Federal Court of Australia

Pullen as liquidator of Promim Australia Pty Ltd (in liq) v Smith [2023] FCA 285

ORDERS

THE COURT ORDERS THAT:

1.    Judgment be entered for the plaintiff against the first defendant pursuant to r 5.23(2) of the Rules in the amount of $111,738.00, together with interest pursuant to s 51A of the Act.

2.    The first defendant pay the plaintiff’s costs of the interlocutory application filed on 6 March 2023.

3.    Mrs Margaret French be appointed to represent the estate of the third defendant in the proceedings.

4.    The time for the second, third and fourth defendants to give discovery be extended until 24 April 2023.

5.    The parties attend a mediation before a registrar of the Court on a date to be determined.

6.    The matter be stood over for further case management at 9.30 am on Thursday, 1 June 2023.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

JACKMAN J

1    This is an application brought by the liquidator of Promim Australia Pty Ltd (in liq) (Promim), which was wound up on 20 March 2019. The present proceedings concern allegations of insolvent trading against the first to fourth defendants, together with an application for recovery of a loan debt against the first defendant only. The application before me today seeks an order, pursuant to r 5.23(2) of the Federal Court Rules 2011 (Cth) (the Rules), that default judgment be made against the first defendant.

2    The interlocutory application sought default judgment in the amount of $3,648,343.57 (plus interest and costs), but during the hearing today of that interlocutory application, the amount sought has been reduced to the amount referable to the alleged loan debt of $111,738.00, plus interest and costs.

3    Rule 5.22 of the Rules provides that a party is in default where it 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.

4    Rule 5.23(2) of the rules sets out the orders that an applicant may seek where a respondent is in default pursuant to r 5.22, including, inter alia:

(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 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.

5    It is well established that the Court has an unfettered discretion to make a default judgment under r 5.23(2)(c). An application for default judgment under that rule requires no more than a failure by a party to comply as set out in r 5.22; there is no requirement for intentional default or contumelious conduct, nor is there any requirement that the delay, or other impugned conduct, is inordinate or inexcusable, or that the conduct has caused prejudice to the other party: Geneva Laboratories Ltd v Prestige Premium Deals Pty Ltd (No 4) [2016] FCA 867 at [54] (Bromwich J).

6    In Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 (Speedo) at [20]-[25], Flick J summarised some of the principles relevant to the exercise of discretion to enter default judgment as follows:

(1)    the power should be exercised with caution, and where there has been a continuous default and serious non-compliance;

(2)    the applicant must be able to satisfy the Court, on the face of the statement of claim, that the applicant is entitled to the relief claimed (noting that the applicant need not prove by way of evidence their claims sought to be advanced); the Court needs to be satisfied that each element of the relevant civil wrong involved is properly and discretely pleaded in the statement of claim;

(3)    in addition to the facts alleged in the statement of claim, the Court may permit recourse to limited further evidence (except evidence which would alter the case as pleaded).

In the present case, no admissible evidence of that kind is before me.

7    On 30 August 2022, the first defendant was personally served at the address shown in a recent ASIC company search,489A Rawdon Island Road, Rawdon Island, Queensland, with the originating documents in the proceedings. Amongst the documents served was a letter by the plaintiff’s solicitors which, inter alia, informed the first defendant that a case management hearing was listed on 1 September 2022.

8    The first defendant was not in attendance at that first case management hearing. Orders were made on that occasion by consent between the plaintiff, second, third and fourth defendants, including, inter alia:

(1)    the defendants were to request particulars (if any) of the statement of claim by 15 September 2022;

(2)    the defendants were to file and serve their respective defences by 3 November 2022; and

(3)    a copy of the orders was to be served on the first defendant by the plaintiff by prepaid post to his last known address and by email to any active email accounts known by the plaintiff.

9    Those orders were served on the first defendant by express post to the first defendant’s address and emails to oxytote@mail.com and smithx@mail.com, along with a letter from the plaintiff’s solicitors, on 2 September 2022. The letter was delivered to the first defendant on 9 September 2022. The covering letter, amongst other things, notified the first defendant that a further case management hearing was listed on 17 November 2022, and that the parties were to appear in person.

10    On 18 October 2022, further correspondence was sent to the first defendant by express post to his address and by email to the two email addresses which I have referred to above, which placed the first defendant on notice that where a defence was not filed by 3 November 2022, the plaintiff would make an application for default judgment.

11    On 15 November 2022, the parties received dial-in details by email from the associate to Markovic J for the November case management hearing. The email with the dial-in details was forwarded to the first defendant via the two emails noted above for the first defendant, and noted that the first defendant had failed to file and serve a defence by 3 November 2022, as required by the September orders. Notwithstanding the notice given, the first defendant did not appear at the November case management hearing.

