FEDERAL COURT OF AUSTRALIA

3D Funtimes Limited v Intellec Development Group Pty Ltd (No 2) [2011] FCA 407

THE COURT ORDERS THAT:

1.    The respondent’s notice of motion filed on 11 February 2011, is dismissed.

2.    The respondent is to pay the applicant’s costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    This is an application by the respondent, Intellec Development Group Pty Ltd, to set aside orders made by the Court on 31 January 2011 for the delivery up by the respondent to the applicant of dies, plant and equipment for the manufacture of toys, referred to by the parties as “tooling” (3D Funtimes Limited v Intellec Development Group Pty Ltd [2011] FCA 45).

2    These orders were made on the applicant’s application for judgment under s 31A of the Federal Court of Australia Act 1976 (Cth). There was no representation on behalf of the respondent at the hearing of the applicant’s application.

3    Although the Court made orders on 31 January 2011, they were, at the request of the respondent’s solicitors, not entered. The solicitors advised the Court that they had been instructed to make an application on behalf of the respondent to set aside the orders and requested that the orders not be entered. By a notice of motion dated 11 February 2011, the respondent brought this application to set aside the orders made by the Court on 31 January 2011.

4    At the hearing, the respondent relied upon two affidavits of Mr Roy Neil McHutchison, a director of the respondent, sworn 11 February 2011 and 25 March 2011 respectively. In resisting the respondent’s motion, the applicant relied upon two affidavits of Mr Michael Petrus Romyn, a director of the applicant, sworn on 16 December 2010 and 11 March 2011 respectively; and the affidavit of Mr David William Thompson sworn on 14 March 2011, which annexed the transcript of the directions hearing in this matter that took place on 22 December 2010. At that directions hearing, the Court made orders in relation to the hearing of the applicant’s notice of motion for summary judgment. Mr McHutchison represented the respondent at that hearing. Notwithstanding that the Court’s orders of 31 January 2011 were not entered, the respondent relied at the hearing of its motion, on O 35 r 7(2)(a) of the Federal Court Rules (the Rules) for the relief that it sought.

5    Order 35 r 7(2)(a) of the Rules gives the Court a discretion to set aside an order which has been made in the absence of a party before the Court.

6    The Rules do not prescribe the matters to which the Court is to have regard in the exercise of its discretion. However, it is usual for the Court in these circumstances, to have regard to the explanation given by the absent party for its absence, and whether the evidence discloses a defence of sufficient merit to warrant setting aside the order and permitting the matter to go to trial.

7    I deal, first, with the question of the respondent’s explanation for its absence at the hearing on 31 January 2011.

8    In his affidavit of 11 February 2011, Mr McHutchison deposed that he became aware that the Court had made the order for the delivery up of the tooling, when he telephoned my associate on 31 January 2011. Mr McHutchison went on to depose that he telephoned my associate on that day because it was his understanding that he had to file the respondent’s response to the applicant’s application for summary judgment by 31 January 2011, and he intended to ask my associate if the response could be filed by the next day, being 1 February 2011. Mr McHutchison said that my associate advised him that the matter had already been dealt with and directed him to the Court’s website. Mr McHutchison went on to depose that he had intended to oppose the applicant’s application for summary judgment and would have attended the hearing on 31 January 2011 if he had been aware that it was on.

9    Mr McHutchison said that after the conversation with my associate, he downloaded a copy of the orders made by the Court on 22 December 2010. The orders were:

Injunction

1.    The injunction in Order 1 of the Orders made by the Court on 13 December 2010 is extended until further order by the Court.

Application for Summary Judgment

2.    By 4.00 pm on 14 January 2011, the respondent is to file and serve any affidavit on which it wishes to rely in defence of the applicant’s application for summary judgment.

3.    By 4.00 pm on 21 January 2011, the applicant is to file and serve any affidavits in response to any affidavits of the respondent, and any submissions in support of its application for summary judgment.

4.    By 4.00 pm on 27 January 2011, the respondent is to file and serve any submissions in opposition to the applicant’s application for summary judgment.

