N & G Electrical Group Pty Limited v Terracon Industries Pty Limited

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11611/02 N & G ELECTRICAL GROUP PTY LIMITED (ACN 093 448 830) v TERRACON INDUSTRIES PTY LIMITED (ACN 082 258 839)

JUDGMENT 1 BELL J: The plaintiff, N & G Electrical Group Pty Limited ("N & G Electrical Group") appeals against an order of a Magistrate refusing to set aside a default judgment in the proceedings. The Magistrate was exercising jurisdiction under the Local Courts (Civil Claims) Act 1970 2 The appeal is brought pursuant to s 69(2) of the Local Courts (Civil Claims) Act which provides: "A party to proceedings under this Act who is dissatisfied with the judgment or order of the court as being erroneous in point of law, may appeal to the Supreme Court therefrom." 3 The provisions of Pt 5 of the Justices Act 1902 apply, to the extent to which they are applicable, to appeals under s 69(2) of the Local Courts (Civil Claims) Act. 4 The powers of this Court in determining appeals brought pursuant to s 69(2) of the Local Courts (Civil Claims) Act are to be found in s 109 of the Justices Act: "The Supreme Court may, after hearing an appeal, determine the appeal by dismissing the appeal or by doing any one or more of the following: … (c) Making such other orders as it thinks just, (d) remitting the matter the Magistrate who made the conviction or order, or imposed the sentence, to hear and determine the matter of the appeal." 5 Provision is made in s 104(4) of the Justices Act for appeals from interlocutory orders made by magistrates by leave. In its summons N & G Electrical Group sought leave. On the hearing of the appeal Mr Ash, who appeared for N & G Electrical Group, submitted that leave is not required with respect to an appeal brought pursuant to s 69 of the Local Courts (Civil Claims) Act from an order refusing to set aside a default judgment. He relied in this respect on the decision of Bergin J in Cumming v Trade Banc International Ltd [2002] NSWSC 70 at [37]. In that case her Honour followed Rayhill Mouawad [2001] NSWSC 676 in which Kirby J examined the scheme of Part 5 Division 2 of the Justices Act and concluded that the terms of s 104(4) (and the structure of the section) make it plain that it is concerned with appeals in criminal or quasi-criminal cases [33]. His Honour considered that appeals in civil proceedings were governed by s 104(5). That subsection provides that a party to any proceedings under the Local Courts (Civil Claims) Act may appeal under Division 2 to this Court as provided by s 69 of that Act. Bergin J was of the view that the dismissal of an application to set aside a default judgment is a "judgment or order" for the purposes of s 69 of the Local Courts (Civil Claims) Act. Ms Williams, who appeared on behalf of the respondent Terracon Industries Pty Limited ("Terracon"), did not submit to the contrary. I approach the matter upon the basis that leave is not required to bring the appeal. 6 The appellant read the affidavit of Gregory Leather sworn on 29 April 2002. Annexed to Mr Leather's affidavit are copies of the material that was before the Magistrate in support of the motion. 7 A transcript of the proceedings before the Magistrate was annexed to the affidavit of Brennan Coleman sworn 29 July 2002. 8 Mr Ash read a second affidavit of Mr Leather, also sworn on 29 April 2002, to which was annexed a copy of the affidavit of Richard Ruming sworn 8 January 2002. It would seem that Mr Ruming's affidavit was read on behalf of Terracon on the hearing of the motion. 9 The proceedings were commenced by statement of liquidated claim filed in the Local Court (Civil Claims Division), Sydney. Terracon claimed the sum of $32,477.50 together with interest from N & G Electrical Group. The cause of action was pleaded as follows: "1. By an agreement made in October 2000 the defendant requested from the plaintiff the supply and installation of various lighting protection systems ("the goods"). 2. Pursuant to that agreement the defendant requested the goods from the plaintiff which were duly supplied by the plaintiff to the defendant. PARTICULARS Date Invoice Amount 24.10.00 00000448 $8,085.00 09.11.00 00000443 $7,205.00 09.12.00 00000466 $555.50 15.12.00 00000496 $16,632.00 Total: $32,477.50 3. The plaintiff has demanded payment from the defendant and the defendant has failed to make payment." 10 Terracon obtained default judgment on or about 25 June 2001. 11 On 18 July 2001 Terracon served a statutory demand on N & G Electrical Group. No further action was taken in this respect. 12 By letter dated 16 October 2001 solicitors acting for N & G Electrical Group wrote to the solicitors acting for Terracon informing them that they had instructions to file a motion to set aside the default judgment. The letter went on to assert that N & G Electrical Group had a substantive defence namely, that Terracon had sued the wrong party. Terracon's consent to the setting aside of the default judgment was sought. Nothing further appears to have happened until mid November 2001 when there was an exchange of correspondence between the solicitors concerning the foreshadowed application to set aside the default judgment. Terracon's position was that the proceedings against N & G Electrical Group had been correctly commenced and that it would resist the setting aside of the default judgment.

