Standen Operations Pty Ltd v The Black Dog Café (Holdings) Pty Ltd & Ors
[2008] QDC 225
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- Unreported Judgment
- Standen Operations Pty Ltd v The Black Dog Café (Holdings) Pty Ltd & Ors[2008] QDC 225
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Standen Operations Pty Ltd v The Black Dog Café (Holdings) Pty Ltd & Ors[2008] QDC 225
Standen Operations Pty Ltd v The Black Dog Café (Holdings) Pty Ltd & Ors[2008] QDC 225
DISTRICT COURT OF QUEENSLAND
CITATION: | Standen Operations Pty Ltd v The Black Dog Café (Holdings) Pty Ltd & Ors [2008] QDC 225 |
PARTIES: | STANDEN OPERATIONS PTY LTD (Plaintiff) AND THE BLACK DOG CAFÉ (HOLDINGS) PTY LTD (Sued in its capacity as trustee for the Tightleash Trust) (First Defendant) SIMONE EDITH WARNER and NOEL EDWARD WARNER (Second Defendants) |
FILE NOS: | 248/07 |
DIVISION: | Civil |
PROCEEDING: | Application |
ORIGINATING COURT: | Maroochydore District Court |
DELIVERED ON: | 22.09.08 |
DELIVERED AT: | Maroochydore |
HEARING DATE: | 29.08.08 |
JUDGE: | Judge J.M. Robertson |
ORDER: | Judgment entered on the 1st day of February 2008 is set aside together with the subsequent warrant of execution Second defendant to pay the Plaintiff’s costs on the indemnity basis |
CATCHWORDS: | PROCEDURE: Application to set aside judgment in default of appearance; whether applicant has a defence on the merits; reasons for failure to appear and delay in applying to set aside judgment. CONTRACT: Whether contract properly construed provides for directors of purchaser to guarantee personally the obligations of the purchaser. Legislation: Uniform Civil Procedure Rules Cases Considered: Masters v Cameron (1954) 91 CLR 353 Reid v Jensen [2002] QDC 247 Troiani & Anor v Alfost Properties Pty Ltd [2002] QCA 281 Wharf St. Pty Ltd v Amstar Learning Pty Ltd & Ors [2004] QCA 256 Yankee Doodles Pty Ltd v Blemvale Pty Ltd (Unreported, SC. No. 134 of 1999) |
COUNSEL: | Mr. Handran for the Plaintiff Mr. Nevison for the second defendants |
SOLICITORS: | Bow & Company for the plaintiff Ferguson Cannon Solicitors for the second defendants |
Introduction
- [1]The plaintiff Standen Operations Pty Ltd (Standen) commenced proceedings in this Court by way of claim on 30.10.07 against the defendants The Black Dog Café (Holdings) Pty Ltd (sued in its capacity as Trustee for the Tightleash Trust) (Black Dog) and Mr. and Mrs. Warner (the Warners).
- [2]The claim was for monies owing by the defendants as a result of securities allegedly given by them pursuant to a business contract between Standen and Black Dog for the sale and purchase of a franchise business known as the Black Dog Café at Maroochydore. The claim against Black Dog was pursuant to a floating charge over the assets of the business and against the Warners on the basis of personal guarantees given by them in the business contract. Standen had provided (in effect) vendor’s finance to Black Dog to purchase the business and these securities were said to support the obligations of Black Dog as purchaser to pay the purchase monies and accrued interest by a certain date.
- [3]The claim and statement of claim were duly served on the defendants who failed to file a notice of defence. No doubt because Black Dog was in liquidation, Standen requested judgment by default against the Warners.
- [4]The Acting Deputy Registrar Mr. A.K. Hennessy signed judgment for $222,700.30 plus interest and costs against the Warners on 1.2.08. Standen then sought and obtained an Enforcement Warrant which was served on the Warners on 16 May 2008. Still they did not seek legal advice.
- [5]It was not until they received a letter from the Sherriff’s office to the effect that it was proposed to sell Mr. Warner’s interest in a property at 18 Jean Road Morayfield, that they were moved to obtain advice which they eventually did on 3 July 2008.