12    During the November case management hearing, orders were made which included, amongst other things, that the plaintiff serve a copy of the orders on the first defendant by prepaid post to his last known address and by email. That was duly carried out on 17 November 2022, and the letter was delivered to the first defendant on 22 November 2022. The covering letter, in addition to the orders, notified the first defendant that a further case management hearing was to be listed on or after 13 February 2023, and placed the first defendant on further notice of his failure to file a defence and of the present application.

13    On 10 March 2023, the first defendant:

(a)    was served with the interlocutory application and accompanying affidavit of Mr Joseph Basson, dated 23 February 2023, by express post to the first defendant’s address noted above, and by email to the first defendant’s email addresses noted above, along with a letter from the plaintiff’s solicitors which notified the first defendant of the present hearing; and

(b)    by further email from the plaintiff’s solicitors, was forwarded an email from my associate sent to the parties on 10 March 2023, notifying them of the present hearing date and requesting submissions.

14    The letter sent to the first defendant referred to in the paragraph immediately above was delivered to the defendant on 16 March 2023.

15    The plaintiff submits that the first defendant has not exhibited a genuine desire for the matter to proceed to trial or to defend the proceeding with due diligence. I note that defences have been filed by the second to fourth defendants, and it appears that the second to fourth defendants intend to defend the allegations actively.

16    The plaintiff submits, in accordance with the factors outlined in Speedo above, that the first defendant’s default has been ongoing and serious, in circumstances where:

(a)    the first defendant has failed to file and serve a defence by 3 November 2022 as required by the September orders;

(b)    the plaintiff alerted the first defendant to the September case management hearing and the November case management hearing, but the first defendant did not attend either hearing; and

(c)    the plaintiff has notified the first defendant on at least four occasions of its intention to bring this application, to which the first defendant has not responded, or provided any reason or justification for its ongoing default.

17    In those circumstances, the plaintiff submits it is entitled to the relief claimed in the statement of claim in relation to the unpaid loan of $111,738, plus interest and costs.

18    In my view, the claim in relation to that loan debt is entirely separate from any of the allegations which are made against the second, third and fourth defendants. The allegations against the second, third and fourth defendants concern allegations of insolvent trading. There is very considerable overlap between those allegations and the allegations against the first defendant in relation to insolvent trading, however, as I have indicated, the plaintiff has now narrowed its application for default judgment so as to exclude the amount which it claims by way of debts incurred during the period when Promim was insolvent, namely the amount of $3,536,605.57.

19    Having regard to the fact that the claim in relation to the loan debt is wholly separate from any claim which is being actively resisted by the second, third and fourth defendants, default judgment on that loan debt will not be a matter which will be revisited at the trial against the second, third and fourth defendants. I am conscious that default judgment delivers complete success to the plaintiff without any investigation of the merits of the pleaded claim.

20    Had there been a substantial degree of overlap between the allegations against the first defendant for which default judgment was sought, and the allegations against the second, third and fourth defendants which are being actively resisted, then default judgment in the entire sum may produce an anomalous result if the second, third and fourth defendants succeed in a way which would also have delivered success to the first defendant on the merits of the insolvent trading allegations. That is an outcome which, in my opinion, is undesirable. However, the separate claim in relation to the loan debt does not occasion any such problem.

21    I am satisfied that the first defendant is in default and that that default has been continuous and serious. I am further satisfied that, on the face of the statement of claim, the plaintiff is entitled to the relief claimed in relation to the loan debt, noting that the authorities do not require the plaintiff to prove, by way of evidence, the claim sought to be advanced.

22    In those circumstances, in my opinion, it is appropriate to order default judgment against the first defendant in the amount of $111,738.00 together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (the Act). I also order that the first defendant pay the plaintiff’s costs of the interlocutory application.

23    The orders which I make, including orders for the further case management of the proceedings, are as follows:

(1)    Judgment be entered for the plaintiff against the first defendant pursuant to r 5.23(2) of the Rules in the amount of $111,738.00, together with interest pursuant to s 51A of the Act.

(2)    The first defendant pay the plaintiff’s costs of the interlocutory application filed on 6 March 2023.

(3)    Mrs Margaret French be appointed to represent the estate of the third defendant in the proceedings.

(4)    The time for the second, third and fourth defendants to give discovery be extended until 24 April 2023.

(5)    The parties attend a mediation before a registrar of the Court on a date to be determined.

(6)    The matter be stood over for further case management at 9.30 am on Thursday, 1 June 2023.

Associate:

Dated:    20 March 2023

SCHEDULE OF PARTIES