5.    The application for summary judgment is to be heard at 10.15 am on 31 January 2011.

Defence and Cross Claim

6.    By 4.00 pm on 21 January 2011 the respondent is to file and serve its defence and any cross claim.

Directions Hearing

7.    The directions hearing is adjourned to 10.15 am on 31 January 2011.

Costs

8.    Costs are in the cause.

10    Mr McHutchison deposed that the orders he downloaded did not reflect the notes that he took of the orders.

11    Notwithstanding that the originating application was filed on 16 November 2010, a notice of appearance on behalf of the respondent was first filed on 21 December 2010, and only after the applicant had filed a notice of motion for judgment in default of appearance. The notice of appearance showed, on its face, that it was a representative of the respondent, rather than a solicitor, who had completed and filed the notice of appearance. However, the notice of appearance gave the address of a firm of solicitors as the address for service. At the directions hearing on 22 December 2010, Mr McHutchison said that Kitto & Kitto would be representing the respondent.

12    At the directions hearing on 22 December 2010, there were three orders made which called for action by the respondent, in relation to the applicant’s application for summary judgment. First, an order that the respondent file and serve any affidavits in opposition to the applicant’s application for summary judgment, by 4:00 pm on 14 January 2011. Secondly, an order that the respondent file and serve any submissions opposing the application for summary judgment by 4:00 pm on 27 January 2011; and, thirdly, an order that the application for summary judgment be heard at 10:15 am on 31 January 2011.

13    I also made orders that the respondent file and serve its defence and any cross-claim by 4:00 pm on 21 January 2011.

14    The respondent failed to comply with any of the orders.

15    I do not accept that Mr McHutchison failed to attend the hearing because he mistakenly believed that 31 January 2011 was the date on which he was to file his submissions. Nor do I accept that he was under any misapprehension as to the date of the hearing.

16    The transcript of the directions hearing of 22 December 2010 shows the following exchange:

HIS HONOUR: No, I will just go through them finally again.

MR McHUTCHISON: Thank you.

HIS HONOUR: The respondent, that’s you, Mr McHutchison, it’s your company:

The respondent must file and serve any affidavits that they wish to rely upon in defence of the application for a summary judgment by 4 pm on 14 January 2011.

All right?

MR McHUTCHISON: Yes.

HIS HONOUR:

The applicant must file and serve any affidavits in response to the affidavits of the respondent and any submissions in support of the application for summary judgment by 4 pm on 21 January 2011.

And then:

By 4 pm on 27 January 2011, the respondent - - -

That’s you, Mr McHutchison, your client:

- - - must file and serve any submissions opposing the application for a summary judgment.

MR McHUTCHISON: Yes, your Honour, I have that.

HIS HONOUR: And then:

The application for summary judgment will be heard at 10.15 am on 31 January 2011.

17    In my view, there could be no room for doubt as to the content of the orders that were made. Indeed, as indicated by McHutchison during the course of the hearing, Mr McHutchison acknowledged that he understood the date for the filing of opposing submissions was 27 January 2011.

18    In his affidavit, Mr McHutchison did not say that he did not appreciate that the respondent was to file and serve any affidavits in opposition to the application for summary judgment by 14 January 2011. Nor did Mr McHutchison refer to the basis on which the respondent intended to defend the application for summary judgment in the absence of the respondent having filed, in accordance with the Court’s order, any affidavits in opposition to the summary judgment application. I do not find Mr McHutchison’s evidence as to the reason for his failure to attend the hearing on 31 January 2011, to be plausible. It follows that I do not find that the respondent has provided a satisfactory explanation for its failure to appear on 31 January 2011.

19    It is unsatisfactory that a delinquent party can, as occurred in this case, simply ignore the orders of the Court made for the purposes of the fair and efficient hearing of Court proceedings; and then, seek to rely upon its own nonattendance at the hearing of the application, to set aside the orders made in the delinquent party’s absence. However, this consideration, alone, is not decisive of an application to set aside the Court’s orders. The authorities show that, even in this circumstance, Court orders made in the absence of a delinquent party, may be set aside where the evidence discloses that the delinquent party has a defence of sufficient merit to warrant setting aside the orders and permitting the matter to go to trial (Kostokanellis v Allen [1974] VR 596). The delinquency of the absentee party may well, in those cases, be reflected by the making of an adverse costs order.

