Federal Court of Australia

Fresh Start Equity Pty Ltd (in liq) v Bignold [2023] FCA 297

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) and s 588M of the Corporations Act 2001 (Cth), the respondent pay to the first applicant the sum of $1,375,500.67.

2.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), the respondent pay to the first applicant interest on the amount in paragraph 1 from the date the first applicant was appointed as liquidator of the second applicant in the amount of $57,087.05 as calculated in accordance with the attached Annexure A.

3.    The respondent pay the applicants’ costs of the proceedings.

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

ANNEXURE A

INTEREST CALCULATIONS ON $1,375,500.67

Calculated in accordance with paragraph 2.2 of the Interest on Judgments Practice Note (GPN-INT)

REASONS FOR JUDGMENT

DERRINGTON J:

1    The application before the Court today is for default judgment pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) (Federal Court Rules) against the respondent, Mr Julian Joseph Bignold. These proceedings have had a not insignificant history, punctuated by Mr Bignold’s omission to comply with orders of the Court or the Registrar. In addition, his conduct in the proceedings is indicative of an intention by him not to engage properly in litigation.

2    The proceedings were commenced by Fresh Start Equity Pty Ltd (in liq) (Fresh Start Equity) and its liquidator, Mr Steven Staatz, on 11 July 2022 by an Originating Application. The claim seeks, in substance, to recover the loss suffered by Fresh Start Equity as a result of Mr Bignold causing it to continue to trade whilst it was insolvent.

3    On 19 August 2022, Mr Bignold filed a Notice of Address for Service, which was at the offices of Kerrs Law, who were his solicitors at that time.

4    Prior to this, on 1 August 2022, those solicitors had appeared on his behalf at a case management hearing before Downes J. The applicants thereafter filed their Statement of Claim on 3 August 2022.

5    A second case management hearing took place on 19 August 2022 before Downes J. Her Honour made orders relevantly requiring Mr Bignold to file and serve a defence by 30 September 2022.

6    A security for costs application was made by Mr Bignold and was heard by Registrar Schmidt. That application was dismissed with costs on 16 September 2022.

7    Mr Bignold filed his defence on 10 October 2022.

8    On 18 October 2022, at a third case management hearing, again conducted by Downes J, orders were made in relation to the service of applications for discovery, and the delivery of further and better particulars. More importantly, her Honour ordered that the parties participate in a mediation to be conducted by a Registrar of the Federal Court by 30 January 2023.

9    The evidence before the Court shows that the parties agreed on 26 October 2022 to participate in that mediation and agreed to schedule it for 25 January 2023.

10    The anticipated application for discovery from the applicants was filed on 11 November 2022.

11    On 20 January 2023, Kerrs Law informed the solicitors for the applicants that they no longer acted for Mr Bignold.

12    Further, on that date, Mr Bignold himself wrote to the applicants’ solicitors, advising that he had been in hospital and had not been well. That appeared to be some indication of his intention not to involve himself further in the proceedings.

13    On 23 January 2023, the applicants were served with a notice from Kerrs Law that they had ceased to act for Mr Bignold.

14    The application for discovery was heard on 23 January 2023 before Registrar Legge. Mr Bignold did not attend, nor did anyone appear on his behalf. It was ordered in his absence that, amongst other things, he give non-standard discovery of documents in response to each category in Annexure A to the order and make that discovery by 13 February 2023.

15    That same day, the solicitors for the applicants emailed Mr Bignold at the email address that they had been given, no doubt being the address from which he had been corresponding. The email included a copy of the discovery order and also reminded him of the mediation which was to occur on 25 January 2023.

16    However, the following day, being 24 January 2023, Mr Bignold sent an email to the Court in the following terms:

As I am indisposed, I will be unable to attend tomorrow’s mediation. In addition, I am in the process of obtaining new legal representation.

17    Although more information was sought from Mr Bignold as to why he was unable to attend the mediation, he did not provide any. It is also apparent that he did not secure any new legal representation.

18    He was advised on 24 January 2023 that he was required to attend the mediation, which commenced the following day before a Registrar.

19    Mr Bignold did not attend the mediation and nor did anyone on his behalf.

20    Further, Mr Bignold did not provide any documents as required by the order for discovery made on 23 January 2023. He did not provide them by the deadline of 13 February 2023 or at all.

21    Mr Bignold was advised on 23 February 2023 that a fourth case management in the matter would be heard on 8 March 2023.

22    That case management hearing was before me on 8 March 2023, but again neither Mr Bignold nor anyone on his behalf attended.

23    On 17 March 2023, the applicants filed an Amended Statement of Claim. It made only minor amendments to the original pleading, including changing the date of Fresh Start Equity’s alleged insolvency from 30 April 2018 to 31 August 2018. The effect of that change is that two debts which were previously claimed by the liquidator are no longer available. In other words, it has reduced the scope of the claim.

The claim for default judgment

24    In the material filed today by the solicitors for the liquidator, it is very properly identified that Mr Bignold has indicated by email that he will not be attending today’s hearing. His email simply states:

I am unable to attend due to illness.

25    No specifics are given and no evidence of his alleged ill health is provided. I take that email to be evidence of the fact that Mr Bignold has said that he is ill, but not evidence that he is in fact ill.

