 compounded by the fact that Australian Pacific filed and served a defence and amended counterclaim. On the basis of the orders made on 19 March 1999 it is not clear as to whether it was intended that the order that any defence to counterclaim be filed by 9 April 1999 related to an existing defence and counterclaim or whether that order was intended to apply to an amended counterclaim. If the order was not intended to apply to an amended counterclaim then there is no order in place by the court for the time of delivery of a defence and the matter is governed by application of the rules.

40. With respect to the rules the applicants/defendants by amended counterclaim entered appearances on 22 March 1999. Given the ambiguity and confusion with respect to the ambit of the orders made on 19 March 1999 it is my view that the time for the filing of a defence to the amended counterclaim was governed by O. 14.04(a) of the rules and, accordingly, the time for the filing of such defence did not expire until 21 April 1999.

43. A defence to amended counterclaim was filed on behalf of Vondracek, Saunders and McDougall on 16 April 1999. Such defence was filed in time for the purposes of the rules. It follows that the judgment was entered prematurely and must be set aside (see Neville v Hanley [1888] VicLawRp 66; [1888] 14 VLR 270; Analby v Praetorius [1888] 20 QBD 764; Gamble v Killingsworth [1970] VicRp 22; [1970] VR 161, 168-9).

46. It is further submitted on behalf of the applicants that the judgment was irregularly entered on the ground that the amended counterclaim does not disclose a cause of action against them. Specifically, it is said that there is an allegation of alleged damage but that if there was any cause of action available to a party it could only be to the company Tech-Rentals itself and not a shareholder of Tech-Rentals. It is submitted that as Australian Pacific is a shareholder of Tech-Rentals the cause of action is not available to it. On its face the argument has some attraction. However, as matters stand I am not sufficiently informed by way of evidence on affidavit whether Tech-Rentals and/or the shareholders have suffered any separate loss and damage. Nevertheless, I consider the pleading is defective in that it fails to properly allege the basis upon which Australian Pacific as a shareholder has suffered loss and damage and is entitled to recover the same from Vondracek, Saunders and McDougall. The pleading is criticised by the applicants on the grounds that no damage is particularised in paragraph 52 (as set out already) and that it is not possible on the face of the amended counterclaim to ascertain the actual damage and who suffered that damage. In addition, the pleading is criticised as it does not allege a causal link between the alleged interference with the management and business of Tech-Rentals and the alleged loss and damage of Australian Pacific. Further, it is submitted that the pleading does not specify the conduct by Vondracek, Saunders and McDougall said to have caused the damage suffered by Australian Pacific.

49. With respect to the criticisms against the pleading, Mr Glick relied upon the observations of the New South Wales Court of Appeal in Wickstead v Brown (1992) 30 NSWLR 1 and the Federal Court in Allstate Life Insurance Co v ANZ Banking Group Ltd, unreported judgment of Beaumont J, 8 November 1994. In Wickstead the court considered an application to strike out parts of a statement of claim on the grounds that the paragraphs did not disclose a cause of action. The application was made under the New South Wales equivalent of O. 23.01 of the Rules of this Court. Mr Glick suggested that the judgment was authority for the proposition that a broad approach can be applied to pleadings and if a cause of action can be generally derived from the pleadings in some circumstances that will be sufficient. A reading of the judgment in Wickstead v Brown does not reveal a statement to that effect. In any event, it is apparent from the judgment that the material facts on which the plaintiff relied in the statement of claim were pleaded in some detail. That is not the case before me. It was further submitted by Mr Glick that the cause of action alleged in paragraphs 50, 51 and 52 of the amended counterclaim was intended to be a Barnes v Addy (1874) LR 9 Ch A PP 244 type of claim for knowing assistance for a breach of fiduciary duty. In Wickstead v Brown the Court of Appeal held that the facts in the pleading before the court disclosed a cause of action upon the principles established in Barnes v Addy but nevertheless required the action to be pleaded properly. In Wickstead v Brown, at 16, Handley and Cripps JJA observed:

"The statement of claim does not allege that the Respondent knew at the time that the clients' interest bearing deposits existed or were breaches of trust. These are material facts. On an application to strike out a statement of claim the question `is whether it would be open to the plaintiffs upon the pleadings to prove facts at the trial which would constitute a cause of action': see Mutual Life and Citizens' Assurance Co Ltd v Evatt [1970] UKPC 1; [1971] AC 793 at 801."

