MV Amalfi Pty Ltd and Haiden Walsh v MH Enterprises Pty Ltd and Mezin Hadad

NOTICE OF MOTION FOR DEFAULT JUDGMENT

1. The plaintiffs filed a Notice of Motion Default Judgment for Unliquidated Damages on 26 February 2021, and the orders sought were as follows: '1. Judgment for the First and Second Plaintiff against the First Defendant in the sum of $125,226 as referred to in prayer 1 of the Statement of Claim. 2. The First Defendant to grant the Plaintiff's access to the Vessel for the purposes of carrying out a valuation as referred to in prayer 2 of the Statement of Claim. 3. Judgment for the First and Second Plaintiff against the First Defendant for damages as referred to in prayers 3, 4 and 5 of the Statement of Claim to be assessed. 4. The First Defendant pay the plaintiff's costs.'
2. In support of the Motion an Affidavit of Haiden Walsh of 26 February 2021 was attached to the Motion. Mr Walsh states at [4] that the Statement of Claim was served on the first and second defendant's solicitors via email. At [5] Mr Walsh states that the Statement of Claim was served on the first defendant on 21 January 2021 via post to the first defendant's registered office, and the source of that information is based on the affidavit of Justin Gerges dated 19 February 2021 which was also filed in the proceedings.
3. An email chain is attached to George Gerges's affidavit between George Gerges and Mr Alex Ronayne of Ronayne Owen Lawyers, who it seems did act for the defendants at some stage.
4. It is unnecessary for me to go behind the order for default judgment and examine why such an order was made. The JusticeLink notation of 9 March 2021 contains the following entry: 'Judgment: MH Enterprises Pty Ltd, First Defendant Is liable to MV Amalfie Pty Ltd, First Plaintiff Haiden Walsh, Second Plaintiff for damages and costs. Damages to be assessed 1. Judgment for the First and Second Plaintiff against the First Defendant in the sum of $125,226 as referred to in prayer 1 of the Statement of Claim. 2. The First Defendant to grant the Plaintiff's access to the Vessel for the purposes if carrying out a valuation as referred to in prayer 2 of the Statement of Claim. 3. Judgment for the First and Second Plaintiff against the First Defendant for damages as referred to in prayers 3,4 and 5 of the Statement of Claim to be assessed. 4. The First Defendant pay the plaintiff's costs.'
5. The current Motion seeks to set aside the orders made as described at paragraph 11 above.

PRINCIPLES

1. Rule 36.16(2) of UCPR provides that the Court has the power to set aside or vary a judgment if the judgment is a default judgment.
2. The Court is required to consider the following factors when deciding whether a default judgment should be set aside: 1. whether there are bona fide grounds of defence; 2. whether there is an adequate explanation for the default, and any delay in bringing the application seeking to set aside the Default Judgment; and 3. the whole of the circumstances generally. 4. (Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 (Hope JA, Glass JA agreeing)).
3. The importance of a defence on its merits is an overriding consideration. In Byron v Southern Star Group Pty Ltd t/as KGC Magnetic Tapes (1995) 123 FLR 352 ('Byron'), Priestley JA said at 364: 'Frequently, persons have been let in to defend who have little or no explanation for their delay but who have shown reasonable grounds of defence; in some cases such persons are put on severe terms concerning provision of security or payment into court or the like, but the court sees to it that subject to the compliance with such terms, a person who has an arguable defence and wishes to have it determined on the merits, will be heard by the court before judgment.'
4. In Cohen v McWilliam (1995) 38 NSWLR 476 at 480-481, Priestley JA re-affirmed what he had said in Byron and, by way of illustration, quoted with approval from the Full Federal Court decision in Davies v Pagett (1986) 10 FCR 226 at 232, as follows: 'The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct, in the case, of the party upon whom the limitation is sought to be imposed.'
5. The exercise of the discretion to set aside a judgment or order requires regard to the interests of justice, and to the competing interests of the respective parties, in determining whether a defendant should be permitted to contest the plaintiff's claim: Dai v Zhu [2013] NSWCA 412 at [83]-[92] (Sackville AJA, Barrett and Leeming AJJA agreeing).
6. Factors relevant to the exercise of that discretion include the appearance of a genuine basis for defending the plaintiff's claim (the existence of a 'defence on the merits') and the reasons for the default that occasioned judgment or order.
7. Ordinarily an application to set aside a judgment ought to establish there is a 'real issue' to be determined, that there is a genuinely arguable basis for impugning the judgment creditor's claim and provide an adequate explanation for any default or delay: Pham v Gall (2020) 102 NSWLR 269 at [95]-[111] (Payne JA, McCallum JA agreeing)
8. The Court is not required to make a determination as to the defence upon which the defendant relies. However, the Court must be satisfied the defence is bona fide and that there is an arguable and triable issue.
9. A 'defence on the merits' merely means a good defence, either of fact or law, that it is asserted in good faith and gives rise to a real issue for determination. In Dai v Zhu [2013] NSWCA 412, Sackville AJA said at [92]: 'In determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case: Adams v Kennick Trading, at 507; CBA v Humphreys, at [3]. All that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue. The nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant's explanation for the delay or failure to comply with the orders of the court. Adams v Kennick Trading, at 506; Nash v Swinburne.'