Rule 5.23

26    Rule 5.23 of the Federal Court Rules states as follows:

5.23    Orders on default

(1)    If an applicant is in default, a respondent may apply to the Court for an order that:

(a)    a step in the proceeding be taken within a specified time; or

(b)    the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant:

(i)    immediately; or

(ii)    on conditions specified in the order.

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

(a)    an order that a step in the proceeding be taken within a specified time; or

(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; or

(d)    an order giving judgment against the respondent for damages to be assessed, or any other order; or

(e)    an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order.

Note 1:    The Court may make any order that the Court considers appropriate in the interests of justice—see rule 1.32.

Note 2:    An order or judgment under this Division may be set aside or varied.

27    The principles on which default judgment will be granted were recently referred to by McEvoy J in Michell v Cvetkovic [2022] FCA 1295 at [17] – [19]. His Honour identified that those principles were authoritatively essayed by Yates J in Chamberlain Group Inc v Giant Alarm System Co Ltd (No 2) [2019] FCA 1606 at [13] – [14] as follows:

[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].

(Emphasis added).

28    I adopt those principles, which are supported by the authorities, for the purposes of this application.

29    The material shows that Mr Bignold has been served with the proceedings, and is aware of them and their import. He has, to some extent, participated in them, and he has email addresses which are shown on the material to have emanated from him, such that the Court can have confidence that communications to those email addresses will inform him of the circumstances of this matter.

30    The applicants rely for the purposes of r 5.23 upon a number of defaults. First, Mr Bignold’s failure to comply with the order requiring him to provide discovery. That order required him to produce the documents or a response to the order by 13 February 2023. He has not complied with that order at any time, and the obligation to produce the documents remains outstanding. Secondly, the applicants rely on Mr Bignold’s failure to attend the mediation. It is quite clear that the mediation was ordered, that a date was agreed upon, namely 25 January 2023, and that, despite the direction to attend, Mr Bignold did not do so. He has not produced any evidence to explain for his failure to participate.

31    The third alleged default relied upon by the applicants is Mr Bignold’s omission to attend the case management hearing on 8 March 2023, despite him having been advised of it.

32    For the purpose of this application, I need only to rely upon the default in relation to the discovery order, which seems to be the clearest. That is sufficient to trigger the power under r 5.23, though the other defaults might also do that.

33    Those other defaults are not irrelevant, even if it could be argued that they may not trigger r 5.23, as they show that Mr Bignold has indicated an intention not to participate appropriately in these proceedings. He has manifested an unwillingness to cooperate with the Court and the applicants.

34    His somewhat derisory emails, which are neither fulsome nor provide any explanation for his failure to attend the mediation or hearings of this Court, are indicative of a person who is seeking to put off these proceedings as long as he can.

The claims by the liquidators

35    The main claim by the liquidator is made pursuant to s 588M of the Corporations Act 2001 (Cth) (Corporations Act). That section provides an avenue by which a liquidator may recover from a director of an insolvent company, as a debt, an amount which is equal to the loss or damage suffered by the company consequent upon the director’s insolvent trading.

36    The Amended Statement of Claim served on Mr Bignold has set out the allegations in relation to his stewardship of the company, Fresh Start Equity, and the manner in which it became insolvent. As mentioned earlier, the date of the identified insolvency was recently changed in accordance with the evidence to Mr Staatz, the liquidator. His solvency report identifies that the relevant date is 31 August 2018. As a result, two of the debts which were incurred prior to that date, and which were initially claimed in the Statement of Claim, are not recoverable. The basis on which the company was insolvent is set out in the Amended Statement of Claim, and the allegations made meet the test for insolvency.

37    As is pleaded in the Amended Statement of Claim, in the period from approximately 31 August 2018 to 22 April 2020, Fresh Start Equity incurred debts in the sum of $1,375,500.67, the details of which are set out in the schedule to the pleading.

38    It is alleged that Mr Bignold was the director of the company at the relevant times and that a reasonable person in his position would have been aware that there were reasonable grounds for suspecting that the company was insolvent and/or would become insolvent as a result of the incurring of the debts. On the basis of the allegations and/or the facts as they are presently known, that would seem to be correct. That inference can be drawn from Mr Staatz’s solvency report.

39    Accordingly, it is possible to be satisfied that, in his role as director, Mr Bignold caused Fresh Start Equity to incur substantial debts in the amount of $1,375,500.67.

40    In the result, the relevant elements of the insolvent trading claim are pleaded and are made out on the face of the Amended Statement of Claim. A proper claim exists for the payment of a debt in the sum identified exists. It follows that, in his capacity as liquidator, Mr Staatz is entitled to recover that amount under s 588M(2) of the Corporations Act as a debt due and owing to the company. His solicitors have set out a calculation of interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), and it is appropriate to allow interest at the rates identified. The total interest is $57,087.05.

41    In these circumstances, the following orders should be made:

(1)    Pursuant to r 5.23(2)(c) of the Federal Court Rules 2011 (Cth) and s 588M of the Corporations Act 2001 (Cth), the respondent pay to the first applicant the sum of $1,375,500.67.

(2)    Pursuant to s 51A of the Federal Court Act Australia 1976 (Cth), the respondent pay to the first applicant interest on the amount in paragraph 1 from the date the first applicant was appointed as liquidator of the second applicant in the amount of $57,087.05 as calculated in accordance with the attached Annexure A.

(3)    The respondent pay the applicants’ costs of the proceedings.

Associate:    

Dated:    24 March 2023