Layton Corporation Pty Ltd v Healy
[2017] QDC 33
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- Unreported Judgment
- Layton Corporation Pty Ltd v Healy[2017] QDC 33
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Layton Corporation Pty Ltd v Healy[2017] QDC 33
Layton Corporation Pty Ltd v Healy[2017] QDC 33
DISTRICT COURT OF QUEENSLAND
CITATION: | Layton Corporation Pty Ltd v Healy & Anor [2017] QDC 33 |
PARTIES: | LAYTON CORPORTION PTY LTD v JOHN HEALY and REBECCA HEALY |
FILE NO/S: | 3449/16 |
DIVISION: | Civil |
PROCEEDING: | Application |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 24 February 2017 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 14 February 2017 |
JUDGE: | Butler SC, DCJ |
ORDER: |
|
CATCHWORDS: | PRACTICE – APPLICATION – DEFAULT JUDGMENT – SETTING ASIDE – where defendants made application to set aside default judgment pursuant to r 290 of the Uniform Civil Procedure Rules – whether defendants entitled to have default judgment set aside. |
COUNSEL: | D. Fox solicitor for the plaintiffs. P. Jeffery counsel for the defendants. |
SOLICITORS: | Hewlett Legal for the plaintiffs. John Woulfe Solicitors for the defendants. |
- [1]The defendants make application pursuant to r 290 of the Uniform Civil Procedure Rules 1999 (“the UCPR”) to set aside a default judgment entered against them on 12 October 2016.
Background
- [2]The proceeding was commenced against the defendants by a claim filed on 29 August 2016. The plaintiff claimed:
“1. a sum in the nature of a debt due and owing under a loan agreement;
- interest pursuant to:
- (a)the loan agreement; or
- (b)alternatively, s 58 of the Civil Proceedings Act 2011; and
- costs.”[1]
The plaintiff’s claim was for a sum of $172,849.74 plus interest and costs.
- [3]On 19 September 2016 the defendants filed a Conditional Notice of Intention to Defend alleging that the claim was out of jurisdiction, as having been filed in the wrong locality. The jurisdictional point was misconceived. The defendants were not legally represented at the time.
- [4]On 30 September 2016 the respondent wrote to the applicants advising them of the requirements of the rules where a Conditional Notice of Intention to Defend has been filed. The letter advised the defendants that the jurisdictional point lacked substance and directed their attention to time limitations for further procedural steps. The writer indicated the correspondence would be relied upon to apply for indemnity costs in the event of a further application being brought by the defendants.
- [5]The defendants took no further step in the proceeding. On 12 October 2016 the respondent obtained default judgment in the sum of $172,849.72. Default judgement was available due to the defendants not having filed a defence within seven days of the conditional notice becoming unconditional.
- [6]On 6 February 2017 the defendants filed this application under r 290 of the UCPR requesting that the judgment by default be set aside and leave granted to file and serve a defence.
Setting aside an irregularly entered judgment
- [7]The court may set aside or amend a judgment by default under s 290 of the UCPR. That section reads:
“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.”
- [8]The defendant firstly argues that the judgment was entered irregularly in that it is “vague, ambiguous, embarrassing and liable to be struck out pursuant to UCPR 171”.[2]
- [9]
“It has been long accepted that a defendant is entitled to have an irregularly entered judgment set aside as a right, subject to the exercise of a power of amendment and the futility of interfering with the judgment. Such judgments are the product of the exercise of administrative acts performed without legal authority. Irregularity, as that term is used in relation to default judgments, normally results from a failure to comply with the rules of court relating to the entering of default judgments.”
