Steinhoff Asia Pacific Limited v Markezz Pty Ltd and Anor

Plaintiff - Steinhoff Asia Pacific Limited PARTIES : First Defendant - Markezz Pty Ltd Second Defendant - Mark Pryke

COUNSEL : Plaintiff - Mr SB Loughnan Defendants - Mr MB Duncan

SOLICITORS : Plaintiff - Hennessey & Co Defendants - People's Solicitors

• 10 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

16261/2007 STEINHOFF ASIA PACIFIC LIMITED v MARKEZZ PTY LTD AND ANOR

JUDGMENT 1 HER HONOUR: By a notice of motion filed in October 2009, the defendants seek orders that judgment entered on 27 October 2008, pursuant to orders made by Registrar Bradford on 19 September 2008 be set aside and that leave be given to reinstate a defence and cross claim. The application was supported by an affidavit sworn by the second defendant, Mr Pryke. 2 The proceedings have a chequered history. They were brought by statement of claim filed in December 2007. Defences were filed in May 2008 and the first defendant, Markezz Pty Limited ('Markezz') filed a cross claim in August 2008. The proceedings concerned a Freedom Furniture franchise agreement, terminated in 2007, which the plaintiff claimed had been breached, with the result that it was owed $763,145.38 in relation to outstanding franchise fees, marketing levies, legal costs, merchandise and returned stock. 3 The defences admitted the failure to pay certain of the amounts claimed, but denied others, claiming that only $491,944.20 was outstanding. The cross claim claimed $435,000 from the plaintiff in relation to returned stock, an undelivered sales margin and debtors. 4 The defendants were advised by a solicitor and counsel. In August 2008, the plaintiff made a strike out application. When the matter came before Registrar Bradford on 19 September 2008, orders were made striking out the defence and cross claim, giving judgment for the plaintiff and ordering the defendants to pay its costs. The defendants were represented by counsel at the hearing, who informed the Registrar that his instructions were neither to consent to, nor oppose the orders sought. 5 The plaintiff later issued a bankruptcy notice. Mr Pryke's financial position had improved and he instructed new solicitors, who sought unsuccessfully to have the bankruptcy notice set aside and then filed a summons in which orders were sought setting aside the orders earlier made in these proceedings. Mr Pryke appeared for himself on 23 April 2009, when the matter came before Registrar Bradford. The file in those proceedings, matter number 11968 of 2009, indicates that the summons was dismissed, with Mr Pryke being advised that he needed to file a motion in these proceedings, to seek to have the orders made in September 2008 set aside. There was no appeal from that decision. 6 Mr Pryke took further advice, with the result that this motion was prepared and filed in October. The application was supported by an affidavit sworn by Mr Pryke, to which was annexed a medical report from a Dr Mary Wong, a general practitioner who began treating Mr Pryke in October 2009. He had given a history of his financial and legal difficulties and their impact upon him. Dr Wong's diagnosis was that Mr Pryke had been suffering major depression, which had worsened since 2007. He had commenced treatment and had been referred to a psychologist. 7 Mr Pryke was cross examined and evidence was called by the plaintiff from Mr Pryke's former solicitor, Mr Gallagher. 8 The defendants' case was that account would be taken of the defendants' earlier unsuccessful attempt to have the judgment set aside. The Registrar had given Mr Pryke advice which was here being pursued. The proper view was that the default judgment which had been entered in 2008 was interlocutory in nature, there never having been a hearing on the merits. There was power to set such a default judgment aside under Rules 36.15 and 36.16 of the Uniform Civil Procedure Rules, either on the basis that irregularity was shown, because the orders had been made without the defendants' instructions, or because the evidence established that there was an arguable defence or claim and that there was a proper explanation of the delay in making the application. 9 There could be no question that there was an arguable defence and cross claim, given Mr Gallagher's evidence and an explanation given in relation to delay, which would be accepted. The plaintiff had been unjustly enriched by the orders made, which gave it the full amount of its claim, despite what was sought to be advanced by the defences and the cross claim. It followed that justice required that the relief sought be granted. 10 The plaintiff's case was that on the evidence it would not be accepted that the proceedings were settled without the defendants' instructions. Their counsel had appeared at the hearing, when orders were made in favour of the plaintiff. He had implied and ostensible authority to compromise the proceedings. In the circumstances the Court had no power to make the orders sought, given that there was no irregularity, and that final judgment had been entered, and that even if it did have such power, there were powerful discretionary reasons for denying the relief sought.

