AKARI v SOLE

AKARI v SOLE - [2008] NSWSC 59 - NSWSC 2007 case summary — Zoe

[25]

20 Her Honour indicated to counsel that she considered delay in this matter to be significant (transcript pp.10 to 11) and also stated that, "What is equally significant in the view of this court dealing with this notice of motion now is that there appears to have been no attempt on the part of the defendants to respond to the claim made by the plaintiff until after bankruptcy proceedings had been initiated" (transcript p.11). 21 Counsel for Mr and Mrs Akari conceded that a notice to set aside default judgment was not filed until October 2006 (transcript p.11), despite default judgment against them on 8 August 2006. 22 Following submissions from counsel regarding the issue of delay in moving to have the default judgment set aside, Her Honour stated (transcript p.11), "Anyway unless you can put something else to me than I've heard so far and I think I understand your position I'm not prepared to grant this application". Counsel submitted, "Well, your Honour, my submission is one of law and I rely on the case of Coleman v McWilliam (supra) and the submission is that the delay is one of the three relevant factors that you take into account but it is not the deciding factor" (sic). Her Honour replied, "I understand that", and counsel then addressed Her Honour further on that point. 23 Following counsel's submissions and reference to authorities, including Cohen v McWilliam (supra), Vacuum Oil Pty Limited v Stockdale (1942) 42 SR (NSW) 239, Evans v Bartlam [1937] AC 473, and Davies v Paget (1986) 10 FCR 226, the transcript indicates that the following exchange regarding "delay", "prejudice" and an "arguable defence" occurred (transcript pp.13 to 14):- "HER HONOUR: … First of all I have indicated that there was or appears to have been on the court record a delay occasioned by the defendants failing to deal with the matter. DOLENEC [counsel for the defendants]: Yes, your Honour, and not in issue. HER HONOUR: I understand that. You're not putting anything different to the court. I understand that you are putting to the court that it is not such a lengthy delay that the court should find that they are out of court by reason of delay alone. That's not the point. There has been a delay. It is only one of the issues that can be taken into consideration. DOLENEC: Yes. HER HONOUR: And they should not be entitled as a matter of course to benefit from their lack of attention to what are really quite serious matters, commercial matters. DOLENEC: Your Honour, in my - HER HONOUR: All right, so then the next thing and the critical thing I think if I understand your submissions correctly is that the defendant, Mr Akari, has set out a number of matters in his affidavit from which the court should find that there is an arguable defence. DOLENEC: Yes, your Honour, and I just - HER HONOUR: That's the critical point if I'm understanding your submissions. DOLENEC: Yes, that's correct. HER HONOUR: Then the third factor to take into consideration is whether there is prejudice to the plaintiff. DOLENEC: Yes and then none has been asserted. … HER HONOUR: Well, I understand that. I've read through the plaintiff's affidavit opposing the notice of motion but in any event regardless of whether there has been specifically asserted in his affidavit the court does take the view that there is always a degree of prejudice occasioned to the other party in these kinds of circumstances. It is not an overriding consideration; far from it but it exists. There is an element - there is a substantial element of delay here. The length of the delay does not go to the issue of the substantiality of the delay. DOLENEC: Yes, your Honour. HER HONOUR: So that's not an issue and it's not being considered by the court. DOLENEC: I only raise it, your Honour, because we spent time on the delay factor. HER HONOUR: What I'm indicating to you is that the element of delay is established and it's clear on the record there is an element of prejudice. It bears little weight in the court's consideration of this notice of motion here this afternoon but there is an element of consideration. I just want you to be clear about that. So coming to the key issue so far as the defendants are concerned is whether or not the defendants have an arguable case."