- [10]His Honour went on to observe that the concept of irregularity has been given a more extending meaning and concluded as follows:
“The cases in which default judgments have been held to be irregular are ones in which there was either some deficiency in the steps prerequisite to the entering of default judgment or an abuse of process or something akin to it resulting from the plaintiffs obtaining a judgment to which the plaintiff knew or ought reasonably have known he or she was not entitled.”[4]
- [11]The defendants did not rely upon any deficiency in the necessary steps for entry of the default judgment, rather they rely upon alleged deficiencies in the statement of claim submitting that the pleadings fail to comply with the requirements in ch 6, Pts 2 and 3 of the UCPR. It is submitted the Statement of Claim fails to plead any breach of contract in contravention of r 151(a), fails to contain a statement of material facts including when and where the alleged agreement was entered into, fails to provide particulars of a debt or other liquidated demand and is vague.
- [12]The Statement of Claim relevantly provides:
“…
- On or around January 2012, the plaintiff entered into an oral agreement with the defendants (“the Agreement”).
- The material terms of the agreement were:
- (a)the plaintiff would advance various funds to, and pay various expenses of, the defendants by way of a loan (“the Loan”); and
- (b)the Loan would be repayable on demand.
- It was an implied term of the agreement that the defendants would accrue on unpaid portions of the Loan at the benchmark interest rate for the fringe benefits tax as published by the Australian Taxation Office from time to time.
- Between 5 December 2013 and 30 June 2016:
- (a)the sums listed under the column headed “Debit” in Annexure A to this pleading were advanced by the plaintiff to the defendants, or were paid by the plaintiff on behalf and at the request of the defendants, which payments constituted the Loan; and
- (b)the plaintiff applied the amounts listed under the column headed “Credit” in the table at Annexure A to this pleading in reduction of the Loan.
- On 1 March 2016, the plaintiff issued a demand to the defendants to repay the Loan pursuant to the Agreement.
- Despite the demand, the defendants have failed or refused to pay the amount due and owing under the Loan back to the plaintiff.
- As at the date of filing this pleading, the total amount of:
- (a)the principal due and owing by the defendants to the plaintiff under the Agreement is $172,849.74; and
- (b)interest due and owing by the defendants to the plaintiff under the Agreement is $20,032.44.
- In the alternative to para 8(b), interest is payable by the defendants pursuant to s 58 of the Civil Proceedings Act.
…”[5]
- [13]The plaintiff pleaded the existence of an oral agreement with the defendants to make advances and payments by way of a loan which would be repayable on demand. It is pleaded that a demand was made and payment was not forthcoming in response. The amounts advanced or paid to the defendants are set out, amounts credited in reduction of the loan are set out, and the principal alleged to be due and owing is specified. In my view, the matters pleaded clearly identify the existence of a contractual agreement, specify the terms of that agreement and allege the defendants have failed to act in accordance with their obligations under the agreement. The pleadings adequately put the defendants on notice that the cause of action at law is breach of contract.
- [14]The Statement of Claim goes on to adequately specify the relief sought:
“The plaintiff claims the following relief:
- the sum of $172,849.74 as a debt due and owing under the Agreement;
- interest pursuant to s 58 of the Civil Proceedings Act 2011; and
- cost.”[6]
- [15]It is true that the Statement of Claim could have been better drafted. The utilisation of an annexure and the failure to incorporate in the pleadings the words “breach of contract” are unusual features. These lapses have not, in my opinion, resulted in a failure to comply with the requirements of rr 150 and 157 or caused the Statement of Claim to be so vague as to amount to irregularity.
- [16]The defendants also point to the fact that the interest awarded by the Registrar is different than that sought in the statement of claim. It is submitted:
“While in the statement of claim interest was sought pursuant to the alleged agreement at the benchmark interest rate for fringe benefits tax published by the Australian Taxation Office, on request for default judgment the plaintiff abandoned the claim for contractual interest.”[7]
As is apparent from the Statement of Claim set out above, the defendants claimed for interest in the alternative. Ultimately judgment was given in the lesser amount, being interest pursuant to s 58 of the Civil Proceedings Act 2011. In my view this does not constitute an irregularity as understood in the relevant authorities.