13 Around 11 December 2001 it appears that N & G Electrical Group took some steps in an endeavour to have the default judgment set aside. These were not successful. 14 On 31 January 2001 Brennan Coleman, the solicitor acting for N & G Electrical Group, swore an affidavit in support of its notice of motion. This appears to have been filed in the Registry of the Local Court on that day. The motion was heard on 28 March 2002.

15 The evidence before the Magistrate in support of the motion comprised the affidavits of Brennan Coleman and the affidavit of Nicholas Triantafillou, director of N & G Electrical Group, sworn on 18 January 2002. A further affidavit of Nicholas Triantafillou, sworn on 25 March 2001, is also annexed to Mr Leather's affidavit as part of the material which was before the Magistrate. It is not referred to in the transcript of the proceedings. 16 Annexed to Mr Coleman's affidavit was a copy of a draft defence to the liquidated statement of claim.

17 In his affidavit sworn on 18 January 2001 Nicholas Triantafillou denied that N & G Electrical Group were a party to a contract with Terracon for the supply and installation of various lighting protection systems. He asserted that the subject agreement was one between Terracon and N & G Electrics Pty Limited ("N & G Electrics") of which he was also a director. Mr Triantafillou stated that N & G Electrics had commenced trading on 11 August 1993 and that it had been trading with Terracon since 1999. Copies of invoices issued by Terracon to N & G Electrics on 12 July 1999 were annexed to his affidavit. The billing details set out in those invoices were said to be identical with the billing details contained in the invoices which Terracon sued upon. Mr Triantafillou deposed to the fact that N & G Electrical Group commenced trading on 1 January 2001.

18 Mr Ruming deposed to having a telephone discussion with Nicholas Triantafillou in or around the middle of October 2000 with in which the latter said: "We need some lighting protection at a site at Cronulla. I would like you to contact our project manager on site and he will arrange a meeting with you".

Thereafter Mr Ruming said he attended the site "where the judgment debtor was working at Cronulla." Following that meeting he furnished a quotation. He went on to say: "I was subsequently directed by Nicholas Triantafillou on behalf of the judgment debtor to proceed to carry out the works at Cronulla in accordance with that quote." 19 Mr Ruming said that at around the same time (mid October 2000) he sent N & G Electrical Group an application for credit. A copy of the application for credit was annexed to his affidavit. The application is dated 8 February 2001 and is said to be made on behalf of N & G Electrical Group. Significantly, next to the heading "Date business commenced" the document records "Oct 2000". 20 Annexed to Mr Ruming's affidavit was a letter dated 22 March 2001 on the letterhead of N & G Electrical Group signed by Mary Triant which had been sent by facsimile to solicitors acting for Terracon. The letter was in these terms: " Re Terracon Industries Pty Limited. Amount outstanding $32,477.50 We are carrying a debtor with an overdue account in excess of $200,000 which we have engaged the services of an external agent to collect. This debt has severely restricted our cash flow. However, the agent is making progress with this debtor and an initial payment is due to be released, in form of post-dated cheque next week. Considering payment from our reliable clients from 4th April 2001 and the above, we endeavour to pay the above account as follows: PERIOD VALUE PAYMENT DATE Oct - 00 $8,085.00 04-04-01 Nov - 00 $7,205.00 01-04-01 Dec - 00 $17,187.50 04-05-01 Payment by 4th April, 2001 $15,290.00 Payment by 4th May 2001 $17,187.50 We trust your client will consider our proposal, as we are currently in this uncomfortable position." 21 Mr Ruming asserted his belief that N & G Electrical Group had been served with the statement of claim in the subject proceedings on or about 16 May 2001. He said that he had instructed his solicitor not to proceed further with the statutory demand dated 18 July 2001 because he had been informed that N & G Electrical Group was about to go into administration. He had heard nothing from or on behalf of N & G Electrical Group until his solicitors received the letter of 16 October 2001. 22 Mr Ruming deposed to his belief that a liquidator had been appointed to N & G Electrics on or about 12 March 2001 and that Terracon had not been notified of that fact or invited to submit a proof of debt. 23 In his second affidavit Mr Triantafillou stated that he had instructed Mary Triant to send the letter of 22 March 2001 in an effort to resolve the dispute between N & G Electrics and Terracon. He denied that it was an acknowledgment of the debt by N & G Electrical Group. 24 The Magistrate's reasons for dismissing the motion were recorded as follows: "I am not satisfied the defendant in this matter has an arguable defence. I am satisfied on the evidence and documents before me that the contract was with N & G Electrical Group Pty Limited. The evidence which supports that mainly comes from events after 12 March when the company N & G Electrics Pty Limited was placed in liquidation. On 22 March a letter was written to the plaintiffs' solicitors in relation to this debt, seeking time, an arrangement to pay. That could only be consistent with the fact that the debt was owed by N & G Electrical Group Pty Limited and not the company in liquidation. If it was the company in liquidation, one would have thought that the company in liquidation, or the director, who is the director of both the company in liquidation and the present defendant, would be anxious and to point out the debt was incurred by the company in liquidation. Subsequently, there were three letters to the present defendant. Nowhere a reply was made to any of those letters saying that the debt was in fact owing by the company in liquidation. It wasn't until sometime in September or October that for the first time that basis was raised." 25 Mr Ash's central contention was that the Magistrate erred in law by considering the proposed defence on the merits and rejecting it. In written submissions he put it this way: "It was not for the court hearing an application to set aside default judgment to determine the proposed defence on the merits but to determine whether there was an arguable defence. In reaching the conclusion it did, the court must have done one of two things. Either it weighed subsequent evidence against the prima facie evidence and found that the prima facie defence was no longer available, or it in effect found that there was a subsequent agreement between the parties before this Court which extinguished the very basis for the claim by the plaintiff in the court below but was not separately pleaded. Neither approach is available in an application to set aside default judgment. They are matters for hearing." 26 In Mr Ash's submission Terracon sued on the four invoices particularised in the statement of liquidated claim. This was the only cause of action pleaded. The invoices were addressed to N & G Electrics and bore the ABN number of N & G Electrics. The Magistrate found that the contract was between Terracon and N & G Electrical Group. In his first affidavit Mr Triantafillou deposed to the agreement being between Terracon and N & G Electrics. The agreement was pleaded as one made in October 2000. Mr Triantafillou stated that N & G Electrical Group began trading on 1 January 2001. He was not cross examined upon his affidavit.