APPLICATION OF PRINCIPLES

1. On the question of the adequacy of the explanation for the delay, the defendants assert that the first defendant was not properly served with the proceedings, and the proceedings were not properly brought to the attention of the second defendant. In answer to that, the plaintiffs rely on the affidavit of service by Justin Gerges and the emails received from Mr Ronayne, a solicitor who was at some time acting for the defendants.
2. In Exhibit A, the second defendant provides some explanations as to why the defendants did not contest the application for default judgment, nor appear in the proceedings at all. At [3] the second defendant states he does not 'recall' being served with a copy of the Statement of Claim, and details his unfortunate health situation and sadly, deteriorating mental health. He details tragedies that he has experienced and his reliance on being heavily medicated to deal with these issues which has caused him to have limited access to his telephone and emails.
3. At [6] he deposes that it was only about 2 weeks before the swearing of the affidavit that he was informed by his solicitor, Mr Ronayne, that a copy of the Statement of Claim had been emailed to him in January 2021, and again, the second defendant has no recollection of seeing it.
4. At [7] he describes his solicitor telling him that the Statement of Claim may have been served on the registered office of the first defendant, which is his previous accountant's office, and he has been unable to contact the accountant. He states: 'I was not provided with a copy of the Statement of Claim by my former accountant, nor has my former accountant informed me that any of the documents were served on his office.'
5. Further at [8], the second defendant deposes as follows: 'The First Plaintiff has cause to be served on the First Defendant a Creditors Statutory Demand, which expires on 31 March 2021. I intend to file an application in the Supreme Court of New South Wales to set aside the Creditors Statutory Demand.'
6. Whilst I have no reason not to accept the explanations as contained in Exhibit A, which was admitted without objection, and the deponent was not required for cross-examination, there is nothing from either the former solicitor or accountant corroborating the evidence of the second defendant. It is unclear as to whether he actually received the Statement of Claim. What is however clear, is that it was never served personally on him pursuant to UCPR v10.20. Further, I accept that service on a solicitor is not sufficient service in the absence of confirmation of instructions to accept service from that solicitor, of which there is no evidence before me.
7. With regard to the first defendant, and the service of the originating process at the office of the company's former accountant, the first defendant acknowledges in accordance with s 109X of the Corporations Act 2001, the fact of mere service pursuant to a legislative regime does not necessarily bring the knowledge and existence of the proceedings to the attention of the controlling mind and body of the corporation.
8. Exhibit 1, an affidavit of George Gerges sworn 14 May 2021, whilst it is helpful in providing the background to these proceedings, does not add any relevant information to the question of setting aside the default judgement. I mean no criticism of the deponent, as it is helpful in explaining the background to the substantive proceedings, but it does not add or subtract anything with regard to this motion.
9. In any event, even where adequacy of the explanation may be sufficient, Priestley JA said in Byron as quoted above, 'frequently, persons have been let in to defend who have had little or no explanation for their delay but who have shown reasonable grounds of defence' have been allowed to be heard by the Court before judgment.