Setting aside a regularly entered judgment
- [17]The defendants argue that even if the judgment was regularly entered, it should be set aside pursuant to the discretion available to the court under s 290 of the UCPR. The authorities provide that where judgment in default has been regularly entered matters which generally will be considered are:
“1. whether or not the defendant has given a satisfactory explanation for his failure to appear;
- whether or not there has been any delay in making the application;
- whether or not the defendant has a prima facie defence on the merits.”[8]
- [18]In National Mutual Life Association of Australasia Limited v Oasis Developments Pty Ltd it was held by McPherson J that:
“Speaking generally, it may be said that it is the last of these considerations that is the most cogent. It is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending, even though a lengthy interval of time had elapsed provided that no irreparable prejudice is thereby done to the plaintiff.”[9]
- [19]The appellant submits that there was no inordinate delay and explanation has been given for his failure to resist the entry of judgment.
- [20]Judgment was entered on 12 October 2016 and this application was filed on 6 February 2017. The delay is not lengthy and the period fell over the Christmas vacation. Nevertheless an affidavit filed by the plaintiff’s solicitor states that if the default judgment is set aside it will be difficult for the plaintiff to catch up on payments owed to the defendants because of a downturn in the plaintiff’s business. This refers to the fact that since judgement was entered the plaintiff has withheld amounts due to the defendants for unpaid employee entitlements on the basis that the judgment sum exceeds the debts owed to the defendants. Having regard to the relatively short period involved, I am not persuaded that this circumstance discloses such prejudice to the plaintiff as to constitute a proper basis for denying the defendants application.
- [21]The first defendant’s affidavit provides an explanation for the defendant’s failure to file a defence within the prescribed period. The second defendant is the wife of the first defendant and her affidavit supports his in this regard. It is deposed that at the time they could not afford a solicitor and believe the proceedings were filed in the wrong jurisdiction. Relying upon this jurisdiction or objection they filed a conditional notice of intention to defend. The first defendant deposes that they were unaware of the necessity to apply for an order of the court or to file a defence within time and claims that had they known they would have caused a defence to be filed.
- [22]The defendants’ explanation appears inconsistent with both defendants having received a letter from the plaintiff’s solicitors advising them of the necessary steps and time limits. There was no opportunity on the application to test the defendants’ assertions in the affidavit or to seek an explanation for why they failed to be guided by the solicitor’s letter. It may be that in the absence of legal advice and any experience with civil procedure they failed to grasp the significance of what was required. Nevertheless, the defendants’ explanation that they were unaware of the necessity to respond in time seems unconvincing in the face of their having received detailed advice in the plaintiff’s correspondence on the matter. The best that can be said for them is that they were not contemptuous of the court process in that they took the step of filing a Conditional Notice of Intention to Defend. They appear to have placed such confidence in the unmeritorious jurisdictional point they had raised that they disregarded the necessity for any further steps. The absence of adequate justification for the defendants’ failure to file a defence must be an important consideration in the exercise of my discretion.
- [23]Finally, it is necessary to consider whether the defendants have a prima facie defence on the merits. As observed by McPherson J, should they have such a defence the court would be reluctant in the absence of irreparable prejudice to the plaintiff to deny the defendants the opportunity to have their case heard.
Do the defendants’ have a defence on the merits?
- [24]It is useful to compare the respective cases. The plaintiff claims there was an oral agreement to advance funds or pay expenses by way of a loan which was repayable on demand.
- [25]The defendants’ have supplied a draft Defence. Their case is summarised in their outline of argument as follows:
“The defendants say that all payments made by the plaintiff were remuneration paid pursuant to a profit share arrangement. The defendants’ position is that it was not a term of the profit share arrangement that monies paid to the defendants in an earlier financial year would be repaid in the event that the plaintiff made losses in a later financial year or upon termination of employment.
The defendants’ evidence is that the defendants treated the payments as remuneration and that the plaintiff made profits until 2015. The financials adduced by the plaintiff were unaudited.”[10]
- [26]It is submitted by the defendants that a trial is necessary because the agreement was made orally and there is an issue as to its terms.
