FEDERAL COURT OF AUSTRALIA

Amirbeaggi as trustee of the bankrupt estate of John Mamdouh Hanna v Kamel [2019] FCA 1965

ORDERS

THE COURT ORDERS THAT:

1.    Judgment be given for the cross-claimant against the second cross-respondent in the sum of $325,000.00, together with pre-judgment interest thereon (calculated from 17 January 2018 to 21 November 2019) in the sum of $32,591.27 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

2.    By 5 December 2019, the cross-claimant file and serve any affidavits in support of any lump sum costs order he may seek.

3.    By 18 December 2019, the second cross-respondent file and serve any affidavits in response.

4.    By 24 December 2019, the cross-claimant file and serve any affidavits in reply.

5.    The question of whether a lump sum costs order should be made and, if appropriate to be made, the amount of those costs, be determined on the papers.

6.    By 28 November 2019, the cross-claimant serve a copy of these orders on the second cross-respondent.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

Introduction

1    By an interlocutory application filed on 11 November 2019, the second respondent, as cross-claimant, seeks default judgment against the second cross-respondent under r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) (FCR), which provides:

If a respondent is in default, an applicant may apply to the Court for:

…

(c)     if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, 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 or alternative accompanying document to which the Court is satisfied that the applicant is entitled; …

2    Rule 5.22 specifies when a party is in default:

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.

Background

3    The cross-claimant’s cross-claim was filed on 1 July 2019 in the Supreme Court of New South Wales in a proceeding which had been commenced on 5 April 2018. The proceeding was transferred to this Court by order made by Slattery J on 29 August 2019. The order was filed in this Court on the same day. The rules of this Court therefore apply to the proceeding as if it had been started in this Court: FCR r 27.23(4).

4    The cross-claim was served on the second cross-respondent on 2 July 2019. At that time, the second cross-respondent was informed, by a letter from the cross-claimant’s solicitors (which was served at the same time) that it was required to respond to the cross-claim within 28 days. This requirement no doubt reflected the position under the Uniform Civil Procedure Rules 2005 (NSW) because the proceeding was still being conducted in the Supreme Court at that time. Even so, the position is no different in this Court; a defence to a cross-claim must be filed within 28 days after service of the cross-claim: FCR rr 15.10 and 16.32. The second cross-respondent has not filed a defence to the cross-claim insofar as the cross-claim seeks relief against it.

5    When the proceeding first came before me for case management on 4 November 2019, there was no appearance by the second cross-respondent. At the cross-claimant’s request, I made an order that the cross-claimant file and serve on or before 11 November 2019 any interlocutory application for default judgment against the second cross-respondent, with the interlocutory application made returnable for case management before me at 9:30 am today (21 November 2019).

6    When the matter was called on at that time today, there was no appearance by the second cross-respondent. Counsel appearing for the cross-claimant then moved for default judgment against the second cross-respondent, even though the interlocutory application had only been listed for case management.

7    I expressed my reluctance to proceed to hear the interlocutory application at that time. However, counsel for the cross-claimant drew my attention to the fact that, when the interlocutory application was served on the second cross-respondent on 13 November 2019, the cross-claimant’s solicitors informed the second cross-respondent (by letter dated 12 November 2019 and served on 13 November 2019) that the cross-claimant would seek orders in accordance with the interlocutory application at the case management hearing today.

8    I am satisfied, therefore, that, since 13 November 2019, the second cross-respondent has been on notice that the cross-claimant would press for default judgment today. For that reason, I was prepared to hear and determine the cross-claim, as requested.

The evidence

9    The interlocutory application is supported by the following affidavits:

(a)    Sherine Metry, sworn 11 November 2019;

(b)    Hedra Fayez Nashed Abdalla (the cross-claimant), sworn 20 November 2019; and

(c)    Douglas O’Connor, sworn 15 November 2019.

10    The cross-claimant has prepared an interest calculation (see [14] below), which I will mark as Exhibit A in the present application.

Legal principles

11    I have recently summarised the relevant legal principles in Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 at [13] – [14]. It is convenient to repeat that summary:

13     The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27]. There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court’s discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding.

14     Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that “on the face of the statement of claim” the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 at [42]. If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met: CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18] –[19]; Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 at [23]. The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; 236 ALR 665 at [45], [48]–[50]; United Broadcasting International Pty Ltd v Turkplus Pty Ltd (No 2) [2010] FCA 1413 at [42] – [44]; Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352; 195 FCR 1 at [62] – [63].

