Keller Civil Engineers Pty Limited v Toulena Pty Limited & Ors

LEGISLATION CITED: Uniform Civil Procedure Rules 2005

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED: Jolati Pty Limited v Hobelo Pty Limited & Anor CA 82/1985, 9 August 1985, BC 8500622 Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 Satz v ACN 069 808 957 Pty Limited [2010] NSWSC 365

Keller Civil Engineers Pty Limited (Plaintiff) PARTIES: Toulena Pty Limited (First Defendant) Marcel Dagher (Second Defendant)

COUNSEL: Mr F P Hicks (For Plaintiff) Mr B Green (For the First and Second Defendants)

SOLICITORS: Moray & Agnew Lawyers (For Plaintiff) Navado Lawyers & Solicitors (For the First and Second Defendants)

1 The plaintiff commenced these proceedings by filing an ordinary statement of claim on 5 March 2010. It claimed payment of $109,259.70 plus interest on the basis of a Deed of Acknowledgement and Guarantee signed by the defendants and dated 28 January 2010.

2 The Deed, executed by the defendants, was forwarded to the plaintiff's solicitors, Moray and Agnew, on 28 January 2010. Clause 2.1 contained an acknowledgement by the first defendant, Toulena Pty Limited, that it owed the plaintiff $192,840.21. Clause 2.2 permitted Moray & Agnew to apply $83,580.51 held in their trust account to part payment of the acknowledged debt. The balance was to be paid before the end of the Stipulated Period, defined in the Deed to be the period commencing on the date of execution of the Deed and expiry of the earlier of: 1 10 days after a security held by the Roads and Traffic Authority on behalf of the first defendant was released; or 2 30 days.

3 Mr Dagher, the second defendant, guaranteed payment of the amounts to be paid by the first defendant under the Deed and indemnified the plaintiff against loss arising out of action taken to enforce the provisions of the Deed against the first defendant.

4 The Roads and Traffic Authority released the security on 4 February 2010. Letters of demand were sent to the first and second defendants on 23 February 2010.

5 In the absence of response, the plaintiff commenced proceedings in this Court on 5 March 2010 seeking payment of the balance due under the Deed and interest.

6 At the same time it filed a motion for summary judgment, expressly stating that judgment was sought pursuant to Uniform Civil Procedure Rule 13.1. It applied for judgment for the balance due, interest and costs on an indemnity basis. The motion was returnable on 24 March 2010.

7 The defendants did not appear on that date and I proceeded to hear and determine the application on an exparte basis. The application was supported by the following documents: 1 Affidavits of service of the Court documents on the first and second defendants on 11 March 2010. 2 An affidavit of Martin Henry, dated 5 March 2010, filed on behalf of the plaintiff, confirming the release of the security by the Roads and Traffic Authority. 3 An affidavit of Peter Ward, dated 5 March 2010, concerning the terms of the Deed, steps taken to demand payment and the non-receipt of payment. Paragraph 23 of the affidavit stated: Based upon my personal knowledge of the facts deposed in this Affidavit, my review of the books and records of the Plaintiff and upon the advice I have received from the Plaintiff's solicitors, I verily believe that the Defendants have no defence to the Plaintiff's claim for summary judgment in this matter. 4 Exhibit A - a schedule of amounts claimed by the plaintiff. 5 Exhibit B - a bundle of emails relating to execution and return of the Deed by the defendants. 6 An affidavit of Mr Ward dated 18 March 2010 concerning the steps taken to enforce the plaintiff's rights under the Deed by way of service of a Creditor's Statutory Demand for Payment dated 26 February 2010, affidavit of service of the Statutory Demand on 4 March 2010, and registration on 8 March 2010 of caveats against titles to properties owned by the first and second defendants.

8 On the basis of these materials I was satisfied that the requirements of Rule 13.1 were met and on 24 March 2010 I ordered the entry of judgment against the defendants on a joint and several basis for the sum of $126,192.06.