- [27]Both the plaintiff and defendants have provided affidavit material which incorporates documents supporting their contentions as to the nature of the oral agreement. It is common ground that the plaintiff offered each defendant a profit share of 10 per cent of company profits in addition to salary. What seems to be at issue is what, if any, basis was agreed upon for the determination of profit and for when, and how, any profit share would be paid and ultimately, the accuracy of any such calculations. The affidavit material includes documentation which sets out profit share distributions to the defendants in the years 2011 to 2015 inclusive. The total of those distributions appears to amount to $156,896.72.
- [28]The defendants assert that the quantum of their share of profits is in dispute as they have no access to information on what profits were derived by the company in the relevant years and how their share was calculated. Material filed late by the plaintiff includes company tax returns and profit and loss statements. However, on my reading of those documents the recorded profits bear no correlation with the profit share amounts allocated by the plaintiff to the defendants in its own correspondence.
- [29]It is common ground between the parties that advances were made to the defendants by the company to meet personal expenses such as home building costs and school fees. These advances were made between October 2011 and March 2015. There seems to be no dispute as to the amounts involved which totalled $231,723.23.
- [30]The real difference between the parties relates to the inter-relationship between the advances made and the profit sharing arrangement. These differences are highlighted by the language used by the respective parties to characterise the terms of their agreement.
- [31]The defendants describe the advances they received as remuneration. They submit the advances were made in payment for their services as employees and therefore there is no obligation to reimburse those payments. This position seems inconsistent with their concession that the advances were made as part of a profit sharing arrangement. Ordinarily such an arrangement would require an identification of the value of profits received before a distribution is made. Ordinarily money advanced in expectation of future profits would be paid subject to such profits materialising. In my view, the defendants’ case in this regard is not persuasive and the prospect of it succeeding is poor.
- [32]The plaintiff’s case characterises the advances as being by way of a loan repayable on demand. It was contended before me by the plaintiff that the profit sharing arrangement was independent of the loan and for that reason is not referred to in the statement of claim. Mr Fox submitted as follows:
“We say the profit share arrangement isn’t relevant to this cause of action. This cause of action is about a loan.”[11]
- [33]The plaintiffs do accept, however, that amounts identified as being the defendant’s share of profits were offset against the debt owing under the loan. The plaintiff’s solicitors wrote to the defendants on 1 October 2015 saying:
“The terms of that employment included a profit share arrangement by which you received advances on future profits from time to time until the profit could be determined at the end of the financial year.”[12]
- [34]Contrary to the plaintiff’s submission before me, the arrangement for advances to pay for personal expenses, whether or not characterised as a loan, appears to be intimately related to the profit sharing arrangement. There is no suggestion that the defendants were required to pay interest on the sums “loaned” or that they ever made separate repayments in reduction of the outstanding “loan”. The only reduction in the sums owing was by way of offset of amounts distributed as a share of profits.
- [35]In my view, these facts are more consistent with an agreement to advance sums against the expectation of future distributions of profits. They do not speak to a loan agreement independent of the profit share arrangement.
- [36]As I have already observed, there are obvious weaknesses in the defendant’s case. On my assessment of the material before me, the issue between the parties unresolved on the current material and requiring further investigation is the quantum of the amount owing to the plaintiff. There are two features in particular which call for resolution.
- [37]Firstly, the judgment sum of $172,849.74 is said to be the difference between the advances for personal expenses made to the defendants and the distributions of profit share made to them. The statement of claim identifies credits totalling $54,711.42 which are said to have been applied in reduction of the “loan”.
- [38]The plaintiff’s solicitors, in a letter to the defendants dated 1 October 2015 said:
“The terms of that employment included a profit share arrangement by which you received advances on future profits from time to time until the profit could be determined at the end of the financial year.
