Kazar (liquidator), in the matter of AE Charter Services Pty Ltd (in liq) v Adelaide Equity Holdings Pty Ltd

Kazar (liquidator), in the matter of AE Charter Services Pty Ltd (in liq) v Adelaide Equity Holdings Pty Ltd - [2025] FCA 59 - FCA 2025 case summary — Zoe

[17]

Background 3 The proceedings were commenced on 28 June 2024. On 7 August 2024, I made orders directing that the matter proceed on pleadings, granting the plaintiffs leave to file and serve an amended originating process and a statement of claim, and requiring that, by 26 September 2024, the defendants file and serve any defences to any statement of claim filed and served by the plaintiffs. On 8 August 2024, the plaintiffs filed an amended originating process and, on 29 August 2024, they filed a statement of claim. 4 In summary, by their statement of claim, the plaintiffs relevantly plead that: (a) Mr Gordon is, and was at all relevant times, one of two directors of each of AE Charter and Rossair Charter, the other director being the second defendant, Mark Lindh; (b) on 3 July 2018, administrators were appointed over each of AE Charter and Rossair Charter; (c) on 3 August 2018, the respective creditors of each of AE Charter and Rossair Charter resolved that the companies be wound up, and liquidators were appointed; (d) each of AE Chater and Rossair Charter was insolvent, within the meaning of s 95A of the Corporations Act, on and from 30 November 2017, and up until 3 July 2018 (Relevant Period); (e) during the Relevant Period, AE Charter incurred debts totalling $487,827.54 which remain unpaid, and those debts were incurred when AE Charter was insolvent; (f) at the time when each of those debts was incurred, there were reasonable grounds for suspecting that AE Charter was, or would become, insolvent, and either Mr Gordon was aware that there were reasonable grounds for suspecting that AE Charter was insolvent or a reasonable person in his position would have been aware that there were such grounds; (g) by reason of the insolvency of AE Charter, the persons to whom those debts are owed suffered loss or damage; (h) during the Relevant Period, Rossair Charter incurred debts totalling $188,620.65 which remain unpaid, and those debts were incurred when Rossair Charter was insolvent; (i) at the time when each of those debts was incurred, there were reasonable grounds for suspecting that Rossair Charter was, or would become, insolvent, and either Mr Gordon was aware that there were reasonable grounds for suspecting that Rossair Charter was insolvent, or a reasonable person in his position would have been aware that there were such grounds; and (j) by reason of the insolvency of Rossair Charter, the persons to whom those debts are owed suffered loss or damage. 5 The affidavit of Mr Kazar affirmed on 28 June 2024 details the bases on which he considers, and the plaintiffs contend, that AE Charter and Rossair Charter were insolvent throughout the Relevant Period. Mr Kazar identifies each of the debts incurred during the Relevant Period, and the bases on which Mr Gordon, or a reasonable person in his position, knew or would have known that each of AE Charter and Rossair Charter was insolvent throughout the Relevant Period. The facts deposed to by Mr Kazar are incorporated as particulars of the relevant allegations in the statement of claim. 6 Since the commencement of the proceedings, Mr Gordon has not filed a notice of appearance. Nor has he filed any defence to the statement of claim, as was required by order 4 of the orders made on 7 August 2024. Nor was there any appearance by or on behalf of Mr Gordon at the first case management hearing in this matter on 8 November 2024. 7 On 24 January 2025, the plaintiffs filed written submissions in support of their application for default judgment against Mr Gordon. The application for default judgment proceeded to hearing on 6 February 2025. There was no appearance by or on behalf of Mr Gordon at the hearing. There has been no communication from Mr Gordon to the Court that would indicate that he has any intention of participating in the proceedings. 8 On 7 November 2024, the solicitors for the plaintiffs informed the Court that the plaintiffs and first and second defendants had entered into a deed of settlement that was subject to the approval of creditors or the Court, and that a meeting of the creditors of AE Charter and Rossair Charter had been convened for 22 November 2024 for the purpose of obtaining that approval. At the hearing on 6 February 2025, the plaintiffs confirmed that the matter had settled as between the plaintiffs and first and second defendants, subject to the first and second defendants complying with certain obligations in accordance with the deed of settlement and release. It is expected that the plaintiffs and the first and second defendants will agree on consent orders to allow for a notice of discontinuance to be filed. The claim against Mr Gordon, which is the subject of the application for default judgment that is the subject of these reasons, is otherwise the last remaining issue for determination in the proceedings.