Was there any irregularity? 11 Rules 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.

(2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent 12 I am satisfied, on the evidence, that it may not be concluded that judgment was entered in this matter 'irregularly'. 13 The evidence was that the defendants were on notice of the application to have their defences and cross claim struck out. They received legal advice in relation to the application. Their difficulty was, undoubtedly, that they were not in a financial position to pursue the case. Mr Pryke's evidence was that in August 2008 he was advised by Mr Gallagher that he had to obtain $120,000 overnight, in order that he could continue to act for the defendants. That Mr Pryke was in error in that understanding, if he truly had it, was apparent from the fact that, as he agreed in cross examination, after he received that advice, Mr Gallagher continued acting for the defendants, until the proceedings were concluded by the order made by the Registrar on 19 September. In the meantime, Mr Gallagher had represented the defendants in settlement negotiations, including a conference which he and Mr Pryke attended together in the city. Mr Gallagher's evidence, that he had advised that the overall conduct of the case was estimated to be in that order, must be accepted. The state of Mr Pryke's health at the time, may well explain his misunderstanding. 14 There is no question that when the strike out application came before the Registrar, counsel appeared for the defendants and neither consented to, nor opposed the application. Mr Pryke's evidence that he was depressed by his position may fairly be accepted. That the issue raised by the plaintiff's application was explained to him by his legal advisers and that they then acted in accordance with his instructions, as was Mr Gallagher's evidence, cannot reasonably be doubted. Mr Pryke explained that he wanted to fight on, but he had no avenue to raise the money which the defendants needed at the time, with the result that he gave his legal representatives no instructions as to the plaintiff's application. In cross examination he explained that when he was told that they had to do some thing, he said 'Do what you want, its just up to the court'. He denied, however giving any instructions. On Mr Gallagher's evidence, Mr Pryke's instructions were that the orders sought be neither consented to nor opposed. I accept that evidence, which was not really challenged in cross examination. There was also evidence that Mr Pryke was later advised as to what had occurred before the Registrar. There was no suggestion that he complained to Mr Gallagher that this had not accorded with his instructions, when they spoke. 15 Even if Mr Pryke's evidence could be accepted, namely that he intended to give no instructions and that he did not fully appreciate all of the ramifications of what would result if the orders sought were made, the fact remains that a submission was made to the Court on the defendants' behalf, that they did not consent to nor oppose the orders sought. As Mr Pryke intended, that left the matter up to the Registrar to determine on what was put before him. It does not seem open to doubt that the defendants were bound by what was done on their behalf (See Donellan and Ors v Watson and Anor (1990) 21 NSWLR 335 at 342). 16 I doubt that what occurred involved a compromise of the litigation, given the way in which the matter was left to the Court to determine. Nevertheless, there was no question that the judgment given was given consistently with the submission advanced for the defendants, who did not oppose the making of the orders sought. That being so, it may not be concluded that the subsequent entry of the judgment, which followed the making of orders which were not opposed, was irregular.

Are the orders sought available under Rule 36.16? 17 Rules 36.16 provides: (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (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, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order. [subr (2) am Gaz 87 of 6 July 2007 r 2 and Sch 1[8], [9], effective 6 July 2007 ; Amendment 29 of 2009 Sch 1[11], effective 8 October 2009] (3) In addition to its powers under sub rules (1) and (2), the court may set aside or vary any judgment or order except so far as it: (a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or (b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief. [sub (3) am Amendment 13 of 2007 r 3 and Sch 1[10], effective 5 April 2007; Gaz 116 of 7 September 2007 r 2 and Sch 1[4], effective 7 September 2007 ; Amendment 17 of 2007 r 2 and Sch 1[5], effective 5 October 2007] (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. [sub (3A) insrt Gaz 116 of 7 September 2007 r 2 and Sch 1[5], effective 7 September 2007] (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. [sub (3B) insrt Gaz 116 of 7 September 2007 r 2 and Sch 1[5], effective 7 September 2007] (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). [sub (3C) insrt Gaz 116 of 7 September 2007 r 2 and Sch 1[5], effective 7 September 2007] (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order.