We attach a spreadsheet for the period 5 October 2011 until 11 March 2015 which shows:
- Total advances on account of profit of $231,723.23 for the period;
- Your share of the profit for the 2011 and 2012 financial years of $104,287;
- Further profit advances paid of $52,609.72 net;
- Overpayment of $179,113.51.
We are instructed that the overpayment is a debt due by you to our client.”[13]
- [39]Clearly the sum claimed in this letter is not the difference between the advances and the total profit share amounts. Only the future profit advances of $52,609.72 have been deducted to arrive at the overpayment. This apparent discrepancy is unexplained.
- [40]I considered that the discrepancy may be due to the sum of $104,287 having been offset against earlier advances or paid separately to the defendants. However, email correspondence between the parties on 5-6 February 2013 agreed that profit share for 2011 and 2012 years of $104,287 should be set off against advances made between 5 October 2011 and 6 February 2013 of $169,726.91.[14] Those advances are included in the total amount of $231,723.23 mentioned above, yet the $104,287 was not set off in the more recent calculation.
- [41]It seems to me that further investigation is necessary to resolve this apparent discrepancy.
- [42]Secondly, as discussed earlier, material available to me does not disclose how company profits were assessed for the purpose of apportionment of profit share. As previously noted, there seems to be no alignment between the company tax returns and profit and loss statements and the profit share amounts documented as being applied in favour of the defendants. This uncertainty about determination of profit has a further consequence. The defendant’s employment was terminated by the company on 10 June 2015. In the absence of contrary provision, it would be expected that the agreed profit sharing arrangement would anticipate distribution of profits accruing up to the date of termination. On the affidavit material the last profit sharing bonus was paid to the defendants on 27 June 2014, almost a full year earlier. It would seem that a question arises to whether or not the defendants have an entitlement to an offset against advances for profits accrued during that period. This of course would depend upon whether any profits did accrue and taxation information seems to suggest to the contrary. But as previously observed, such information has not been a reliable guide in relation to the quantum of profit share allocated in the past.
- [43]In my view the defendant’s case as pleaded in the draft defence does not seem to be strong. My analysis exposes apparent overreaching in the defence case. However, there appears to be a prima facie defence in relation to the quantum of the sum owed to the plaintiff. In addition, the defendants seek to plead offset of an amount owed to them by the plaintiff. In the circumstances, I consider it as an appropriate case to exercise the discretion to set aside the default judgment.
- [44]Given the observations I have made, it is appropriate that rather than order the filing of the present proposed defence, I give the defendants an opportunity to consider their position and refine the pleading of their defence should they elect to continue.
- [45]While the application has been successful, it was necessary because of the defendants’ failure to file a defence within time. I have found the default judgment was not obtained irregularly. In the circumstances the defendants should pay the plaintiff’s cost.
Orders
- [46]The orders of the court are:
- Leave is granted for the filing of a notice of intention to defend and defence by no later than 4.00pm on 24 March 2017.
- If a notice of intention to defend and defence is filed by that time, the application is allowed and the default judgment of 12 October 2016 is set aside.
- The defendants pay the plaintiff’s costs of and incidental to the application.
Footnotes
[1] Claim, filed 29 August 2016, page 1.
[2] Defendants’ outline of argument, para 11.
[3] [2008] 1 QdR 344 at [36].
[4] [2007] QCA 313 at [43].
[5] Statement of Claim, filed 29 August 2016, page 1.
[6] Ibid, page 2.
[7] Defendants’ outline of argument, para 14.
[8]Deputy Commissioner of Taxation v Johnson [2006] QSC 61.
[9] [1983] 2 Qd R 441 at 449-50.
[10] Defendants’ outline of argument, para 16.
[11] Transcript page 1-18 at 45-50.
[12] Affidavit of John Healy, filed 6 February 2017, Exhibit JH-5.
[13] Ibid.
[14] Affidavit of Douglas Reede Fox, filed 14 February 2017, Exhibit DRF-2 pp 47-50.