Manhari Recycling Pty Ltd v Compass Global Holdings Pty Ltd - [2021] NSWCA 252 - NSWCA 2021 case summary — Zoe

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Manhari Recycling Pty Ltd v Compass Global Holdings Pty Ltd

[2021] NSWCA 252

Court of Appeal (NSW)|2021-10-13|Before: Bell P, Payne JA, Beech-Jones CJ

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2021-10-13

Before

Bell P, Payne JA, Beech-Jones CJ

Catchwords

[2006] NSWCA 302 Pham v Gall (2020) 102 NSWLR 269

Source

Original judgment source is linked above.

Catchwords

[2006] NSWCA 302 Pham v Gall (2020) 102 NSWLR 269

Judgment (16 paragraphs)

[1]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[2]

HEADNOTE [This headnote is not to be read as part of the judgment] By statement of claim dated 13 October 2020, the respondent, Compass Global Holdings Pty Ltd (Compass), commenced proceedings in the District Court against the first applicant, Manhari Recycling Pty Ltd (Manhari Recycling), and the second applicant, Mr Madhur Gupta, who is an "authorised officer" of Manhari Recycling. Compass sued both defendants for breach of a written contract for the provision of foreign exchange services, and for misleading or deceptive conduct contrary to s 18 of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law (ACL). Compass alleged that Manhari Recycling had breached its contractual obligation to pay Compass US$100,000, and that Manhari Recycling and Mr Gupta had made misrepresentations in relation to that payment. The statement of claim was not served on the applicants until 28 October 2020. While the applicants did not file a defence in the time stipulated under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), a notice of appearance was entered on behalf of both applicants on 2 December 2020. On 15 December 2020, without giving notice to the applicants, Compass sought and obtained default judgment against the applicants. On 15 January 2021, Compass obtained a garnishee order, and on 19 January 2021 Compass garnished an amount of $153,431.64 from the account that Manhari Recycling maintained with Westpac Bank. On 26 March 2021, the applicants filed a notice of motion seeking orders setting aside the default judgment under rr 36.15 and 36.16 of the UCPR and requiring Compass to return the garnished amount to Manhari Recycling. The application was dismissed on 20 July 2020. Although the primary judge found that the default judgment was entered irregularly, his Honour declined to exercise his discretion to set aside the default judgment on the basis that the applicants had not made out a bona fide defence on the merits. The Court (Payne JA, Bell P and Beech-Jones JA agreeing) held, allowing the appeal:

[4]

Litigation history

By statement of claim dated 13 October 2020 the respondent, Compass Global Holdings Pty Ltd (Compass), commenced proceedings in the District Court against the first applicant, Manhari Recycling Pty Ltd (Manhari Recycling), and the second applicant, Mr Madhur Gupta, who was an "authorised officer" of Manhari Recycling. Compass sued both defendants for breach of a written contract for the provision of foreign exchange services, and for misleading or deceptive conduct contrary to s 18 of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law (Australian Consumer Law).
The statement of claim was not validly served on the applicants until 28 October 2020. Accordingly, the applicants were required to file their defence by 25 November 2020, being 28 days after service of the statement of claim: UCPR, r 14.3(1). No defence was filed in that time. However, a notice of appearance was filed on behalf of both Manhari Recycling and Mr Gupta on 2 December 2020.
On 3 December 2020, the solicitors for Compass sent an email to the solicitor for the applicants in the following brief terms: "Omar, Please advise our office as to when your defence will be served."
Earlier, on 22 October 2020, the solicitors who subsequently entered an appearance on behalf of the applicants had sought particulars of the contract claim and of the representations said to give rise to the Australian Consumer Law claim.
On 28 October 2020, the solicitors for Compass responded enclosing an unsigned copy of standard contract terms which did not make reference to either of the applicants, and conveyed a somewhat exiguous response to the request for particulars of the representations pleaded.
On 15 December 2020, without receiving a response to or following up on this email its email inquiring into the status of the applicants' defenceor following it up, the respondent sought and obtained default judgment against the applicants. The affidavit supporting the motion for default judgment incorrectly asserted that the statement of claim was served on Manhari Recycling on 15 October 2020, and on Mr Gupta on 20 October 2020 (as stated above, service was only validly effected on 28 October 2020). It made no reference to the fact that a notice of appearance had been filed and that particulars had been sought (and provided). The respondent did not give the applicants notice that, in the absence of a defence, it would make an application for default judgment. Nor did the respondent notify the applicants that the default judgment had been entered.
On 28 December 2020, oblivious to the fact that default judgment had been entered, the solicitor for the applicants wrote to the respondent's solicitors as follows: "Hi Ben, Hope you are enjoying your Xmas. We will serve a defence within 7 days of coming back to work, ie, by 19 January 2021. Please refrain from taking any steps in the interim without prior notice to us. Wishing you a happy NY. If you otherwise require anything further, please do not hesitate to contact me."
On 12 January 2021, the respondent lodged a notice of motion in the District Court seeking a garnishee order, which was refused. A second notice of motion seeking a garnishee order dated 14 January 2021 was granted on 15 January 2021.
On 19 January 2021, the respondent obtained by garnishee order the amount of $153,431.64 from the account that Manhari Recycling maintained with Westpac Bank. That amount represented the value of the default judgment plus interest.
On 26 March 2021, the applicants filed a notice of motion seeking to set aside the default judgment under rr 36.15 and 36.16 of the UCPR. On 20 July 2020, the primary judge dismissed that motion: Compass Global Holdings Pty Ltd v Manhari Recycling Pty Ltd [2021] NSWDC 324.
The primary judge found that entry of the default judgment was irregular in three respects. First, no notice was given by the respondent before entry of the default judgment, even though the applicants had entered a notice of appearance and the respondent anticipated that the proceedings would be defended. Secondly, the respondent did not insist on its rights to enforce the time limitations for filing a defence prescribed by the UCPR. Thirdly, the affidavit relied upon to obtain the default judgment incorrectly stated the date on which the applicants were served with the statement of claim. No challenge was made to the finding of irregularity by the respondent in this Court.
However, although satisfied that the default judgment was obtained irregularly, the primary judge declined as a matter of discretion to exercise the power under UCPR r 36.15. The primary judge was not satisfied that the applicants had demonstrated "sufficient cause" to set aside the default judgment. His Honour considered that there was "no point in making the order" to set aside the default judgment, despite its irregularity, because the applicants did not have a defence on the merits. Manhari Recycling had not performed its obligation to pay US$100,000 to the respondent, and it could not rely on any set off.
The applicants sought leave to appeal from that decision.