53. I respectfully agree with the observations of the Court of Appeal and consider that the views expressed by the court in Wickstead v Brown are apposite in the present matter and serve to emphasise the deficiency of the pleading relied upon by the respondent in paragraphs 51 and 52 of the amended counterclaim. I have taken the opportunity, also, to consider the judgment of Beaumont J in Allstate Life Insurance Co, supra, and am of the view that the case does not assist the respondent in its submission. In that matter the learned Judge held that the amended statement of claim should be struck out as in his opinion (at p. 8): "...none of those allegations could even arguably give rise to the existence of a duty..." Beaumont J considered, at p. 10, whether "The old rules of pleading" should be applied under the modern system. The learned judge formed the view that on the basis of the pleading before him it would be open to prove some of the allegations at trial. However, as in the Wickstead pleading, the Federal court had before it pleadings that contained extensive allegations. Such is not the case in the present matter. It follows that I do not consider that the views expressed by the court in Allstate Life Insurance assist the respondent.

56. In my view all of the objections raised by the applicants against the pleading are validly made. It follows that the amended counterclaim does not make out a cause of action against Vondracek, Saunders and McDougall. Insofar as it is necessary for the pleading to be amended it leads to the conclusion that the judgment was entered on the basis of allegations contained in the amended counterclaim which were defective. The criticisms of the pleading in paragraphs 51 and 52 of the amended counterclaim are not matters of "pedantry or mere formalism" (see Pulham v. Dare [1982] VicRp 67; (1982) VR 648, 653 per Brooking, J.) As observed by Gleeson, J. in Trau v. University of Sydney (1989) 34 IR 466, 475:

"... If one sees that a plaintiff's lawyers are experiencing extreme difficulty in formulating with clarity and particularity their client's cause of action then it is often a very good indication that there is no cause of action."

60. It is trite to say that a pleading must inform the other party of the claim made against that party and the facts upon which the claim is based and which in law entitle the plaintiff to the relief sought. The amended counterclaim does not meet the requirements of 0.13.02. If a plaintiff has entered judgment upon the basis of a counterclaim that is defective with respect to the very claim for which judgment is sought because a cause of action is not properly pleaded and does not comply with the Rules it follows that such judgment, if entered, is irregular and ought be set aside. In my view the judgment was, therefore, irregularly entered.

63. On the basis of these matters I find that the judgment was irregularly entered and ought be set aside. It is not necessary in those circumstances for me to determine whether or not the judgment ought be set aside as an abuse of process. Moreover, it follows that it is unnecessary for me to determine whether or not there is a defence on the merits. However, I have had the opportunity to consider the affidavits relied upon in support of the application to set aside judgment on the grounds that there is a defence to the merits, the affidavits are those of Neil Arthur Young sworn 23 April 1999, Peter John McDougall sworn 27 April 1999, William Saunders sworn 26 April 1999 and Michael Vondracek sworn 27 April 1999. In my view those affidavits satisfactorily explain why the relevant defence was not filed until after 9 April 1999 and clearly disclose a defence on the merits. Mr Glick for the respondents did not press argument against the submissions by the applicants that the affidavits disclose a defence on the merits. It follows that even if the judgment was regularly entered and which I expressly find is not the case, the judgment ought be set aside on the ground that a defence on the merits has been disclosed.

66. Accordingly, the applicants succeed on their summons and the judgment will be set aside as irregularly entered.