Supreme Court New South Wales Medium Neutral Citation: Hutchinson v AD Securities America LLC [2021] NSWSC 1573 Hearing dates: 29 November 2021 Decision date: 29 November 2021 Jurisdiction: Equity Before: Ward CJ in Eq Decision: 1. Judgment, pursuant to rule 16.6 of the Uniform Civil Procedure Rules 2005 (NSW), for the plaintiff in the sum of $500,000 (Loan Amount). 2. Defendant to pay the plaintiff interest on the Loan Amount calculated as follows: a. 3.5% per month from 4 July 2019 to 31 March 2020; and b. 7% per month thereafter, with such interest being calculated daily and compounding monthly. 3. Judgment, pursuant to rule 16.6 and rule 16.10 of the Uniform Civil Procedure Rules 2005 (NSW), for the plaintiff in the sum of $1,000,000 (Share Amount). 4. Defendant to pay the plaintiff interest on the Share Amount, calculated from 31 March 2020, pursuant to section 100 of the Civil Procedure Act 2005 (NSW). 5. Defendant to pay the plaintiff's costs on an indemnity basis. Catchwords: CIVIL PROCEDURE — Default judgment — Default in entering appearance — Default in filing defence CIVIL PROCEDURE — Service outside Australia — Proceedings in which permitted — Application for leave to proceed Legislation Cited: Civil Procedure Act 2005 (NSW), s 100 Uniform Civil Procedure Rules 2005 (NSW), rr 11.8AA, 14.3, 16.2, 16.6, 16.10, sch 6 Cases Cited: Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 Bingley-Pullin v Montgomery [2018] NSWSC 1308 Dandaloo Pty Ltd v Lali [2017] NSWSC 1738 Dey v Victoria Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1 Employsure Ltd v McMurchy [2021] NSWSC 1179 Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 Galati v GC NSW Pty Ltd [2020] NSWSC 217 General Steel Industries Inc v Commissioner for Rails New South Wales (1964) 112 CLR 125; [1964] HCA 69 James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 Termijtelen v Van Arkel [1974] 1 NSWLR 525 Toveill Pty Ltd v Australian Quality Plus Pty Ltd [2010] NSWSC 1003 Category: Procedural rulings Parties: Douglas Leslie Hutchinson in his capacity as executor of the estate of the late Hilary Catherine Hutchinson (Plaintiff) AD Securities America LLC (Defendant) Representation: Counsel: JK Raftery (Plaintiff) Solicitors: Rydge Evans Lawyers (Plaintiff) File Number(s): 2021/00109922 Publication restriction: Nil Judgment 1. HER HONOUR: By amended notice of motion filed on 5 November 2021, the executor of the estate of the late Hilary Catherine Hutchison seeks relief in relation to a claim made by statement of claim filed on 20 April 2021 against AD Securities America LLC (AD Securities), a company registered in the state of Delaware in the United States of America. The substantive claim (and the underlying dispute) relates to a loan agreement entered into by the late Mrs Hutchinson on 1 July 2019, the terms of which I will come to shortly. Mrs Hutchinson died on 12 November 2020 and probate of her last Will was granted to the plaintiff on 16 February 2021. 2. There has been no appearance by the defendant on the present application. I am satisfied, by reference to the affidavits of service of Stephen Papst, May Ki Tai and David Holland which have been filed and read on this application, that service has been effected on the company in the manner set out in those affidavits, and that the company has been notified of the listing of the application for hearing. 3. The first order sought in the amended notice of motion is an order that leave be granted pursuant to r 11.8AA of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the plaintiff to proceed against the defendant. I note that that rule relevantly provides that if an originating process is served on a person outside Australia and no appearance is entered, then the party serving the document may not proceed against the person except by leave of the Court, but that an application for leave to proceed may be made without serving notice of the application on the person served with the originating process. 4. As explained in Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 (at [40], [50]-[64]) and Bingley-Pullin v Montgomery [2018] NSWSC 1308 (at [5]), the matters to be taken into account when deciding whether to grant leave are: first, whether the defendant has been properly served (and I interpose to say that I am satisfied that the defendant has been properly served – see the making of orders for substituted service on 29 June 2021, and the affidavits of service of May Ki Tai and Stephen Papst, which depose to the effecting of service on AD Securities on 1 July 2021); second, whether the claims in the originating process fall within sch 6 of the UCPR; third, whether the plaintiff has an arguable case in the sense that it would be sufficient to survive an application for summary judgment; and fourth, that the Court is not a clearly inappropriate forum. 5. As to whether the claims fall within sch 6 of the UCPR, I am satisfied that the claims fall within that schedule, for the reason that the loan agreement dated 1 July 2019 is specified to be governed by the laws of New South Wales, and AD Securities irrevocably submitted to the non-exclusive jurisdiction of the courts of New South Wales (see cl 12.1 of the loan agreement). I am fortified in this conclusion by the fact that both Mrs Hutchinson and AD Securities provided an address in Australia on the loan agreement. The cause of action arises in Australia, as I will explain in due course. 