[5]

Rule 36.15 of the Uniform Civil Procedure Rules

The Court has a general power to set aside a judgment or order pursuant to r 36.15 of the UCPR. That rule relevantly provides: 36.15 General power to set aside judgment or order (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.
The general power to set aside a judgment or order contained in r 36.15 applies in relation to all judgments and orders, not merely those entered by consent or in default. The power is enlivened where it is shown that a judgment or order was entered "irregularly, illegally or against good faith". Contrary to the applicants' written submissions, proof of irregularity does not, without more, require the Court to set aside a judgment. Even where a judgment is shown to be irregular, the Court retains a discretion as to whether to exercise its power under r 36.15 to set aside that judgment.
The requirement that "sufficient cause [be] shown" is intended to ensure that the discretionary power to set aside an irregular judgment is exercised only where that exercise will not be futile. In Kendell v Carnegie (2006) 68 NSWLR 193; [2006] NSWCA 302 at [45] Bryson JA (Hodgson and McColl JJA agreeing) said of r 12A of the District Court Rules 1973 (NSW), which is identical in its substance to r 36.15: "[Rule] 12A(1) requires 'sufficient cause', recognising the need for finality by protecting judgments from being set aside for slight or uncertain causes."
Whilst the discretion is unconstrained, it must be exercised judicially. It is unwise to attempt to lay down rules of universal application in the exercise of that broad discretion. Without seeking to impose artificial limits on the extent of the discretion, sufficient cause will usually be demonstrated where the irregularity caused injustice, and the injustice would be alleviated by setting aside that irregular judgment. Whilst not a formula having universal application, in this case there was no error in the primary judge's description of the discretion as involving consideration of whether the applicant was "bound to lose" the case on the evidence before him.
There is a further power under r 36.16 of the UCPR to set aside a default judgment, or a judgment made in the absence of a party. The proper operation of that rule was discussed by his Court in Pham v Gall (2020) 102 NSWLR 269; [2020] NSWCA 116. However, the applicants did not seek to invoke this further power in these proceedings, and the parties dealt only with the general power to set aside the default judgment under r 36.15. The historically important distinction between applications to set aside judgments entered irregularly, as opposed to applications to set aside judgments entered regularly, remains to this day, as may be seen by contrasting UCPR r 36.15 and r 36.16, and see Pham v Gall and James v Australia and New Zealand Banking Group Ltd [2020] NSWCA 101 at [18]-[21].

[6]