Consideration

12    The cross-claimant relies on the second cross-respondent’s default in filing a defence to the cross-claim. I am satisfied that this default has occurred. I also observe that the second cross-respondent has failed to appear at the case management hearing today, which is also an act of default. Further, the second cross-respondent is not defending the cross-claim with due diligence.

13    The cross-claimant relevantly pleads that, as at about 11 July 2017, he was a registered proprietor, as tenant in common in equal shares with John Mamdouh Hanna, of real property contained in folio identifier 17/SP93648, being a townhouse situated at 7 Altair Place, Hinchinbrook (in New South Wales) (the property). On or about 11 July 2017, the first cross-respondent was appointed as Mr Hanna’s trustee in bankruptcy. On a date unknown to the cross-claimant, but pleaded in the statement of claim filed in the principal proceeding as being on or about 17 January 2018, legal title to the property was transferred to the second cross-respondent for consideration stated to be $650,000. Relevantly, the cross-claim pleads:

24.    In or about January 2018, the Second Cross-Defendant obtained, by registration of the real property transfer with dealing number AN40118 (Transfer of the First Property), title to the entirety of the First Property.

25.    As at immediately prior to the Transfer of the First Property, the Cross-Claimant was the legal and beneficial proprietor of 50% of the First Property.

26.    The transfer of the First Property to the Second Cross-Defendant did not occur pursuant to any valid or effective contract of sale, at least insofar as related to the legal and beneficial interests of the Cross-Claimant, because the Cross-Claimant did not sign any such contract of sale.

27.    The Transfer of the First Property, which was not signed by the Cross-Claimant, designated the amount of $650,000.00 as the consideration that was to be paid and had been paid in respect of the acquisition by the Second Cross-Defendant of the First Property.

28.    As a matter of fact, the Cross-Claimant has never received from or on behalf of the Second Cross-Defendant any payment or consideration representative of the Cross­Claimant's former 50% legal interest in the First Property.

29.    As a consequence of those facts, matters and circumstances, the Second Cross­ Defendant has been unjustly enriched, as to its registered proprietary interest in 50% of the First Property, as the Cross-Claimant's expense and in circumstances where it would be unconscientious of the Second Cross-Defendant to retain that benefit.

30.    The Second Cross-Defendant is liable to give restitution, including on a quantum valebat basis, to the Cross-Claimant in respect of the market value of 50% of the First Property as at January 2018, whether that market value be $650,000.00 or such higher amount as the Court determines.

31.    Alternatively, if it be the case that the terms of the Transfer of the First Property are held to be binding upon the Cross-Claimant, the Second Cross-Defendant:

(a)    had agreed to acquire the First Property upon terms including that it (the Second Cross-Defendant) would pay a total of $650,000.00 for the transfer to it of legal title to the First Property;

(b)    has failed to pay any such amount on account of its acquisition of the First Property and/or has failed to pay 50% of such amount to or for the benefit of the Cross-Claimant;

(c)    owes a debt of $325,000.00 to the Cross-Claimant; and

(d)     alternatively, is liable in damages, for breach of contract, to the Cross-Claim in the amount of $325,000.

14    In the cross-claim, the cross-claimant seeks the following relief against the second cross-respondent:

9.    Restitution, including on a quantum valebat basis, of an amount equivalent to 50% of the market value of the First Property as at January 2018, being an amount of not less than $325,000.

10.    Further or alternatively, judgment for debt or damages of an amount of not less than $325,000.

11.    Interest pursuant to section 100 of the Civil Procedure Act 2005 (NSW).

12.    Costs.

15    On inspection of the cross-claim, I am satisfied that the cross-claimant is entitled to the relief that he seeks against the second cross-respondent. In particular, I am satisfied that he is entitled to judgment against the second cross-respondent in the sum of $325,000 with interest payable thereon from the date of the transfer of the property to the second cross-respondent. This interest should be awarded under s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) and calculated in accordance with Interest on Judgments Practice Note (GP – INT).

Disposition

16    Judgment will be given accordingly. The cross-claimant also seeks an order for the filing of an affidavit in respect of a lump sum costs order, as contemplated by para 4.10 of the Costs Practice Note (GPN –COSTS). I will order that this affidavit be filed by 5 December 2019

Associate:

Dated:    21 November 2019

SCHEDULE OF PARTIES