9 On 9 July 2010 the defendants applied for orders setting aside the judgment and staying further action to enforce the judgment. The application was heard on 27 July 2010. After amendment the bases for the application were: 1 The judgment was entered irregularly (r 36.15); 2 In the exercise of its discretion based on evidence supplied by the defendants, the Court should set aside the judgment (r 36.16).

10 Rule 36.15 provides: (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.

11 It was contended that the judgment was entered irregularly because there was no evidence before the Court as required by r 13(1)(b) that in the belief of the plaintiff or some responsible person the defendants had no defence to the claim.

12 It was argued that paragraph 23 of Mr Ward's affidavit failed to express the belief that the defendants had no defence to the claim. It stated that they had no defence to the claim for summary judgment.

13 The defendants relied on the decision of the Court of Appeal in Jolati Pty Limited v Hobelo Pty Limited & Anor CA 82/1985, 9 August 1985, BC 8500622. The reasons in that case were delivered by Kirby P. They dealt with circumstances where, after much delay in the proceedings, in particular in the discovery process, the defendant failed to attend before the Court on a return date of a motion. Orders were made striking out the defence and cross claim and entering judgment for the plaintiff with costs.

14 In deciding that those orders should be quashed, Kirby P made the following points: 1 The judgment entered in the District Court was a default judgment, not a final order. 2 A default judgment could not be entered without proving the debt, for instance, by a verified statement of the amount due at the time judgment was ordered. 3 There would be injustice if a party could obtain default judgment without proof of the current state of the debt, particularly if the defendant could show the amount of the judgment was wrong. 4 The requirement for proof of the debt was mandatory and wholly beneficial.

15 The defendants submitted that the Jolati decision was authority for the proposition that strict compliance with the provisions of the Rules was mandatory and that failure to comply produced an irregularity.

16 In my view this case could be distinguished from the circumstances that existed in Jolati.

17 The judgment entered was not a default judgment. It was a summary judgment entered following the presentation of evidence that satisfied the Court as to the facts on which the claim was based.

18 As to the required expression of belief, I was satisfied that this requirement was fulfilled in substance by two pieces of evidence before the Court. The first was paragraph 23 of Mr Ward's affidavit. The second was contained in the affidavit of Mr Ward dated 26 February 2010 that accompanied the Creditor's Statutory Demand for Payment of a Debt in which he stated at paragraph 15: I believe that there is no genuine dispute about the existence of the debt.

19 I was satisfied that these sworn statements of Mr Ward adequately informed the defendants and the Court that in the belief of the plaintiff the defendants had no defence to the claim.

20 I concluded that this was not a case where, as in Jolati, a step fundamental to the entry of default judgment was overlooked to the point where injustice was visited on the defendants. I rejected the application to set aside the judgment on the basis provided for in r 36.15(1).

21 R 36.16(2)(b) provides: (2) The court may set aside or vary a judgment or order after it has been entered if: … (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order,

22 The defendants claimed that they provided an adequate explanation for their failure to defend the claim within the time limited by the rules; they established on a prima facie basis a defence to the claim on the merits; they established on a prima facie basis a set off or cross claim and, in the interests of justice the judgment should be set aside.

23 The defendants acknowledged that they received the statement of claim, motion for summary judgment and creditor's statutory demand as well as the letters of demand that preceded them.

24 The second defendant said that they did not take these documents seriously. He and his co-directors of the first defendant claimed they understood that the defendants were not bound by the provisions of the Deed unless and until they received a counterpart copy of the Deed signed by the plaintiff.

25 They therefore disregarded the letters demanding that they fulfil their obligations under the Deed, the statement of claim that warned them that judgment might be entered against them if the defence was not filed within 28 days of service, the motion that stated that on 24 March 2010 the plaintiff would seek orders for judgment against them for considerable sums of money and costs and the creditor's statutory demand requiring payment of the debt within 21 days of service and noting that failure to comply could be relied upon as grounds for an application to wind up the first defendant.