- [6]They now apply to set aside the judgment pursuant to Rule 290 Uniform Civil Procedure Rules.
The Law
- [7]Rule 290 is in these terms:
The Court may set aside or amend a judgment by default under this division, and any enforcement of it, on terms, including terms about costs and the giving of security, the court considers appropriate.
The principles applicable in the exercise of the discretion to set aside a judgment entered in default of appearance are well known, and are summarised succinctly by Judge Wilson SC in Reid v Jensen [2002] QDC 247. The discretion is unfettered and the Court will consider primarily
- (a)whether or not the defendant has given a satisfactory explanation for their failure to appear;
- (b)whether or not there has been delay in making the application;
- (c)whether or not the defendant has a prima facie defence on the merits to the claim on which the judgment is founded.
- [8]In Troiani v Alfost Properties Pty Ltd [2002] QCA 281, McPherson JA (with whom White and Wilson JJ agreed) noted, by reference to Atkinson J’s judgment in Yankee Doodles Pty Ltd v Blemvale Pty Ltd (Unreported, SC. No. 134 of 1999);:
“…much less significance is now ascribed to delay than may have been the case at some times of the past.”
- [9]In that case, the Court of Appeal allowed an appeal against a decision of this Court not to set aside a regularly obtained judgment where there had been substantial delay and notwithstanding that the primary judge had found that the defendants had a prima facie defence on the merits.
The Issues
- [10]Standen had originally operated the business on franchise from Black Dog, however the business was not a success and it was agreed in August 2005 that Black Dog would purchase the business from Standen for $180,000 plus stock, and a contract to that effect was entered into on 19.8.05. The contract contained a number of special conditions and the argument before me focussed specifically on Clause 4.1(e). Standen agreed to finance the sale, and Black Dog agreed to repay the balance of settlement monies at 9 months from completion or upon sale of the business by Black Dog whichever was earlier. The business was never sold by Black Dog and it is common ground that the balance of settlement monies was due on 12.6.06. Black Dog agreed to provide security for repayment of these monies by provision of a Bill of Sale over the assets of the business.
- [11]The dispute focuses on Clause 4.1(e) which reads:
“The obligations of the Buyer pursuant to the said Bill of Sale must be agreed by Director’s Guarantees to be provided by the Directors or The Black Dog Café (Holdings) Pty Ltd.”
- [12]It is common ground, that although Directors Guarantees were prepared by the Standen’s solicitors and forwarded to the solicitors for the Warners, they were never in fact executed by the Warners. That is why Standen submits (in accordance with the way in which it was pleaded in the Statement of Claim) that Clause 4.1(e) should be construed as creating a personal guarantee on the part of the Warners of Black Dog’s obligations under the business contract.
- [13]The liability of the Warners as guarantors is pleaded in the Statement of Claim as follows:
“11 By special condition 4.1 of the business sale contract, which was duly executed by each of the second defendants, the second defendants agreed that, if the plaintiff advanced the first defendant the balance settlement monies upon the terms and conditions more particularly contained in the said special condition, they would guarantee the due and punctual performance of the first defendant’s obligations under the Charge.”
- [14]The Warners submission is essentially that in accordance with the natural and ordinary meaning of the words used in Clause 4.1(e), their obligation as guarantors would only arise upon execution of separate guarantees which did not in fact occur. Mr. Nevison submits that if the Standens have been deprived of a cause of action against the Warners personally, the fault for that lies elsewhere as does any liability for any resultant loss.
- [15]Mr. Handrans argument for Standen is that having regard to the relevant correspondence between the parties leading up to and subsequent to the execution of the business contract, the word “agreed” in Clause 4.1(e) should be read as “guaranteed” and the word “or” should be read “of”. So construed, he submits that the special condition itself constitutes a personal guarantee binding the Warners.