20    I now consider the evidence which has been adduced by Mr McHutchison as to the merits of the respondent’s defence.

21    The respondent contended by way of its defence to the applicant’s claim to deliver up the tooling, that four invoices for the tooling remained unpaid, and it was, therefore, entitled to retain possession of the tooling pursuant to an unpaid seller’s lien under s 40(1) of the Sale of Goods Act 1895 (WA).

22    It was common cause that in around November 2006, the parties entered into an agreement for the manufacture and sale of the tooling, and that the agreement was evidenced by the quotation which was annexed to the affidavit of Mr Romyn. This reflected a price, including GST, of $979,000.

23    The Court orders of 31 January 2011 for the delivery up of the tooling, were made on the basis of the applicant’s claim in detinue. On Mr Romyn’s evidence, the applicant had paid the respondent for the tooling and the property in the tooling had, accordingly, passed to the applicant. For the purpose of making the orders for delivery up of the tooling, the Court dealt with the case on the basis that it was a term of the agreement for the manufacture and sale of the tooling that property was to remain with the seller until the price had been paid in full. That contention, however, has not been made, nor pleaded, by the respondent. Rather the respondent relied upon the unpaid seller’s lien, implying that the respondent accepts that the property in the tooling is with the applicant.

24    Mr McHutchison deposed that there are four unpaid invoices in respect of the contract for the manufacture and sale of the tooling. They were:

                         Date          Amount

(a)    Invoice 41    30 June 2008    $75,900

(b)    Invoice 78    8 April 2010    $121,000

(c)    Invoice 79    8 April 2010    $71,500

(d)    Invoice 80    8 April 2010    $35,750

25    Further, Mr McHutchison deposed that on 8 April 2010, the respondent had also issued Invoice 77 to the applicant in the sum of $732,442.78, said to be due under a different contract between the parties, namely, the contract for the manufacture of toys. That invoice has not been paid. There was, also, exhibited to the affidavit, a letter of demand from the respondent’s solicitors to the applicant for the sum of $732,442.78.

26    As to Invoice 41, which was issued on 30 June 2008, for $75,900, Mr Romyn accepted, in his affidavit, that this was an invoice which related to the contract for the manufacturing and sale of the tooling made in November 2006. Mr Romyn deposed that he had overlooked the invoice in preparing his November 2010 affidavit, which had said that there had been three invoices relating to the tooling sale agreement.

27    However, Mr Romyn deposed that this invoice had been paid. Mr Romyn said that at the end of June 2008, Mr McHutchison had approached him and asked him to pay third party creditors of the respondent, because the respondent had a number of debts which it could not pay. Mr Romyn then deposed that he had agreed that the applicant would pay those debts directly on behalf of the respondent as payment for Invoice 41 and that any payments in excess of the invoiced sum, would be set-off against any future debts owed by the applicant to the respondent.

28    Mr Romyn went on to depose that, in addition to paying the respondent’s third party creditors, the applicant had, during the period that the parties were in merger discussions, made payments to the respondent of $1,460,977.13 in the expectation that the merger would occur. Mr Romyn referred to these payments as advances to the respondent. In his affidavit, Mr Romyn, on behalf of the applicant, made demand for the payment by the respondent of this amount.

29    In his affidavit, Mr McHutchison agreed that the respondent had requested the applicant to discharge the debts due to certain of the respondent’s third party creditors, and that the applicant had paid $131,505.18 to third party creditors pursuant to that request. However, although Mr McHutchison did not, in terms, specifically depose as to the conversation said by Mr Romyn to comprise the agreement that these payments would discharge the amount claimed in Invoice 41, I understood the tenor of his evidence was to deny that any such agreement was made. I, also, understood Mr McHutchison’s evidence to be that the payments were to be regarded as in the same category as the other payments made to the respondent by the applicant totalling $1,460,977.13, namely, advances made by the applicant to the respondent.

