Yeo v Damos Earthmoving Pty Ltd, in the matter of Beachwood Developments Pty Ltd

Federal Court of Australia|2011-09-30|Before: Gordon J

INTRODUCTION 1 On 15 October 2008, the First Plaintiff, Andrew Reginald Yeo, was appointed as the Liquidator of the Second Plaintiff, Beachwood Developments Pty Ltd (ACN 115 234 805) (Beachwood), collectively the Plaintiffs. 2 The Liquidator alleges that from 13 December 2005 until 28 March 2008, $178,119.56 was paid by 11 payments to an unsecured creditor of the company, namely Damos Earthmoving Pty Ltd, the Defendant. 3 The Liquidator further alleges that each payment was made at time when Beachwood was insolvent and each payment was: 1. an unfair preference pursuant to s 588FA of the Corporations Act 2001 (Cth) (the Act); 2. an insolvent transaction pursuant to s 588FC(a) of the Act; and 3. voidable pursuant to s 588FE(4) of the Act. 4 The Plaintiffs sought declarations that the payments were voidable and that the Defendant pay the relevant plaintiff, Beachwood, the amount of the payment together with interest and costs. The Plaintiffs no longer pursue their claim for interest. 5 The proceedings were filed on 3 August 2011 against the Defendant. The originating application and supporting affidavit were served on the Defendant on 8 August 2011. The supporting affidavit deposed by the Liquidator attached the Statement of Claim dated 3 August 2011 at exhibit "ARY-3". The Defendant has taken no step in the proceeding. The Defendant did not appear at the first directions hearing on 6 September 2011. On 6 September 2011, upon an undertaking by the Plaintiffs' solicitors to serve a copy of the Order made on that day on the Defendant and file an affidavit of service of the Order on the Defendant, the Plaintiffs were given leave to make an application for judgment in default if the Defendant did not file and serve a defence by 4:00 pm on 21 September 2011. The Plaintiffs have complied with the undertaking. The Defendant did not file and serve a defence to the claim by 21 September 2011 (as ordered to do so on 6 September 2011) or at all. 6 Pursuant to the Orders made by the Court on 6 September 2011, the Plaintiffs now seek judgment in default.

APPLICABLE PRINCIPLES - RULE 5.22 OF THE FEDERAL COURT RULES 2011 7 The Plaintiffs seek judgment against the Defendant under r 5.22 of the Federal Court Rules 2011 (the Rules). Rule 5.22 relevantly provides: A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. 8 Rule 5.23(2) provides: If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for a debt or liquidated damages - an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or … 9 Rules 5.22 and 5.23 are akin to O 35A r 2 and O 35A r 3 respectively of the previous Federal Court Rules: see rr 5.22.5 and 5.23.5 of the Rules. In my view, the cases which considered O 35A r 2 and O 35A r 3 of the previous Federal Court Rules apply equally to the Rules so that an order for judgment in default under rr 5.22 and 5.23: 1. does not require proof of the claim by evidence, but only requires that - on the face of the statement of claim - there is a claim for the relief sought; and 2. the claim must fall within the jurisdiction of the Court: see Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3]. See also Quatre-Bornes Pty Ltd v John H Walker & Associates [2010] FCA 492; Turner, In the matter of L.A. Technologies Pty Ltd (ACN 092 001 495) (In Liquidation) [2009] FCA 805; Chanel Limited v Donoghue [2008] FCA 1643; Nokia Corporation v Yu (No 2) [2008] FCA 1088 and Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856. 10 Two questions still arise. Is the Defendant in default, and if so, should the Court exercise its discretion and enter judgment for the Plaintiffs against the Defendant? 11 The Defendant is in default. It failed to attend a Court hearing, it failed to comply with the Orders made by the Court on 6 September 2011 and it has failed to defend the proceeding: see [5] above. In those circumstances, I consider that the Court should move to determine whether to exercise its discretion under rr 5.22 and 5.23 of the Rules.

PLAINTIFFS ENTITLED TO JUDGMENT AGAINST THE DEFENDANT 12 As noted above, in relation to each of the payments, the statement of claim pleads: 1. the payment - date and amount; 2. the identity of the payer and the payee; 3. that the payee was an unsecured creditor of the payer; 4. that unsecured creditors are unlikely to receive a dividend in the liquidation of the Beachwood and, as a result of the each payment, the Defendant received from Beachwood more than the Defendant would have received from Beachwood in respect of that debt if the payment was set aside and the Defendant was to prove for the debt in the winding up of Beachwood; and 5. when the payment was made the payer was insolvent. 13 In addition, the Plaintiffs plead that they rely upon s 588E of the Act, namely that in a recovery proceeding (which includes proceedings under s 588FF by a company's liquidators as is this case (subs (1)(a)): … (3) If: (a) the company is being wound up; and (b) it is proved, or because of subsection (4) or (8) it must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day; it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day. … (8) If, for the purposes of another recovery proceeding in relation to the company, there has been proved: (a) if the other proceeding is of the kind referred to in paragraph (1)(a) of this section - a matter of the kind referred to in a paragraph of section 588FC or of subsection 588FG(2); or … it must be presumed that that matter was the case, or that the matters constituting that defence were the case. (9) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the proceeding concerned. The matters referred to in s 588FC include, inter alia, that the company was insolvent at the time the transaction was entered to. 14 Consistent with the authorities referred to above, it is apparent that on the face of the statement of claim there is a claim for the relief sought and the claim falls within the jurisdiction of the Court.

RELIEF 15 The Plaintiffs seek declarations and a liquidated sum. The orders for payment of a liquidated sum are appropriate to be made, together with interest on those sums: r 5.23(2)(b) of the Rules; see [8] above. 16 In relation to the declarations sought, the Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth). How does r 5.23 sit with this discretionary power? Rule 5.23 imposes no restraints upon the relief sought. It is now established that refusals by the Courts in the past to make declarations in cases of default and deemed admissions were based on a practice, not a rule of law: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665 at [52]-[59] and Bank of Kuwait and the Middle East v Ship MV "Mawashi Al Gasseem" (No 2) (2007) 240 ALR 120 at [15]. 17 Consistent with that line of authority, it is necessary to identify considerations relevant to the exercise of the discretion to grant or not grant declarations in a case such as the present. Considerations include: 1. whether the declaration will have any utility; 2. whether the proceeding involves a matter of public interest; and 3. whether the circumstances call for the making of the Court's disapproval of the contravening conduct, Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99-100; Australian Competition and Consumer Commission v Powerballwin.com.au Pty Ltd [2010] FCA 378 at [41] and Forster v Jododex Australia Pty Limited (1972) 127 CLR 421 at 437-438. 18 In the present case, I do not consider that the declarations will have utility. The appropriate relief is the recovery of the payments made to the Defendant. The Orders provide for those payments to be made. There is also no public interest to be served in making the declarations and although the circumstances call for the Court to disapprove of the conduct, it is not conduct which necessitates the making of the declarations sought by the Plaintiffs. 19 Finally, I will order the Defendant to pay the Plaintiffs' costs of the proceedings, such costs to be taxed in default of agreement. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

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