The Background Circumstances
- [16]To properly assess this submission, it is necessary to set out the relevant dealings between the parties both prior to, and subsequent to execution of the business contract. These dealings and correspondence are set out in both the affidavits of Mr. and Mrs Warner filed 13 August 2008 and Mr. Forster (Solicitor for Standen) filed 29 August 2008. No person was required for cross-examination so I proceed on the basis that these affidavits and exhibits represent the extent of the dealings between the parties relevant to this application.
- [17]As a result of Standen’s difficulties with the business, in late July 2005 the parties commenced negotiations for the re-purchase of the business by Black Dog.
- [18]On the 5 August 2005 Ferguson Cannon, solicitors for Black Dog wrote to the directors of Standen enclosing a draft of a business sale contract for them to consider. The draft contract was for $180,000, with provision for “Seller Finance” in Clause 4 with provision for a Bill of Sale by Black Dog but contained no reference to directors guarantees.
- [19]On 12 August, Mr. Bow of Bow & Company (Solicitors for Standen) wrote to Ferguson Cannon and suggested various amendments to the draft including:
“5. Please include the additional condition e in Special Condition 4.1:-
‘e. The obligations of the Buyer pursuant to the Bill of Sale must be guaranteed by Director’s Guarantees to be provided by its directors and by the Franchisor, Black Dog Café (Holdings) Pty Ltd and by its Directors.’
The letter concluded:
“Please confirm as soon as possible that the above amendments are agreed, and if so, please email us as soon as possible the amended Contract. We will then arrange for our clients to call at your office to execute the same.
The Bill of Sale and Guarantee documents will then be prepared by our office and emailed to you as a matter of urgency for execution in readiness for settlement.”
- [20]On the 15th August 2005, Ferguson Cannon wrote to Bow & Company in relation to the proposed amendments and said (relevantly):
“5. Not agreed. However, the Directors of the Black Dog Café (Holdings) Pty Ltd will provide Director’s Guarantees.”
- [21]An amended Contract was attached which included Clause 4.1(e) in the same form as it appeared in the executed contract.
- [22]There were clearly discussions between the solicitors on that day, which resulted in a letter dated 16 August from Ferguson Cannon which sets the date for completion as 31 August 2005. There was no reference to the amended clause 4.1(e) or to any discussion about its terms.
- [23]Mr. Bow emailed Ferguson Cannon on 17.8.05 at 8:25am confirming (among other things) the completion date and:
“In relation to your letter dated 15 August 2005, we confirm our telephone discussions that our client will agree to the proposals therein. In relation to our reasonable costs of preparing the Bill of Sale and Guarantees, we advise that our professional fees for these documents will be $700 plus GST and outlays.”
- [24]This can only be a reference to item 5 in Mr. Bow’s earlier letter which is set out above. It is clear that Mr. Bow assumed that separate directors guarantees were to be provided. His clients agreement “to the proposals therein” suggests no concern then about the amended wording to Clause 4.1(e) as contained in the amended draft contract attached to that letter.
- [25]There were some further e-mails between solicitors on the 18th August concerning Mr. Bow’s proposed fees for preparing the securities.
- [26]On the 19 August, Ferguson Cannon wrote to Mr. Bow about some other issues and enclosed the “Business Sale Contract duly executed by our client.” Throughout the “client” is said to be Black Dog. I infer that this is the same contract executed by Mr. and Mrs. Warner which is exhibit B to their affidavit filed 13 August 2008.
- [27]On 31 August, Mr. Bow forwarded to Ferguson Cannon various documents to be signed including the Company Charge and Directors Guarantees.
- [28]On that same day (I infer after the letter of the same date referred to above) Mr. Bow again wrote to Ferguson Cannon to “confirm that settlement will take place today”, and authorised them to date the Company Charge “on the actual date of settlement.” The only reference to the Guarantees is in the fourth paragraph:
“After execution of the Company Charge and Director’s Guarantees please fax copies of the execution pages to our office together with your undertaking to forthwith return the original executed documents to our office for our further attention.”
- [29]It is clear however from that letter that the parties were assuming that settlement would be delayed because of difficulties in obtaining the Lessor’s consent to assignment of the Lease. Ferguson Cannon wrote back on the same day requesting an extension until 5September, and suggesting amendments to the Company Charge.
