Shannon & Ors v Simmons [2020] QSC 115

What happened

In Shannon & Ors v Simmons [2020] QSC 115, the liquidators of W2R Pty Ltd and W2R itself sought default judgment against Corey Simmons, W2R’s sole director. The application raised both a procedural question about service of an application for default judgment and a substantive question about whether the pleaded facts justified compensation for debts said to have been incurred while W2R was insolvent.

The claim and statement of claim were filed on 20 November 2019. One of the liquidators personally served both documents on Simmons that day [9], [11]. Simmons did not file a notice of intention to defend within the applicable time [9]. The plaintiffs applied under UCPR r 288, seeking a declaration that Simmons failed to prevent W2R incurring $7,107,109.49 in debts in contravention of Corporations Act 2001 (Cth) s 588G(2), compensation for that amount under s 588M, interest and costs [2].

The application stated that it was “not intended to be served on anyone” [3]. When the matter came before Flanagan J on the applications list, the Court invited further submissions on whether a r 288(2) application had to be served. The plaintiffs supplied those submissions on 15 April 2020 [3]. The application was then determined on the papers.

The alleged debts fell into three pleaded categories: $198,490.04 in tax debts, $107,518.13 in priority creditor debts, and $6,801,101.32 in trade creditor debts [27]. The total was $7,107,109.49. The pleading alleged that those debts were wholly unsecured, and that the liquidation had insufficient funds to pay any dividend to unsecured creditors [27]–[28].

The Court’s order granted the relief in the draft order, with a correction to the interest provision so that interest ran to the date of judgment [31]. The judgment does not set out the full text of the draft order.

Why the court decided this way

The first issue was whether Simmons had to be served with the application for default judgment. Flanagan J began with the structure of the UCPR. Rule 288 is in the Division dealing with default judgment for proceedings started by claim. Under r 288(2), a plaintiff may apply to the court for judgment; under r 288(3), the court may give the judgment it considers justified on the pleadings [5].

The Court distinguished this process from the rules under which a party files a request for judgment that may be dealt with by a Registrar. Rule 288(2), by contrast, expressly contemplates an application to the court [6]. Although an application in a proceeding might ordinarily attract the service requirement in r 31(5), Flanagan J held that r 288(2) had to be read in the context of the default-judgment division [7].

That context mattered. Rule 282 expressly requires a plaintiff to prove service of the claim before default judgment can be given [10]. The claim had been personally served, and the pleading contained the warning required by r 23 that default judgment might be obtained without further notice if the defendant did not file a notice of intention to defend [11]–[13]. The Court also noted the practical difficulty of ordinary service after default: Simmons had not filed a notice of intention to defend, and so had not provided the details or address for service that such a notice would require [13]–[14].

The Court concluded that the rules did not expressly, or by necessary implication, require personal service of a r 288(2) application [15]. Its reasoning depended on the specific procedural setting: the claim had been served, the required warning had been given, and the defendant had not supplied an address for service through an appearance.

The second issue was whether the application could be decided without an oral hearing. Rule 489(2)(a) allowed the Court to refuse to deal with an application without an oral hearing if it considered that inappropriate [16]. The claim sought significant monetary relief and a declaration, but the Court considered the application to be one for judgment in default of pleadings. It was therefore appropriate to decide it on the papers [16].

The Court emphasised the limited nature of the r 288(3) task. The question was not whether the evidence in affidavits proved the plaintiffs’ case. Rather, the Court had to decide whether the pleadings, with material facts deemed admitted through the default, justified judgment [17]–[20]. Flanagan J referred to Crane Distribution Ltd v Brown [2011] QSC 90 on the distinction between pleadings and supporting affidavit evidence [18]–[19], and to GMW Group Pty Ltd v Saadie [2012] QSC 140 for the proposition that default implies admission of the plaintiff’s pleaded case [20].

On the substantive claim, the Court set out ss 588G and 588M [21]–[22]. It identified four pleaded requirements for the relief sought: Simmons was a director when W2R incurred the relevant debts; W2R was insolvent at those times; there were reasonable grounds for suspecting insolvency; and Simmons failed to prevent the debts in the circumstances specified by s 588G(2) [23].

The statement of claim pleaded that Simmons was W2R’s sole director and that the relevant debts were incurred from 1 December 2018 to 18 June 2019 [24]. It alleged that W2R could not pay debts as and when they fell due, applying the definition of insolvency in s 95A, and set out indicators including continuing losses, insufficient working capital, unpaid taxes, a tax garnishee notice and non-compliance with creditor instalment arrangements [25]. The Court considered those facts sufficient to establish reasonable grounds for suspecting insolvency, particularly given Simmons’s position as sole director [26].

The pleading also particularised the debt categories and alleged that all were unsecured [27]. It alleged that unsecured creditors had suffered loss because the liquidation could not pay them [28]. Since Simmons had defaulted, those material facts were treated as admitted. The Court held that they justified the declaration and compensation order [29].

Before and after state of the law

This judgment is an application of the existing Queensland procedural rules and the statutory provisions it cites. It does not purport to amend those rules or establish a new statutory test. Its contribution, on the text supplied, is to explain how the service requirements operate when a plaintiff seeks judgment under r 288(2) against a defendant who has not filed a notice of intention to defend.

Before this decision, the general requirement for service of an “application in a proceeding” under r 31(5) could appear relevant to a r 288(2) application [7]. The Court resolved that question by reading the provision in the setting of the default-judgment division. It relied on the express requirement to prove service of the claim, the warning required by r 23, and the absence of an address for service where no notice of intention to defend had been filed [10]–[15].