30    Mr McHutchison deposed that Invoice 78 was in respect of modifications made to tooling, that Invoice 79 was in respect of tooling injection moulds treatment additives, and Invoice 80 was in respect of the manufacture of chilling vats used in the process of toy manufacturing.

31    Mr Romyn deposed that until Mr McHutchison’s affidavit was served on him, he had never seen, nor had the applicant ever been furnished with those three invoices. Mr Romyn noted that the date of the invoices, namely, 8 April 2010, was the day before the respondent had changed the locks on the premises which the applicant and the respondent had both occupied, and, thereby, excluded the applicant from access to those premises.

32    Mr Romyn also took issue with the question of whether these three invoices related to the contract for the manufacture and sale of the tooling.

33    Further, as to Invoice 77 in respect of the manufacture of the toys for the sum of $732,442.78, Mr Romyn took issue with the basis of the calculation used by the respondent to derive the sum invoiced. Thus, for example, Mr Romyn deposed that the invoice purports to charge for manufacturing toys at the price of $23 per unit. Mr Romyn said that there was no such price ever discussed or agreed with the respondent.

34    Had it been necessary for me to decide whether the evidence of Mr McHutchison disclosed a triable question as to whether the Invoices 78, 79 and 80 related to the contract for the manufacture and sale of the tooling, as opposed to subsequent discrete contracts, I would have come to the view that the respondent’s evidence was at too high a level of generality to give rise to a triable question in respect of that issue. In other words, it would have been my view that the evidence did not disclose that there were reasonable prospects of success of the respondent being able to establish that the amounts claimed in these three invoices were part of the price for the tooling, which was protected by the unpaid seller’s lien in respect of the contract for the manufacture and sale of the tooling entered into in November 2003.

35    However, in light of the conclusion to which I have come, it is not necessary to make that finding.

36    As to the question of the precise amount that is owed under Invoices 41, 78, 79 and 80, the evidence does disclose a triable issue. The same is true in relation to the question as to the amount owed by the applicant to the respondent in respect of Invoice 77 for the manufacture of the toys. However, the respondent has failed to demonstrate that it has a defence of sufficient merit to the applicant’s claim for delivery up of the tooling, to warrant the matter going to trial. I have come to that view for the following reasons.

37    As mentioned, in his evidence, Mr Romyn deposed that in addition to the amounts paid to the third party creditors at the request of Mr McHutchison on behalf of the respondent in 2006, the applicant had also advanced to the respondent over a number of years, the total sum of $1,460,977.13. In his affidavit, Mr Romyn, on behalf of the applicant, demanded the repayment of that amount. Importantly, Mr McHutchison did not in his affidavit take issue with Mr Romyn’s evidence as to either the amounts of the payments which were made by the applicant, or as to the characterisation by the applicant of the amounts as advances by the applicant to the respondent. Nor was there any evidence from Mr McHutchison supporting a defence that the advances made by the applicant are not repayable.

38    Accordingly, even if all the invoices issued by the respondent (including the invoice for the manufacture of the toys) which are disputed by the applicant, were to be accorded full credit, the total amount that would be owing by the applicant to the respondent, would be less than the amount owing by the respondent to the applicant by way of repayment of the advances. In my view, an equitable set-off would operate in those circumstances.

39    It follows, therefore, even if, contrary to the applicant’s contention, Invoice 41 has not been paid, and Invoices 78, 79 and 80 were to be treated as being attributable to the contract for the manufacture and sale of the tooling and, therefore, able to support an unpaid seller’s lien in respect of the total amount demanded in those invoices, an equitable set-off would apply to satisfy the amounts claimed by the respondent as an unpaid seller, with the consequence that there would be no entitlement to an unpaid seller’s lien.

40    It also follows that on the evidence before this Court, there is no reasonable prospect that the respondent would succeed at trial in sustaining its claim to be entitled to maintain possession over the tooling on the basis of the unpaid seller’s lien alleged.

41    Accordingly, the respondent’s motion to set aside the orders of the Court made on 31 January 2011, is dismissed. The respondent is to pay the applicant’s costs.

Associate:

Dated:    21 April 2011