- [30]Mr. Bow replied on September 1 agreeing to certain changes and the extension of time and requesting that the signed Guarantees “should be returned to our office.”
- [31]Mr. Bow wrote on 7 September confirming an extension of time until 12 September. The letter includes:
“Please fax the execution pages of the Company Charge and Guarantee prior to settlement and post the executed documents together with payment of our account immediately following settlement.”
- [32]It is common ground that settlement did take place on 12.9.05.
- [33]On the 12 September 2005, Ferguson Cannon forwarded signed signature pages of certain ASIC forms and the Company Charge but not the signature pages of the Directors Guarantees.
- [34]The completed documents were forwarded to Mr. Bow on 24 October 2005, but not the guarantees. I infer that Mr. Bow had simply failed to realise that the Guarantees had not been signed prior to the completion of the contract. Mr. Bow had realised by 19 December 2005 as he wrote to Ferguson Cannon asking for his fees to be paid and the executed Director’s Guarantees to be returned. Ferguson Cannon responded on 22 December but only to say that the solicitor responsible for the matter was on leave and would respond upon his return. As far as I am aware he did not, and Mr. Bow did not apparently follow up.
- [35]In the material before me the next contact are letters of demand from Mr. Bow to Black Dog and Mr. and Mrs. Warner personally dated 10 November 2006. The date for payment of the balance of purchase monies was 12 June 2006 and no money had been repaid.
- [36]In the letters to the Warners it is stated:
“Under the terms of Sale of our client’s business to Black Dog Café Holdings Pty Ltd you guaranteed the repayment by that company to our client of the balance purchase price…”
- [37]Hitherto, as is clear from the correspondence, Mr. Bow was pursuing Ferguson Cannon for the executed Director’s Guarantees and had not asserted that the guarantee was contained in the business contract.
- [38]Interestingly, the formal Notice of Demand delivered to Mr. and Mrs. Warner on the same date seemed to adopt a slightly different approach again in asserting:
“You are a Guarantor of the performance of the Mortgagor and the payment by it of monies payable by it under the Company Charge pursuant to the terms of the Business Sale Contract dated 19th August 2005 and the Guarantee required to be given pursuant to it.” (my emphasis)
- [39]In other words, the Notice of Demand appears to allege liability on a dual basis; pursuant to the terms of the contract and the Guarantee required to be given pursuant to it.
- [40]Ferguson Cannon responded on behalf of Black Dog on 24 November. Although it refers to “my clients” it is clear that the letter is primarily written on behalf of the company. Its purpose appears to be to encourage Standen to write off the debt.
Discussion
- [41]The Warners argument focuses primarily on their contention that they have a good defence on the merits. Mr. Nevison argued rather faintly that the judgment had been entered irregularly. There is no merit in that submission. The judgment entered by Mr. Hennessy complied strictly with the rules relating to the entry of judgment as did Standen’s solicitor in obtaining the default judgment.
- [42]As I have noted, no directors guarantees were ever signed by the Warners and the Standens now argue that the guarantees which form the basis for liability of the Warners personally is contained in Clause 4.1(e). It is clear to me that, as between the solicitors, and therefore the parties, it was (until Mr. Bow’s letter of demand in November 2006) the understanding that the guarantees were to be separate from the business contract.
- [43]Mr. Handran’s argument is that there has been some typographical or grammatical error in the redrafting of Clause 4.1(e) from the words used by Mr. Bow in his letter of 12 August 2005, to the words used in the draft attached to Ferguson Cannon’s letter dated 15 August so that Clause 4.1(e) should read:
“The obligations of the Buyer to the said Bill of Sale must be guaranteed by Director’s Guarantees to be provided by the directors of Black Dog Café (Holdings) Pty Ltd.”
- [44]Even if I accept this submission (which I think has merit) it is quite clear that the clause simply provides that Black Dog as Buyer and Standen as Seller agree that the Director’s of Black Dog will provide security in the form of separate guarantees at a future date. It is clear from all the correspondence prior to and subsequent to completion that this is what the parties to the contract had agreed. The Warner’s signed on behalf of Black Dog. They did not sign as Guarantors personally although there was provision for that in the execution section of the business contract.