The respondent's claim as pleaded

The statement of claim pleads two causes of action against Manhari Recycling and Mr Gupta, for breach of contract and for misleading or deceptive conduct in contravention of the Australian Consumer Law.
In relation to the claim for breach of contract, the respondent pleaded that it had entered into a "written contract" for foreign exchange services with Manhari Recycling, pursuant to which the respondent paid Manhari Recycling an amount in Australian dollars in exchange for an equivalent sum in US dollars. The respondent alleged that both Manhari Recycling and Mr Gupta (who was not pleaded to be a party to the contract) breached the contract by failing to pay the respondent the US dollar amount. The statement of claim provided: "Breach of Agreement - Client Agreement 6. On 7 November 2019, the Plaintiff and the First Defendant entered into a written contract whereby the Plaintiff would provide the First Defendant foreign exchange services as required. Particulars a. The Client Agreement (hereinafter referred to as 'CA'), entered into on 7 November 2019 is pleaded in full. 7. On around 7 November 2019, the First Defendant accepted the CA. 8. In accordance with the CA, on 20 May 2020 the Plaintiff facilitated the transaction for the First Defendant and paid the First Defendant AUD$146,177.65 in exchange for US$100,000.00. 9. In breach of the CA, the First Defendant did not pay the Plaintiff US$100,000.00. 10. The First and Second Defendants are in breach of the CA by reason of non-payment of the US$100,000.00 to the Plaintiff."
In relation to the Australian Consumer Law claim, the respondent alleged that the applicants made representations regarding payment of the US dollar amount which were misleading or deceptive and which caused the respondent to suffer loss. As set out in the statement of claim: "Australian Consumer Law Claim 14. The First Defendant and Second Defendant made representations that the Plaintiff relied upon. They are particularised hereunder: Particulars a. The First Defendant and Second Defendant made the representation that US$100,00.00 would be paid to the Plaintiff in exchange for AUD$146,177.65. b. US$100,000.00 would be paid by the First Defendant and Second Defendant to Worldpay AP Ltd, as directed by the Plaintiff. c. The exchange mentioned in 14(a) would be made instantaneously. d. The First Defendant and Second Defendant would act in good faith. e. The SWIFT MT103 Notice would be provided by the First Defendant and Second Defendant on request by the Plaintiff. (hereinafter referred to as the 'Exchange Representation') 15. The making of the Exchange Representations by the First Defendant and Second Defendant was likely to mislead or deceive the Plaintiff into transferring AUD$146,177.65 to the First Defendant. 16. The Second Defendant aided and abetted in making the Exchange Representations for the purpose of misleading and deceiving the Plaintiff. 17. The making of the above representations by the First Defendant and Second Defendant was conduct, in trade and commerce, in contravention of section 18 of the Australian Consumer Law."
The respondent's claim for breach of contract concerns a "written" Client Agreement purportedly entered into on 7 November 2019, the terms of which were pleaded in the statement of claim. As noted above, on 22 October 2020, the applicants' solicitor wrote to the respondent's solicitor requesting a copy of the "written contract dated 7 November 2019" referred to in the statement of claim.
The respondent's solicitor replied on 28 October 2020. The "Client Agreement" enclosed in the correspondence is a standard form contract which names as parties to the contract the respondent, Compass, and a generic "Client". The name of neither applicant appears in the document. Nor is it signed by any party.

[11]

The case against Manhari Recycling

The evidence before the primary judge did not provide any basis to conclude that Manhari Recycling did not have a defence on the merits to the contract claim. The respondent was unable to produce a copy of the "written contract" it had pleaded. The "Client Agreement" provided by the respondent does not name the first applicant as a party and has not been signed by anybody. There was no evidence before the primary judge that the pleaded written agreement existed.
In considering whether to exercise the discretion granted by UCPR r 36.15, the primary judge was bound to consider the applicant's proposed defence. The "True Agreement" pleaded in the defence involved, in effect, an agreement between different parties involving a suite of foreign exchange transactions. The primary judge did not refer to this agreement at all. Instead, the primary judge focussed on an alleged set off, which his Honour apparently thought arose by reason of an acceptance by counsel for Manhari Recycling that, although Manhari Recycling owed US$100,000 to Compass by reason of its failed attempt to transfer that sum to the respondent's bank, that amount could be set off against the loss suffered by Manhari Recycling as a result of Compass' breach of the "bigger arrangement" by unilaterally closing Manhari Recycling's forward booked contracts.. Whilst the oral submissions made by counsel for Manhari Recycling were not as clear as his Honour could reasonably have expected, nowhere was it conceded that the first applicant owed the respondent US$100,000 pursuant to the pleaded contract.
Further, the contemporaneous documents, particularly an email from the respondent's Chief Executive Officer and Director, Mr Andrew Su dated 19 March 2020, were more consistent with the contract pleaded in the draft defence. The email referred to an agreement between the respondent and "you, Manhari Recycling Pty Ltd and Manhari International Pty Ltd" under which the parties had set up a series of forward booked foreign currency exchange contracts. The contract asserted to exist in this contemporaneous email was not consistent with the written Client Agreement pleaded in the statement of claim. I am unable to accept, at least for the purposes of an application to set aside a default judgement, that what was pleaded by Compass was intended to refer to a separate spot foreign exchange contract between the respondent, and the first applicant, Manhari Recycling Pty Ltd.
These matters should have led the primary judge to set aside the default judgment as Manhari Recycling had shown sufficient cause to set aside the irregularly entered default judgment.

Manhari Recycling Pty Ltd v Compass Global Holdings Pty Ltd

At a glance

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Catchwords

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Catchwords

Judgment (16 paragraphs)

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Legislation Cited (5)

Cases Cited (6)

Cited By (2)