26 I did not accept the assertion that the defendants considered they were not bound by the Deed. They were aware that the plaintiff performed its obligation under the Deed to provide the works as executed drawings and certificate to the Roads and Traffic Authority prior to the release of the security and they thus took the benefit of the performance by the plaintiff of its obligations under the Deed.

27 Further, on 13 April 2010 the second defendant sent an emaili to the plaintiff acknowledging the defendants' obligations in the following terms: I am writing to you and to apologies [sic] for not communicating with you any earlier on our position with your Company. The amount of red tape and problems I have had in the last 2.5 months with Banks, Private Certifiers, Surveyors, Lawyers to get Leases into place has been nothing short of horrendous (continual curse of Mayfield West) which resulted in the withdrawal from Auction on March 2010. Up until today I had no good news to date in order for me to honor my commitment to your Company which was the following: 1. $90,000 debt left by Empire Building from the initial works of 2007 & 2008 which I wanted to pay you back as our good faith for KCE to complete the New Works 2. $17,000 from the New Works because of the extra traffic control costs etc By tomorrow our company Toulena will have a final offer from a BP wholesale group to purchase the Freehold at Mayfield West which in turn will allow us to pay our debt to you (KCE is listed to be paid at settlement by our lawyers can confirm that). Tomorrow by 5 pm the offer should be final, I will ring you or email with timing going forward. Again I thank you for your patience.

28 This letter was sent at a time when the defendants claimed that they signed Deed under duress and the first defendant had suffered substantial losses because of the failure of the plaintiff to perform project management services in accordance with its contract with the first defendant. The terms of the letter were entirely inconsistent with those claims.

29 The defendants had legal advice available to them both before and after the Deed was signed. The second defendant said that on receipt of Court documents, he did not read them carefully. He instructed his staff to forward them to the first defendant's solicitor in the expectation that the solicitor would contact him if those documents presented a problem.

30 I considered this to be a most improbable scenario. The material before the Court indicated that the second defendant and his co-directors were business men of some experience in property dealings and development. I would have expected even the most minimally competent solicitor to advise a client that the Court documents should be taken seriously and that they required a response from the defendants. The solicitor acting for the first defendant at the time of these events provided no evidence on this application.

31 It was my view that the defendants ignored the Court documents in anticipation that, as stated in the second defendant's email, the property would be sold in sufficient time to allow them to make payment before enforcement procedures resulted in the realisation of their assets.

32 It was basic to their application that the defendants be full and frank with the Court. I concluded that they were not.

33 In fact they did nothing, notwithstanding that steps were being taken to enforce the judgment, until enforcement procedures presented a real threat to the second defendant's family home.

34 On 21 April 2010 the defendants consulted with their current solicitors who on the same date informed the plaintiff's solicitor that they intended to apply to have the judgment set aside. They asked the plaintiff's solicitors three times to consent to the setting aside of judgment but failed to respond to their request for information concerning the grounds upon which the application was to be made.

35 The motion was filed on 9 July 2010. Aside from a short period involving a staffing problem, the defendants' solicitors gave no explanation for the delay in bringing the application between April 2010 and July 2010 while the thunder clouds of enforcement continued to build up.

36 The defence of duress was based on the contention that the defendants were compelled to sign the Deed in order to obtain the release of a security held by the Roads and Traffic Authority. I rejected this contention for the following reasons.

37 No complaint of duress was made in response to any of the documents served prior to the entry of judgment. It was not raised after judgment was entered until the affidavits in support of the current application were prepared. The second defendant's email of 13 April 2010 contained no such complaint. Rather, it provided reassurance that the defendants would honour their commitment to the plaintiff.