[18]

Plaintiffs' submissions 9 By their interlocutory process filed on 21 November 2024, the plaintiffs seek the following relief: 1. An order pursuant to section 588M of the Corporations Act 2001 (Cth) that the third defendant pay to the second plaintiff $487,827.54. 2. An order pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth) that the third defendant pay the second plaintiff interest on the amount in paragraph 1 from the date the first plaintiff was appointed as liquidator of the second plaintiff to the date of judgment. 3. An order pursuant to section 588M of the Corporations Act 2001 (Cth) that the third defendant pay to the third plaintiff $188,620.65. 4. An order pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth) that the third defendant pay the third plaintiff interest on the amount in paragraph 1 from the date the first plaintiff was appointed as liquidator of the third plaintiff to the date of judgment. 5. An order that the third defendant pay the plaintiffs' costs of the proceeding. 10 In support of their application for default judgment, the plaintiffs rely on two affidavits of Mr Kazar, affirmed on 28 June 2024 and 20 November 2024, and six affidavits attesting to the service of the originating process, filed documents and court orders on Mr Gordon. 11 The plaintiffs submit that Mr Gordon's conduct in failing to file and serve a defence by 26 September 2024, as required by order 4 of the orders made on 7 August 2024, demonstrates his unwillingness to cooperate with the Court and with the plaintiffs in the conduct of these proceedings. 12 The plaintiffs rely on various affidavits of service in support of their contention that Mr Gordan has been personally served with the various processes and affidavits filed in these proceedings, and has been on notice of the case management hearings. The plaintiffs submit that, despite being served with those documents and apparently receiving notice of court listings, Mr Gordon has neither filed a notice of appearance nor evidenced an intention to appear. Nor has he proffered an explanation for his non-compliance with court orders or for his failure to appear. 13 The plaintiffs refer to the insolvent trading claims they make against Mr Gordon in respect of the winding up of AE Charter and Rossair Charter, as pleaded in the statement of claim. They submit that evidence proving that they are entitled to the relief they seek in their statement of claim is not required to satisfy the condition in r 5.23(2)(c) of the Federal Court Rules that "the Court [be] satisfied that the applicant is entitled" to the relief before making orders on default. They submit that the effect of Mr Gordon's failure to file a defence to the statement of claim is that the facts in support of the plaintiffs' claims are taken (for the purposes of the application for default judgment) to have been admitted by him: Chamberlain Group Inc v Giant Alarm System Co Ltd (No 2) [2019] FCA 1606 (Chamberlain) at [14].

[19]