- [45]The simple inescapable fact is that Mr. Bow’s firm did not ensure that the separate guarantees which he prepared and charged for were signed by the Warner’s prior to completion or at any time subsequently.
- [46]This leaves for consideration Mr. Handran’s argument that Clause 4.1(e) itself creates a contract of guarantee between the Standens and the Warners personally of the type referred to as the first class of concluded contract referred to in Masters v Cameron (1954) 91 CLR 353 at 360.
- [47]In support of his argument, he relies on Wharf St. Pty Ltd v Amstar Learning Pty Ltd & Ors [2004] QCA 256, and in particular the analysis of McPherson JA (with whom Williams and Jerrard JJA agreed). The first class of contract, in the Masters v Cameron sense, is one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.
- [48]This submission has to be rejected simply for the reason that the parties to the business contract were Standen and Black Dog. The Warners personally were not parties. They signed as directors of Black Dog but Clause 4.1(e) (with the rewording proposed by Mr. Handran as set out above) properly construed contemplates that separate directors guarantees were to be provided. This was the clear and unequivocal understanding of the parties at the time. Due to an oversight, the guarantees were never signed. The response of the Warners later, in an attempt to resolve the matter cannot change the fact that separate directors guarantees were not given. Clause 4.1(e) properly construed does not support the pleading in Paragraph 11 of the Statement of Claim. The Warners have a clear defence on the merits.
- [49]The other issues that affect the discretion are the explanation of the Warners for their failure to appear, and their explanation for delaying in bringing the application to set aside the default judgment.
- [50]Their explanation for not appearing is set out in paragraph 19 of their affidavit:
“At the time of service of the Claim and Statement of Claim, we made contact with the administrators appointed to the First Defendant and acting on our understanding of the advice then received we understood that there was nothing further required of us as the First Defendant was a company under administration and no guarantee could be enforced in any event.”
- [51]As Mr. Forster’s searches reveal, no administrator was ever appointed, rather liquidators were appointed on 28 December 2005.
- [52]Their explanation is entirely unsatisfactory and unconvincing. Clearly they are people with some business acumen apparently having hitherto conducted a number of businesses. They have not given a satisfactory explanation.
- [53]As to delay in bringing the application, it appears that even after being served with the warrant of execution that they took no steps to obtain advice, and it appears that it was on the last day before the warrant expired that Ferguson Cannon then wrote to the Standens solicitors. Again their explanations are unconvincing and demonstrate perhaps a complete inability to face up to reality.
- [54]Having said that, their failure in this regard must be weighed in the balance with my finding that they have a good defence on the merits. No irreparable prejudice to the Standens is alleged if the application is granted.
- [55]In the circumstances, the judgment entered on the 1st day of February 2008 is set aside together with the subsequent warrant of execution.
- [56]In light of my adverse findings against the Warners, particularly in relation to their failure to satisfactorily explain why they did not enter an appearance; and their delay even after service of the warrant execution, to apply to set aside the judgment, I am inclined to order that they pay the Standens costs of and incidental to obtaining judgment and their application, on the indemnity basis, but I will hear the parties first on this issue. I have by implication rejected Mr. Nevison’s argument that the Standens misled the Court by Clause 11 of its pleading so it follows that I reject his submission that the usual order for costs should not follow in relation to applications of this kind.
Costs
In the circumstances I order as follows, for the reasons I publish today:
- [57]Judgment entered on the 1st day of February 2008 and any enforcement of the judgment is set aside;
- [58]Enforcement warrant- seizure and sale of property issued on the 31st March 2008 is set aside;
- [59]The plaintiff be given leave to file an amended claim and statement of claim by 4 p.m. on the 17th October 2008;
- [60]The second defendants file any defence they intend to rely on by 4 p.m. on the 7th November 2008;
- [61]The second defendants pay the plaintiff’s costs of and incidental to entering judgment by default, issuing the enforcement warrant and any associated costs of enforcement, and this application on the indemnity basis.