27 In Ms Williams' submission the letter of 22 March 2001 (allied to the liquidation of N & G Electrics) admitted of the Magistrate concluding that the defence belatedly sought to be raised was not one brought bona fide. In this respect she pointed to the evidence that the debt owed to Terracon was not included in N & G Electrics' directors' report to the liquidator. Ms Williams contended that although in the statement of his reasons the Magistrate did not expressly refer to the question of bona fides, when one reads the transcript as a whole, it is clear that this was the issue with which he was concerned. In support of her submission Ms Williams referred me to a passage in the judgment of Kirby P in Acuthan v Coates (1986) 6 NSWLR 472 at 478: "It is also to fall into the error of examining this unedited and unpunctuated record of ex tempore remarks at a busy magistrate's court as if the transcript were a document to be construed strictly." 28 Ms Williams submitted that it would be necessary for N & G Electrical Group to establish that there was no evidence upon which the Magistrate might have concluded that the defence brought by N & G Electrical Group was not bona fide before it could succeed on this appeal. She referred me to Carr v Neill [1999] NSWSC 1263 in which Sully J drew together the leading authorities dealing with appeals confined to error of law. His Honour referred to the principles enunciated by Jordan CJ in Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126. He went on to extract passages from the judgments in Poricanin v Australian Consolidated Industries Ltd (1979) 2 NSWLR 419; Mahony v Industrial Registrar of New South Wales (1986) 8 NSWLR 1; and Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 among others. His Honour concluded at [22]: "[I]t is important to be clear from the outset of any such exercise that the present appellant cannot succeed simply by pointing to findings of fact made by the learned Magistrate, and by contending, however persuasively, that, in effect, the findings might well have been in favour of the appellant rather than in favour of the respondent. Nor will it be sufficient for the appellant to convince this Court that, had the matter been before this Court at first instance, findings of fact would have been made in terms more favourable to the appellant than the findings made by the learned Magistrate. In so far as the judgment of the learned Magistrate rests upon inferences of fact drawn by his Worship from the evidence before him, it will not be sufficient to sustain the present appeal that the appellant can demonstrate that the particular process of reasoning by which the learned Magistrate arrived at the particular inference is apparently illogical, provided only that there is some evidence reasonably capable of giving rise to the inference." 29 In Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 the Court was dealing with a claim for relief in the nature of certiorari to quash the order of a District Court judge dismissing a motion to set aside a default judgment. The judgment debtor gave oral evidence before the District Court Judge asserting that at the material time he had not been carrying on business under a certain business name. He denied that he was indebted to the plaintiff. It was his case that another company was carrying on the business under the particular business name and was the true debtor. Hope JA (in a judgment with which Glass JA agreed), said at 506 - 507: "In the present case a problem arises because of the course taken by Williams DCJ in deciding whether a bona fide defence on the merits had been disclosed. In Simpson v Alexander (1926) 26 SR (NSW) 296 at 301; 43 WN 76 at 78, Street CJ, in whose judgment Gordan and Campbell JJ concurred, said: '… In considering whether a defendant, who seeks to be let into defend, discloses a defence upon the merits, the court or a judge is not to try the issues of fact arising upon the alleged offence. That is for the jury at the trial. All that is required on an application of this kind is that the defendant should swear to facts which, if established at the trial, will afford a defence; and should establish his bona fides in setting up that defence. Although, however, issues of fact cannot ordinarily be gone into on an application of this kind, and although it is not usual to go beyond the evidence put forward by the defendant for the purpose of disclosing a defence on the merits, there is, so far as I know, no inflexible rule of law or of practice preventing affidavits in answer from being received.' Whatever else this statement means, in my opinion it means that evidence can be received, by cross-examination or otherwise, as to the bona fides of the applicant in seeking to rely upon the defence, even though the evidence adduced relates to the issues which would be determined if the matter went to trial. However the question to which this evidence is directed is not simply whether the applicant has shown a defence on the merits; it goes rather to the composite question whether the applicant has shown a bona fide defence on the merits. If the judge hearing the application concludes that the applicant has deliberately lied about the alleged defence and is thus dishonest in raising it, the applicant would fail to establish that he had a bona fide defence on the merits. But if in such a case the judge merely concluded that he preferred the evidence of the respondent to that of the applicant, or anything as to credit short of disbelief by the applicant in the facts he relied on to found the defence, he would not on that account alone be entitled to find that the applicant had failed to establish that he had shown a bona fide defence on the merits. If he did so, he would be trying the issue to be determined at the trial, and this would be an error of law. … The learned judge found the claimant's version unacceptable, but this is different from finding that he was dishonest in raising the defence. … In the present case the learned judge, to some extent at least, tried the issues which would have to be determined at a trial. It is clear that he preferred the opponent's case, and did not accept the claimant's version of the facts. I am not satisfied that he expressed any conclusion on the claimant's bona fides in the sense I have described. There was thus an error of law on the face of the record, and certiorari should lie." (at 509). 30 I do not accept the submission that the Magistrate found that N & G Electrical Group were not raising a bona fide defence on the merits. He did not purport to so find. Rather he found that N & G Electrical Group did not have an arguable defence. In arriving at this conclusion I accept Mr Ash's submission that the Magistrate appears to have embarked upon an adjudication of the truth or otherwise of the case which N & G Electrical Group sought to advance and that to do so amounts to error of law; Reinehr Industrial Lease & Finance Pty Ltd v Jordan (unreported) NSWCA 4 June 1974.