38 There were two preconditions to the release of the security by the Roads and Traffic Authority. One was that the plaintiff forward to the Authority the works as executed drawings. These were documents over which the plaintiff held a valid lien pending the payment of its fees. The second was that the plaintiff was required to certify to the Roads and Traffic Authority that satisfactory arrangements were made for payment of contractors engaged in the works. The plaintiff was one of those contractors.

39 While the plaintiff might have control of the provision of the works as executed drawings, it had no power to demand that the Authority waive its demand for compliance with the second of these requirements. The plaintiff could therefore only provide the certificate if it was paid or if satisfactory arrangements for payment were made. This was effected by the execution by the defendants of the Deed.

40 The plaintiff performed the obligations imposed on it by the Deed and the security held by the Roads and Traffic Authority was released. In so doing it was disadvantaged by the forfeiture of its lien. There was evidence that at the time of release of the security the first defendant was under substantial pressure from its banker. The bank applied the value of the security to the reduction of its indebtedness. Thus, the arrangement provided for in the Deed appeared to be of significant advantage to the defendants.

41 There was an acknowledgement in the Deedii that the parties had sufficient opportunity to obtain independent advice, including legal advice, prior to its execution.

42 The defendants made no attempt to prevent the part performance of their obligations by the release of the moneys to the plaintiff held in Moray & Agnew's trust account in part payment of their debt.

43 There was no evidence that, prior to bringing this application, the defendants indicated in writing to the plaintiff any dissatisfaction with its services or any intention to bring a claim against it for losses that allegedly resulted from the inadequacies of the services provided. To the contrary the Deed provided: 2.1 The Debtor acknowledges and admits liability to the Creditor that the amount of $192,840.21 is now due and payable by the Debtor to the Creditor without any right of set off, cross claim or cross demand.

44 In the circumstances, I was not persuaded that there was a defence to the plaintiff's claim that was of sufficient merit to warrant the exercise of discretion to set aside the judgment.

45 I rejected the claim that the proposal to bring a cross claim should be accepted as a basis for the setting aside of the judgment for three reasons.

46 In order to find, even on a prima facie basis, that the cross claim had merit it would be necessary that I accepted hearsay material contained in the affidavits filed on behalf of the defendants. I was not satisfied that the defendants were full and frank in the evidence provided in support of the two issues already decided. I had little confidence, in the absence of independent corroborative evidence, that the claims proposed in the cross claim were of substance.

47 The first defendant acknowledged in the Deed that it had no claim for a set off or cross claim against the debt. The plaintiff's claim was based solely on the provisions of the Deed. This was therefore not a situation where the plaintiff could argue that Anshuniii principles applied and that the matters raised in the cross claim should have been dealt with in the defence to the claim made pursuant to the Deed. The defendants were not therefore prevented from bringing an action based on the allegations contained in the proposed cross claim if they wished to do so.

48 The quantum claimed was substantial. It exceeded the jurisdiction of the District Court. If the defendants proceeded with the cross claim it would be necessary to transfer it to the Supreme Court in any event.

49 I was provided by the parties with a number of authorities that urged on the one hand that I exercise great caution before denying a party the right to be heard on the merits of that party's caseiv and on the other hand that I exercise great caution in setting aside a judgment that has been perfected by entryv. I have taken these cautions into account in deciding how the interests of justice were best served in this matter.

50 The result was that I considered the material provided by the defendants was far from sufficient to persuade me that justice demanded that the judgment be set aside. At the same time, as noted, the defendants remained entitled to seek damages from the plaintiff in separate proceedings.

51 The application to set aside the judgment is dismissed.

52 The stay of enforcement of the judgment granted on 15 July 2010 is dissolved.

53 The defendants are to pay the plaintiff's costs of the application.

i Exhibit H. ii Clause 22. iii Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589. iv General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. v Satz v ACN 069 808 957 Pty Limited, Barrett J, [2010] NSWSC 365 citing Metwally v University of Wollongong (No 2) (1985) 59 ALJR 481.

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