After the decision, its stated conclusion is that a separate r 288(2) application need not be served in the circumstances addressed. The judgment does not say that service of the originating claim can be dispensed with. On the contrary, it treats proof of service of the claim as an express prerequisite under r 282 [10]–[11]. Nor does it say that every application in a proceeding is exempt from service. The conclusion is specifically about an application under r 288(2), read within the relevant default-judgment division [7], [15].

On the substantive law, the judgment applies ss 588G and 588M to pleaded facts. It sets out the statutory conditions and explains the factual allegations the Court considered sufficient on default [21]–[29]. It does not announce a revised test for insolvency or insolvent trading. Its account of insolvency relies on s 95A’s ability-to-pay formulation [25].

The decision also makes clear that default judgment under r 288 is not described as a trial of the evidence. The court’s task is to decide what judgment is justified on the pleadings [17]–[20]. That is an important limit on the decision’s reach: its conclusion depended on the pleaded facts being treated as admitted and on those facts satisfying the relevant requirements.

Key passages with plain-English translation

At [15], the Court concluded that “the UCPR does not expressly or by necessary implication require personal service of an application under r 288(2).” In plain English, where the defendant has not filed a notice of intention to defend, the plaintiffs did not have to personally deliver a second document seeking default judgment. The Court’s reasoning was tied to the claim having been served and to the rules’ notice and service structure [10]–[15].

At [16], Flanagan J said that although the plaintiffs sought a large sum and declaratory relief, it was not inappropriate to deal with the matter on the papers because what was sought was judgment in default of pleadings. In plain English, the amount claimed did not itself require an oral hearing in this case. The Court considered the procedural character of the application and its limited task.

At [19], the Court reproduced the observation in Crane Distribution that an affidavit is not a pleading and that r 288 does not empower the court to give judgment according to the evidence. This is reasoning quoted from another judgment, not an independent quotation originally composed by Flanagan J. The point Flanagan J adopted was that a r 288 application focuses on the statement of claim and procedural matters, rather than using affidavits to turn the application into a summary judgment hearing [18]–[20].

At [20], the Court explained that its task was to consider material facts pleaded in the statement of claim, treated as admitted because of default, and decide whether those facts justified judgment. In plain English, the defendant’s failure to plead did not remove the need for the court to check whether the pleaded case supported the orders requested. The Court still assessed the legal sufficiency of the admitted allegations.

At [29], the Court found that the deemed admissions established contravention of s 588G(2) in relation to the $7,107,109.49 debts and justified compensation under s 588M. In plain English, the order followed from the combination of the director’s default and the Court’s assessment that the pleaded facts covered the required elements.

What fact patterns trigger this precedent

The service ruling is most directly relevant to a proceeding started by claim where the defendant has been served with the claim, the time to file a notice of intention to defend has expired, and the plaintiff seeks judgment under UCPR r 288(2). In this case, Simmons was personally served with the claim and statement of claim, the required warning appeared on the claim, and he did not file a notice of intention to defend [9], [11]–[13]. The decision addresses whether the subsequent r 288(2) application itself needs service in that setting.

The pleadings analysis is relevant where a party seeks default judgment under r 288 and needs the court to assess whether the statement of claim justifies the specific relief claimed. The court examines the pleaded material facts, not whether affidavit evidence independently proves the case [17]–[20]. A pleading that asserts a legal conclusion without pleading the material supporting facts may raise a different question from the detailed pleading described here; this judgment decided only the pleading before it.

For an insolvent-trading claim, the factual pattern here included an alleged director-company relationship during the debt period, inability to pay debts when due, indicators said to support reasonable grounds for suspecting insolvency, debts incurred in that period, unsecured creditor claims and alleged loss because no dividend could be paid [24]–[28]. The judgment’s conclusion rested on those allegations being deemed admitted. It does not establish that the same indicators, in a contested proceeding, would necessarily prove insolvency or a director’s contravention.

The case may also be relevant to applications seeking substantial monetary relief on default. The Court accepted that the amount was considerable but considered the paper process appropriate because the application was for judgment in default of pleadings [16]. It did not decide that every large claim should be determined without a hearing.

How later courts have treated it

The supplied judgment text identifies and discusses earlier Queensland Supreme Court decisions, but it contains no information about how later courts have treated Shannon v Simmons. It would not be grounded in the available material to state that later courts followed, distinguished, applied or criticised this decision.

The earlier authorities mentioned in the judgment are Crane Distribution Ltd v Brown [2011] QSC 90 and GMW Group Pty Ltd v Saadie [2012] QSC 140. Flanagan J relied on Crane Distribution for the focus on pleadings rather than affidavit evidence [18]–[19], and referred to GMW Group for the explanation that default implies admission of the plaintiff’s pleaded case [20]. These references describe the reasoning used in Shannon; they do not establish later treatment of Shannon itself.

Still-open questions

The judgment is confined to an application under r 288(2) in the procedural circumstances before the Court. It does not determine how the service question would apply where a defendant had filed a notice of intention to defend, supplied an address for service, or where a different rule or type of application governed. Those circumstances were not before Flanagan J.

The decision also does not resolve every possible question about paper determination. It says that the Court may decline to determine an application without an oral hearing if it considers that inappropriate, and finds this particular default application suitable for determination on the papers [16]. It does not set out a general list of circumstances requiring an oral hearing.

On the insolvent-trading claim, the judgment was based on deemed admissions. It does not assess contested evidence about W2R’s solvency, the director’s awareness, when particular debts were incurred, causation, or the calculation of creditor loss. The pleaded facts and resulting order should therefore be distinguished from findings made after a contested trial.

Finally, although the judgment records that interest was calculated to the date of judgment under s 58 of the Civil Proceedings Act 2011 (Qld) and Practice Direction No 7 of 2013 [30], it does not reproduce the full interest calculation or the complete draft order. Those details cannot be reconstructed from the supplied text alone.

This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.