The guarantors owned an appliance company and their supplier provided goods to the company on credit. The company defaulted in payment and the supplier obtained default judgment against the two guarantors, whose appearance was not accepted due to an administrative error by the court. The guarantors sought to set aside the judgment on the basis that it was irregular because:
- it was unreasonable for the court to enter default judgment without warning them, when the supplier and its solicitors were aware that they were not represented and that they intended to defend the action; and
- it overstated the amount due.
Under O 13 r 10 of the Rules of the Supreme Court 1971 (WA) the court may set aside or vary a judgment entered in default of appearance, on such terms as it thinks just. That discretion is not qualified. Not every irregularity in the means by which a judgment in default is obtained will necessarily entitle the defendants to have the judgment set aside as of right. The court has power to amend an irregularly entered judgment. The court may, in the exercise of its discretion, vary the amount of the judgment.
The Appeal Court held that failure to warn the guarantors before entering default judgment did not make the entry of judgment irregular. The fact that the guarantors were unrepresented did not make it irregular. However a judgment entered for more than the amount due is irregular. The supplier conceded at the hearing the judgment overstated the amount because what was recovered from the receivers had not been deducted. That judgment was also entered in unusual circumstances, where the guarantors’ appearance had been rejected because of an administrative error by the court. Each of those factors must be taken into account in deciding whether to set aside the default judgment.
The court then considered whether it would be futile to set the judgment aside rather than vary it, and examined the proposed defence. The guarantors claimed:
- an implied obligation in the guarantee that required the supplier to recover unsold goods first under the retention of title clause in the credit policy and the guarantors’ liability was discharged for breach of that promise;
- the entitlement of a surety in equity to have his liability reduced by the amount in which the creditor has sacrificed or impaired a security; and
- the duty to mitigate.
The implied promise
The court held no implied term for the following reasons:
- a promise to recover unsold stock is not necessary to give business efficacy to the guarantee, which is completely effective without it;
- a condition that a mortgagee must exercise the right to recover the goods before it has the right to call on any security could not be said to be obvious, so that the parties must be presumed to have intended it;
- the terms of the guarantee is quite inconsistent with the proposed implied term. The obligations of the guarantor are unqualified and there is an acknowledgment that there are no conditions or representations given.
Impairment of security
The court held that the terms of the guarantee clearly prevent any discharge of the guarantee even if the supplier impaired its rights under the credit policy to the prejudice of the guarantors.
The question of mitigation does not arise because the amount due under the guarantee was a debt, not damages.
The court held that the proposed defence was without merit and varied judgment in the reduced sum of $2,811,511.92. The court noted that once the judgment sum was corrected, any benefit from setting it aside was not sufficient to outweigh the expense of a trial which must arrive at the same result.
The appeal was otherwise dismissed.