6. As to whether the plaintiff has an arguable case, reference is made to the fact that proceedings will only be summarily dismissed on the grounds that the matter does not disclose a cause of action if the claim is so untenable that it cannot possibly succeed (see the tests outlined in Dey v Victoria Railways Commissioners (1949) 78 CLR 62; [1949] HCA 1 at 91-92 per Dixon J and General Steel Industries Inc v Commissioner for Railways New South Wales (1964) 112 CLR 125; [1964] HCA 69 at 129 per Barwick CJ). The cause of action, as I have said, is founded on the loan agreement dated 1 July 2019, which, on its face, was executed by both parties, and I accept that it could not be said on the material before me that the claim is so untenable that it cannot possibly succeed. 7. As to whether this is a clearly inappropriate forum, I have already referred to cl 12.1 of the loan agreement, which involves an irrevocable submission to the non-exclusive jurisdiction of the courts of New South Wales, and I am satisfied that the Court is an appropriate forum. Therefore, I consider that leave should be granted pursuant to r 11.8AA of the UCPR for the plaintiff to proceed against the defendant, and I am also satisfied that it is appropriate to proceed with the hearing in the absence of the defendant. 8. The next application is an application for default judgment. There are two claims in respect of which default judgment is sought. First, the liquidated claim against the defendant in respect of the moneys advanced pursuant to the loan agreement. The loan agreement contained a term that Ms Hutchinson make available to AD Securities a loan facility in the principal amount of AUD 500,000. On the terms set out in the loan agreement, the lender was to advance the loan in full on the draw down date. There is evidence before me that the draw down date was 4 July 2019, and on that occasion an international payment was made. There is also a letter dated 5 August 2019, from a purportedly authorised representative of AD Securities, confirming "your recent investment in AD Securities America LLC". The letter dated 5 August 2019 confirms entry into the loan agreement, for the provision of a loan of $500,000 for a period of 270 days and an entitlement to receive an interest rate of 3.5% per month. The letter states: You will receive repayment of your loan principal of $500,000 and any interest owing within nine months from the date of the agreement. 1. As adverted to in that letter, cl 3.1 provided for prepayment in respect of the loan. Clause 4.1 specified the interest rate payable as 3.5% per month for nine months calculated on the principal amount of the loan outstanding, with interest to accrue from day to day and accrued interest to be paid on the repayment date. 2. Relevantly, there is a default clause, cl 6, which provides that the borrower is in default if it fails to pay the amount when due under the agreement or fails to comply with any terms of the agreement, and in cl 8 there is provision for default interest, in effect increasing the interest rate from 3.5% per month to 7% (by reference to cl 4.1). Clause 8 also provides that the right to charge default interest is without prejudice to the lender's rights under any other agreement. 3. It is noted that r 16.6 of the UCPR provides that if a plaintiff claims against a defendant in default for a debt or liquidated sum, judgment may be given for the plaintiff against the defendant for a sum not exceeding the amount claimed, and interest up to judgment and costs. A defendant is in default if the defendant fails to file a defence within the time limited by r 14.3(1), being 28 days, or within such further time as the Court allows (see r 16.2 of the UCPR). As AD Securities has not filed a defence within the time specified, having been served with the statement of claim on 1 July 2021, it is in default. The claimed amount owing as at 19 October 2021 is $2,326,050.53. That amount comprises the $500,000 advanced under the loan agreement, plus interest calculated at the default interest rate, plus an amount in respect of a further obligation that was contained in the loan agreement. That was an obligation under cl 7, which stipulates as follows: In consideration of the Lender's agreement to provide the Loan, the Borrower must transfer the Lender with 1,000,000 fully paid shares in AD Securities America LLC (7406497) with a deemed value of AUD1,000,000 within 14 days after repayment of the loan or prior to any acquisition of AD Securities America LLC. If the acquisition of AD Securities America LLC gives a deemed value of less than AUD1,000,000 for the 1,000,000 fully paid shares, then the Borrower must ensure that a sufficient amount of shares are issued to attain the AUD1,000,000 value. 1. The letter dated 5 August 2019 from AD Securities, to which I have already referred, acknowledged that in relation to the loan moneys being returned, Mrs Hutchinson would receive AUD 1 million in shares in the company, marked fully paid, and that those shares "will be issued on maturity of the loan or prior if a change of ownership of AS USA occurs within 270 days". The letter stated that the total capital return would be the loan moneys and shares totalling AUD 1.5 million. 2. Pursuant to r 16.10 of the UCPR, whatever the plaintiff's claims for relief against a defendant in default, the Court may, on application by the plaintiff, give such judgment against the defendant as the plaintiff appears to be entitled to on his or her statement of claim. Rule 16.10 empowers the Court to grant default judgment in proceedings where relief such as specific performance is sought, albeit that the plaintiff accepts that there is a discretion whether to enter default judgment (see Dandaloo Pty Ltd v Lali [2017] NSWSC 1738 at [38], citing Termijtelen v Van Arkel [1974] 1 NSWLR 525). 