Legal principles 14 Rule 5.22 of the Federal Court Rules provides that 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. 15 Rule 5.23(2)(c) of the Federal Court Rules provides as follows: Orders on default … (2) If a respondent is in default, an applicant may apply to the Court for: … (c) if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, 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 or alternative accompanying document to which the Court is satisfied that the applicant is entitled; or … 16 In Michell v Cvetkovic [2022] FCA 1295, McEvoy J considered an application by a liquidator for default judgment, pursuant to r 5.23(2)(c) of the Federal Court Rules, in relation to (among other things) an insolvent trading claim under s 588G(2) of the Corporations Act. In that context, McEvoy J (at [19]) quoted the following relevant principles, which had been set out by Yates J in Chamberlain (at [13]-[14]): [13] The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27]. There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court's discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding. [14] Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that "on the face of the statement of claim" the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 at [42]. If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met: CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18]-[19]; Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [23]. The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; 236 ALR 665 at [45], [48]-[50]; United Broadcasting International Pty Ltd v Turkplus Pty Ltd (No 2) [2010] FCA 1413 at [42]-[44]; Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [62]-[63]. 17 The requirement that the Court be satisfied that an applicant or plaintiff is entitled to the relief claimed in the statement of claim will be met "if each element of the relevant civil wrong is properly and discretely pleaded": Maylord Equity Management Pty Ltd v Parazelsus Ltd [2014] FCA 979 at [12]; Macquarie Bank Ltd v Seagle (2005) 146 FCR 400; [2005] FCA 1239 at 406 [24]. 18 Justice McEvoy provided a further summary of principles applicable to the making of orders under r 5.23 in Kidd v Kwek (No 2) [2024] FCA 194, including the following (at [21]-[22]): [21] The Court retains a discretion as to whether or not to make any order or an order of a particular kind in relation to an application pursuant to r 5.23, and whether that discretion should be exercised depends, inter alia, upon "the nature of the default itself, any explanation provided for the default, the manner in which the party in default has conducted the proceeding to-date and whether the Court could have any confidence that a proceeding would henceforth be conducted in an orderly and proper manner": BJ International Limited v Asghar (No 2) [2013] FCA 580 at [13] (Flick J). An order may be made entering default judgment against a respondent in circumstances where the default is such as to manifest an intention on the part of a respondent not to comply with orders which have been made with a view to preparing a case for hearing; a single act of default may be sufficient; and in other circumstances a single act of default may not warrant an order being made: BJ International at [14]. [22] Whatever a defaulting party's state of mind or resources, where the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the other parties, it may be appropriate for the Court to make orders for default judgment: Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 at 396 (Wilcox and Gummow JJ). 19 I have had regard to these principles in determining whether to exercise the power in r 5.23(2)(c).

[20]

Consideration 20 The statement of claim must be read together with the affidavit of Mr Kazar affirmed on 28 June 2024, because many of the particulars in the statement of claim refer to facts deposed to in Mr Kazar's affidavit. I am satisfied that the statement of claim identifies facts which, if established, would entitle the plaintiffs to the relief they claim against Mr Gordon. A brief summary of the pleaded basis for the claims against Mr Gordon has been identified at [4]-[5] above. 21 On the basis of the affidavits relied upon by the plaintiffs, I am relevantly satisfied that Mr Gordon was personally served with, and accepted service of: (a) on 5 July 2024, the originating process, the plaintiffs' genuine steps statement, and the affidavit of Mr Kazar affirmed on 28 June 2024; (b) on 16 August 2024, the amended originating process, and the orders made in this matter on 7 August 2024; (c) on 16 September 2024, the statement of claim; (d) on 22 November 2024, the interlocutory process seeking default judgment against him, the affidavit of Mr Kazar affirmed on 20 November 2024, and the orders made in this matter on 8 November 2024; (e) on 24 January 2025, the plaintiffs' written submissions in relation to their interlocutory process seeking default judgment, and the orders made in this matter on 5 December 2024. 22 Mr Kazar has also deposed to the fact that he has been informed by his solicitors that they have not received any correspondence from Mr Gordon since the commencement of the proceedings indicating an intention to appear or be heard in relation to the claims the subject of the proceedings. I accept that evidence. 23 It follows that Mr Gordon is in default on the following bases, namely that: (a) he has failed to file a notice of address for service or submitting notice, and thus has failed to do an act required by the Federal Court Rules, whether within the time required by the Federal Court Rules or at all; (b) he has failed to file a defence, and thus has failed to comply with an order of the Court (being order 4 of the orders made on 7 August 2024); (c) he failed to appear at the first case management hearing, which was held on 8 November 2024; (d) he failed to appear at the hearing of the plaintiffs' interlocutory process seeking default judgment against him on 6 February 2024; and (e) he has failed to defend the proceeding with due diligence, or at all. 24 No explanation has been provided for Mr Gordon's defaults. It appears clear enough that he does not intend to take an active role in the proceedings. Mr Gordon's defaults are numerous and have continued for some time. I am satisfied that the preconditions for the making of an order for default judgment against him are met, and I consider that I should exercise my discretion to grant the relief sought by the plaintiffs in their statement of claim.

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