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The proceedings by way of review 42 The proceedings heard by the learned magistrate were a "review" of the decision made by the Registrar given on 7 December 2006 dismissing the application for an order setting aside the default judgment for granting leave for the filing of defences. 43 Division 4 of the Uniform Civil Procedure Rules 2005, ("Review of decision of registrars other than judicial registrar") provides in Rule 49.19:- "If in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the Court may, on application of any party, review the direction, certificate, order, decision or other act and make such order by way of confirmation, variation, discharge or otherwise, as the court thinks fit." 44 It is clear that a magistrate in "review" proceedings under these provisions exercises judicial power and, accordingly, must act in accordance with the principles that attend its exercise including, in particular, the provision of reasons for a final decision in proceedings that are heard and determined before the magistrate. The issue of a bona fide defence raised by each of the plaintiffs required the magistrate conducting the review to determine that issue as one of the primary matters. 45 It was apparent from the reading of the transcript of the review proceedings that the learned magistrate, during the course of submissions, referred extensively to the issue of delay and to the issue of prejudice but little was said to indicate that she had addressed her mind to the issues raised concerning the matters relevant to the issues on the matter of arguable defences. In Davies v Pagett (supra), the Full Court of the Federal Court, referred to the decision of the House of Lords in Evans v Bartlam (supra) as emphasising that fundamental to the exercise of the judicial discretion to set aside a default judgment was the need for a defendant to show a prima facie defence on the merits. This was described as "the primary consideration". The Full Court further observed that, speaking generally, the relevant cases showed that a defendant who has an apparently good defence should not be refused the opportunity of defending, even though a lengthy interval of time had elapsed, provided that no irreparable prejudice was thereby done to the plaintiff. 46 I consider that, in the particular circumstances and history of this case, that it is appropriate that I say something as to the possible merits of the proposed defences without, of course, in any way suggesting how the merits of either proposed defence should ultimately be determined on any new hearing of the plaintiffs' application.

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Mr Akari's proposed defence of set-off 47 It is clear from the history of events that the plaintiff's claim is in the nature of a liquidated claim for the recovery of monies advanced to the plaintiff by way of loan. Mr Akari has not disputed and, in fact, admitted in the proceedings before the Registrar and before the Local Court that the monies were advanced by way of loan. The only defence sought to be argued on his behalf was one by way of set-off, either statutory or equitable set-off. 48 The basis of the set-off (the claimed performance of building work) had, on the evidence, suggested no inter-relationship to the facts that grounded the liquidated claim by Mr Sole. It sought to raise by way of set-off an unliquidated claim to damages in relation to alleged building work. 49 There is no provision in the Local Courts Act 1982 or the Rules thereunder that provide for a defence of set-off. However, by virtue of s.4(1) of the Civil Procedure Act 2005, s.21(1) of that Act applies to proceedings under Part 7, Civil Proceedings in Local Courts, of the Local Courts Act 1982. 50 Section 21(1) provides:- "21(1) If there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set-off was filed, whether or not the mutual debts are different in nature. … (6) In this section, debt means any liquidated claim." 51 It is plain, as indicated above, that the set-off proposed to be raised by Mr Akari before the Registrar and the Local Court was not a "liquidated claim" in respect of work performed. Accordingly, it could not fall within the provisions of s.21. 52 A defendant may, in particular circumstances, however, rely on a defence of equitable set-off, whether or not the contrary claims are "mutual" in the sense required by the statutory right in s.21, and irrespective of whether or not both claims involve liquidated demands. The right of set-off in equity, it has been noted, however, depends on the more general proposition that the contrary liabilities are sufficiently closely connected that it would be inequitable for the plaintiff to be permitted to proceed with a claim without making allowance for the defendant's claim against it: Roadshaw Entertainment Pty Limited v ACN 053 006 269 Pty Limited (1997) 42 NSWLR 462. 53 There was, as noted above, no dispute that the loan monies referred to in the statement of claim had been advanced by Mr Sole by way of loan. A primary question which a magistrate conducting a review of the kind that is in question in these proceedings would need to consider was whether the facts relied upon could, as a matter of law, constitute an equitable set-off. Relevant authorities establish that mere cross-demands are not sufficient. A set-off in equity may arise where:-

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Mrs Akari's proposed defence 56 So far as the plaintiff, Mrs Akari, is concerned, the suggested defence, based on her evidence, was, as earlier stated, that she did not enter into any loan agreement with Mr Sole. In her affidavit, she claims she was not a joint signatory to the relevant credit union account, although other evidence indicates that this statement as factually incorrect. 57 The affidavit of Mr Sole in reply disputed Mrs Akari's factual contentions and claimed that the monies were lent to her husband to meet various financial commitments or expenses due to financial need. However, that was a factual dispute that could not be resolved on the application to set aside the default judgment. 58 In this respect, it is well-established that a court, in considering the question of a bona fide arguable defence on an application to set aside a default judgment, is not concerned to determine disputed issues of fact that may arise if the default judgment is set aside and the defence permitted. In this respect see Carr v Neill [1999] NSWSC 1263 (Sully J) and N & G Electrical Group Pty Limited v Terracon Industries Pty Limited [2002] NSWSC 837 per Bell J at [28] to [30]. The question for the magistrate to consider and decide was whether Mrs Akari's evidence raised an arguable defence based upon the proposition that she was not a contracting party to any loan agreement with Mr Sole. Again, this was a matter requiring a decision with supporting reasons. There were no reasons expressed by the magistrate for any conclusion that she reached on this issue. 59 There is one further matter to which I should refer. The statement of claim pleaded a loan entered into between Mr Sole and Mr and Mrs Akari. There was no alternative basis pleaded by Mr Sole as plaintiff, as for example, a claim made against Mrs Akari based on restitutionary principles. In the circumstances of the present matter, a magistrate properly exercising the jurisdiction to review the Registrar's decision and orders would be required to consider whether, on the claim as pleaded, Mrs Akari had sufficiently established a bona fide defence on the merits. In the absence of any decision by the learned magistrate, it is not at all apparent that this latter question was considered or determined.