3. The plaintiff has quite properly acknowledged a slight difference between the loan agreement and the letter from AD Securities as to the time when the shares would be transferred, but submits that the proper construction of the agreement, taking into account the letter dated 5 August 2019, is that the shares were to be transferred from the maturity of the loan, being the repayment date 270 days after the loan agreement was entered into. 4. It is noted that where a Court can discern the parties' intention from the factual and legal context, the Court can supply, omit or correct words in a document to avoid absurdity or inconsistency, and that in these cases rectification is not required (the plaintiff referring to Employsure Ltd v McMurchy [2021] NSWSC 1179 (Employsure) at [81], citing Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 at 426-427 and 437; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [6]-[10]; and James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCA 311 at [20]). The plaintiff notes that the two conditions necessary for the Court to correct contractual language are, first, that the literal meaning of the contractual words is an absurdity or inconsistency, and, second that it is self-evident what the parties' objective intention was (see Employsure at [82]). 5. It is submitted that there is a clear inconsistency between the loan agreement and the AD Securities letter, and that the latter makes it self-evident that the parties' objective intention was that the shares should be issued on maturity of the loan. It is submitted that it would be an absurdity if AD Securities was required only to issue the shares upon repayment of the loan, because this would allow AD Securities to repay all but one dollar of the loan and deny that it was required to issue shares. The plaintiff seeks default judgment on the claim for specific performance, but in circumstances where there is authority that an order for specific performance will be made only where damages are not an adequate remedy (referring here to Galati v GC NSW Pty Ltd [2020] NSWSC 217 at [392], citing Toveill Pty Ltd v Australian Quality Plus Pty Ltd [2010] NSWSC 1003 at [36]), it is submitted that the damages suffered by the plaintiff, by the failure to issue the shares, would be in the order of $1 million plus interest from the date the shares ought to have been issued (31 March 2020), on the basis that the shares were to have a deemed value of $1 million, and it can be assumed that they would have been able to be liquidated for that amount. 6. I am satisfied that default judgment should be entered in the sum of the amount advanced of $500,000, together with interest calculated at the default interest rate of 7%. It is quite properly noted by the plaintiff that there may have been an argument by the defendant as to whether the default interest rate amounted to a penalty clause; but in circumstances where there has been no appearance by the defendant and there is an arguable cause of action, it is submitted that this does not preclude the order of default interest in the present case. 7. Given that the additional amount of interest under the default interest provision does not appear on its face to be excessive, I am persuaded that I should award interest calculated on the amount of the loan advance at 7%, together with interest calculated pursuant to s 100 of the Civil Procedure Act 2005 (NSW) on that sum. 8. The next issue is whether default judgment should be given in terms of an order for specific performance of the obligation to transfer the shares, or damages for breach of the obligation to transfer the shares. In the circumstances, I am satisfied that it is more appropriate for damages to be awarded for the failure of the obligation to transfer the shares than for an order for specific performance, not least because of potential difficulties of enforcing such an order in the United States. 9. I am also satisfied that the date on which breach of the agreement to transfer the shares should be calculated is the date for the repayment of the sum, in circumstances where AD Securities has acknowledged, in its letter of 5 August 2019, that the shares would be issued on "maturity of the loan". 10. I also note that the plaintiff seeks costs on an indemnity basis, pursuant to cl 5.1 of the loan agreement. Clause 5.1 provides that AD Securities is obliged to reimburse Mrs Hutchinson for legal expenses incurred by her in the preparation, negotiation, execution, action under and enforcement of the agreement. I accept that cl 5.1 warrants an order for indemnity costs. Orders 1. For the above reasons, I make the following orders: 1. Judgment, pursuant to rule 16.6 of the Uniform Civil Procedure Rules 2005 (NSW), for the plaintiff in the sum of $500,000 (Loan Amount). 2. Defendant to pay the plaintiff interest on the Loan Amount calculated as follows: 1. 3.5% per month from 4 July 2019 to 31 March 2020; and 2. 7% per month thereafter, with such interest being calculated daily and compounding monthly. 1. Judgment, pursuant to rule 16.6 and rule 16.10 of the Uniform Civil Procedure Rules 2005 (NSW), for the plaintiff in the sum of $1,000,000 (Share Amount). 2. Defendant to pay the plaintiff interest on the Share Amount, calculated from 31 March 2020, pursuant to section 100 of the Civil Procedure Act 2005 (NSW). 3. Defendant to pay the plaintiff's costs on an indemnity basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2021