10. The question then turns on the bona fides of the potential defence. The defendants summarise their position in their written submissions as follows: '14 (a) The "First Agreement" (Statement of Claim, para. 5-7). The defendants in the draft Defence (see para.4) deny any such alleged agreement was reached on 27 November 2020. The manner in which the alleged 'agreement' was reached, is not pleaded. That will ultimately be a factual issue at trial. (b) The Heads of Agreement (referred to as the 'Team Sheet', Statement of Claim, para.13, 14) is potentially an agreement to agree in the form recognised in category 3 of Masters v Cameron. On the face of the document, it is plain that the parties did not intend to create final, binding legal relations until such a time as a formal contract came into force. While the Defendants admit in the draft defence (see para.3) to signing the document, there is a real question as to the legal effect of that document. That will ultimately be a legal question to be resolved at trial. (c) The Undertaking (Statement of Claim, para 17). In the draft Defence the defendants deny the Undertaking pleaded (para. 5) The defendants do assert however, that the works carried out by the plaintiffs on the vessel has caused damage (draft Defence, para. 18 and 20), and they seek to recover that damage by way of Cross Claim. A question therefore arises as to what, if anything, the Undertaking protects in such circumstances. (d) The Deed (Statement of Claim, para.20). In the draft Defence the defendants admit signing the Deed (para.10) however say that it was not exchanged due to the fact there were outstanding requirements and conditions precedent to be met. (e) Loss and damage (Statement of Claim, para. 26). In the draft Defence the Defendants admit that the Plaintiffs did work on the vessel however assert that the work has caused damage to it (para. 15). They intend to bring a Cross Claim in this regard.'
11. I accept that I do not need to determine whether each of the matters raised in the draft defence is likely to succeed at trial, but merely whether it gives rise to a real issue for determination.
12. The plaintiffs make submissions similar to the observations that I have made above with regard to the defendants' evidence, and the lack of any evidence served from either the plaintiffs' previous lawyers or accountants. They also note that the plaintiffs have had a significant period of time in which to do so. These are fairly raised arguments.
13. However, it seems to me that despite the evidence put on by the plaintiffs, which was not objected to, there has been an explanation for the delay in putting on a defence.
14. More importantly however, I am satisfied that there are arguable and triable issue by way of defence to these proceedings, and that there may be some genuine merit in the defence. The issues are such that they ought be ventilated at trial.
15. Additionally, the default judgment orders require that the assessment of damages must be assessed. In circumstances where it is clear that the matter will in all likelihood return to Court for the assessment of damages, it would be unreasonable for me to shut the defendants out of a case and prevent it from advancing a potentially meritorious defence.
16. In those circumstances, I will exercise my discretion, and set aside the order made on 9 March 2021. However, the defendants need to bear in mind the consequences that may flow if there are any further breaches of the Court's orders and procedures. I propose to order that the defendant must file and serve the Defence as annexed to the Motion within 14 days of this date. If the parties intend to file any cross-claims, such cross-claims must be filed within 14 days of this date. Given the nature of the proceedings, the defendants are to pay the plaintiffs' costs of this motion as agreed or assessed. If there are any variations of the costs orders sought, the parties may to notify my associate within 14 days of this date.

ORDERS

1. I make the following orders: 1. (1) Pursuant to r 36.16(2) of the Uniform Civil Procedure Rules 2005 (NSW), the judgment entered in the proceedings on 9 March 2021 be set aside. 2. (2) Pursuant to r 14.3 of the Uniform Civil Procedure Rules 2005 (NSW), the defendants are granted leave to file a Defence in the form of Annexure 'B' to the affidavit of Mezin Hadad within 14 days of this date. 3. (3) If any party wishes to file cross-claims in the proceedings, they must be filed and served within 14 days of this date. 4. (4) The defendants are to pay the plaintiffs' costs of the motion as agreed or assessed. If any alternate costs order is sought, the parties are to notify my associate within 14 days of this date. 5. (5) The matter is listed for directions before the Judicial Registrar on 14 September 2021.

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