18 The motion was not filed before entry of the judgment, so the orders sought may not be made under Rule 36.16(1). Given that the judgment was given in open court, at a time when the defendants were represented by counsel, the orders sought may not be made under Rule 36.16(2). It was not suggested that orders could be made under Rule 36.16(3). The motion was not filed within 14 days of entry of the judgment. There being no discretion to extend the time limit, the judgment may not be dealt with under Rule 36.16 (3A) or (3B) of those Rules (see Rule 36.16(3C)). 19 It was not suggested that there was any other power on which the defendants could rely in the circumstances which brought them before the Court. Reference was made to Across Australia Finance v Bassenger [2008] NSWSC 799, where White J considered an application to set aside final orders made by consent, observing that:

20 The application to set aside final orders which have been entered and made by consent ought to have been brought by a fresh proceeding ( Ainsworth v Wilding [1905] 1 Ch 435; Phillips v Walsh (1990) 20 NSWLR 206; Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691; Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 15 ACTR 45; 28 FLR 195). However, that point was expressly waived by the plaintiff.

21 The fact that an application to set aside a judgment is brought in an inappropriate form is a matter which is capable of waiver, given that in the present case no claim is made to set aside the orders based on an allegation of fraud and the point has been waived by the plaintiff ( Logwon Pty Limited v Warringah Shire Council (1993) 33 NSWLR 13 at 30; Spies v Commonwealth Bank of Australia ).

22 The basis on which counsel for the first defendant submitted that the orders of 5 October 2007 affecting the first defendant should be set aside was that she had not given instructions for the compromise of the claim against her and that she had an arguable defence under the Contracts Review Act 1980 (NSW).

23 Counsel submitted that the orders should be set aside under r 36.15 of the Uniform Civil Procedure Rules on the basis that the orders had been irregularly obtained.

24 I do not agree. There is no question that the first defendant's solicitor had at least ostensible authority to bind his clients to the terms of the orders of 5 October 2007. There was no irregularity in the making or entering of those orders.

25 Nonetheless, the Court has inherent jurisdiction to set aside orders made by consent, even after entry, on grounds on which the contract embodied in the orders could be set aside. Further, where the Court's assistance to carry the compromise into effect is required, the Court may decline that assistance if to provide it would lead to injustice, although the grounds may not be sufficient to invalidate the contract between the parties ( Harvey v Phillips (1956) 95 CLR 235 at 242-243).

26 Even if the first defendant's solicitor had no express or implied actual authority to sign the orders of 5 October 2007, those orders would not be liable to be set aside on any ground on which the contract embodied in them could be set aside. The plaintiff was not aware of any limitation on the solicitor's authority, assuming he did not have implied or express actual authority to bind his clients to those terms. Moreover, for the reasons developed further below, I consider that the first defendant's solicitor, Mr Rabadi, had implied actual authority to settle on the terms he did, even though, on the evidence before me, he had no express authority to do so.

20 The orders made in this case, by way of contrast, did not reflect any agreement between the parties and the evidence does not show that counsel who appeared before the Registrar acted contrary to his instructions. The orders were not made by consent. To the contrary, they were not consented to, even though not opposed. The matter was left to the Registrar to determine on the basis of the matters advanced for the plaintiff. 21 The circumstances in which Mr Pryke was placed, given his financial situation and his health seem entirely regrettable, resulting as they have in orders being made against the defendants for the entirety of the plaintiff's claim, without a hearing on the merits of what seem unarguably on Mr Gallagher's evidence, defences and a cross claim which had at least some prospects of success. 22 If there was a discretion available to be exercised in the defendants' favour, in determining whether it should be exercised, consideration would have to be given to the defendants' explanation for the long delay in bringing this application. The judgment was entered in September 2008, the first attempt to have it set aside failed in April 2009. It was not until October, that the further motion was filed. The explanation given for that further delay was that while Mr Pryke sought legal advice in relation to the Registrar's decision and advice, his health and the fact that it was thought important initially to resist the bankruptcy proceedings, resulted in a further delay, before this motion was brought. 23 For the plaintiff it was argued that there was no proper explanation in that evidence for the long delay and that to grant the application would be inconsistant with the requirements of the Civil Procedure Act 2005. In the circumstances, the matter seems finely balanced to me, but given that no basis upon which the orders sought might be made have been identified by the defendants, there is finally no basis upon which any conclusion in favour of the defendants may rest.

Orders 24 For the reasons given, I order that the defendants' motion be dismissed. The usual order would be that costs should follow the event. If the parties are unable to agree on the appropriate costs order, they should approach. **********

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