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Failure by the magistrate to give reasons 60 It was common ground that there was no formal decision or judgment produced by the learned magistrate or an ex tempore judgment recorded in the transcript of the hearing. The present appeal was argued upon the basis that the transcript of the proceedings, parts of which have been extracted above, constituted the only "record" in relation to the ultimate decision and orders made. 61 As already discussed, the learned magistrate was, of course, subject to an obligation to provide reasons for the decision on the review application. As relevant authorities have indicated, the reasons need not be elaborate or extensive in every case. It is sufficient if the court identifies the relevant issues, the evidence bearing upon them and the basis for the decision reached: Soulemezis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247. 62 In Soulemezis, McHugh JA stated (at 279) that when the decision in question constituted was in fact or in substance a final order, the case must be an exceptional one for a judge not to have a duty to state reasons. That said, his Honour also emphasised (at 280) that if an obligation to give reasons for a decision exists, its discharge does not require lengthy or elaborate reasons. His Honour observed, it is necessary that the essential grounds or grounds upon which the decision rests should be articulated. 63 In Soulemezis (supra), Kirby P dissenting, stated that the absence of proper reasons constitutes an error of law. As such, it would authorise appellate intervention. 64 In Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430, Mason J (with whom Meagher and Sheller JJA agreed) addressed the question (but did not need to decide it) whether the failure to provide reasons or the provision of inadequate reasons constitutes an error of law or other appellable error. The learned President stated that "it is sufficient to state that most cases have assumed the error is one of law" (at 445). 65 The transcript of proceedings, whilst recording the submissions and exchange with the bench, did not, as earlier indicated, therein record any ex tempore analysis or decision or judgment. In those circumstances, it is impossible to identify a basis or bases upon which the learned magistrate made the order dismissing the application for review. As the transcript indicates, the magistrate effectively declined to provide reasons when specifically requested to do so by the plaintiffs' counsel. 66 Apart from what may be considered the primary consideration (an arguable bona fide defence on the merits) the learned magistrate, of course, was also required to consider the issues of delay and prejudice and provide her reasons in relation to them. The learned magistrate appeared at times to focus on delay as an important issue at least insofar as supposed "prejudice" was concerned. 67 In Cohen v McWilliam (supra) Priestley JA listed a schedule of Australian authorities that made relevant reference to Evans v Bartlam (supra). His Honour observed (at 479 to 480):- "Although a number of the cases in the schedule refer to explanation of delay as a pre-condition in the way mentioned in the previous paragraph, I think a careful reading shows there is not one example in the schedule where a litigant has been shut out by procedural default from litigating (sometimes on severe conditions) a defence which the Court felt was arguable. The cases where litigants have been shut out are those where, in one form or another, the Court was not satisfied there was enough prospect of the applicant party succeeding on the issue raised to make it just for the issue to be tried." 68 It is evident that the issues as to bona fide arguable defences required separate and particular consideration in relation to Mr Akari's position from that of Mrs Akari. Whether or not it could be said that Mr and Mrs Akari had a basis for a defence is a matter, as I have earlier stated, best left for later determination, given my conclusion that the proceedings should be remitted back to the Local Court. 69 In failing to provide reasons for the magistrate's decision, I consider that the learned magistrate was in breach of the obligation upon her to do so and, as such, the decision given was erroneous in point of law within s.73(1) of the Local Courts Act 1982. 70 In the circumstances in which the learned magistrate by her decision can be said to have formed a firm view as to the merits of the application, I consider that under the orders I propose to make that the matter should be remitted to the Local Court but constituted by another magistrate for the purposes of determining the relevant issues arising with respect to each plaintiff on the review application. 71 Accordingly, I make the following orders:-

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