31 The issue for the Magistrate was, relevantly, whether N & G Electrical Group had demonstrated that it had an arguable defence on the merits; Evans v Bartlam [1937] AC 473; Adams v Kennick; Cohen v McWilliam (1995) 38 NSWLR 476 per Priestley JA at 479. N & G Electrical Group sought to discharge this onus by pointing to evidence (i) that another entity had been invoiced in respect of the four transactions sued upon and (ii) that it had not commenced trading at the date of the agreement pleaded. There was material before the Magistrate capable of putting a different light on the matter including the assertion in an application for credit signed by Mr Triantafillou that N & G Electrical Group had commenced trading in October 2000 and the contents of the letter of 22 March 2000. These, however, raise issues that properly fall to be determined at a hearing.

32 The Magistrate did not address the question of whether he should decline to set aside the default judgment by reason of delay on the part of N & G Electrical Group in bringing their motion to be let into to defend the proceedings. He did not advert either to this consideration or to the question of prejudice. Submissions going to both these matters were advanced on Terracon's behalf. By its summons N & G Electrical Group seeks an order that the default judgment obtained by Terracon in the Local Court be set aside and that it be given leave to file its defence in the Local Court within fourteen days. I accept Ms Williams' submission that in the light of the fact that the Magistrate did not make findings concerning delay and/or prejudice the appropriate order is one remitting the proceedings to him to be dealt with according to law. 33 Terracon should pay the costs of N & G Electrical Group of this appeal. I will entertain an application for the issue of an indemnity certificate pursuant to the Suitor's Fund Act 1951.

2. set aside the order made by the Magistrate dismissing the notice of motion brought by N & G Electrical Group Pty Limited;

3. remit the proceedings to the Magistrate to be dealt with according to law;

4. the defendant is to pay the plaintiff's costs of this appeal as agreed or assessed.

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