Solicitors:
Thurlow Fisher Lawyers (Plaintiff)
Clifton Legal (Defendant)
File Number(s): 2015/274501
Decision under appeal Court or tribunal: Local Court of New South Wales
Date of Decision: 26 August 2015
Before: Stafford LCM
File Number(s): 2015/169836
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Judgment
Introduction
This is an appeal brought by B & B Enterprise (Aust) Pty Ltd (B&B) against a refusal by Stafford LCM, sitting in the Local Court of New South Wales at Tenterfield, to set aside default judgment entered against B&B in favour of Sur Holdings Pty Ltd (Sur). The appeal is brought pursuant to s 39 and s 40 of the Local Court Act 2007 (NSW). Because B&B is the appellant/plaintiff in this Court, was the defendant in the Local Court, and was the applicant on the motion in that forum, for ease of comprehension I shall refer to the parties by the abbreviated names provided above.
Background
The factual and procedural background may be shortly stated.
In March 2007, B&B sold a service station to Sur located in the township of Denman, New South Wales. B&B owned the land upon which the service station was located. Pursuant to a written lease of April 2007, the land upon which the service station was located was leased by B&B to Sur. Pursuant to the same lease, Sur was called upon to pay the Council rates of the land that had been leased to it.
According to the statement of claim of Sur filed on 9 June 2015 in the Local Court, Sur overpaid the Council rates, in the sense that it paid for rates that actually pertained to unleased land, with regard to which B&B was in truth responsible for the payment of rates.
On 9 June 2015, a copy of that statement of claim was served by post upon the registered office of B&B, that being the office of an accountant located at Bankstown, New South Wales. The accountant sent a copy of the statement of claim to the former residential address of the director of B&B, Mr Michael Bibawy, which is the address at which his sister currently resides, at Kogarah, New South Wales. Mr Bibawy had neglected to inform his accountant that he had moved. As Mr Bibawy's sister was overseas at this time, she did not receive the letter enclosing the statement of claim until her return, which was after 19 July 2015.
In the meantime, on 16 July 2015, the solicitors for Sur had applied for a default judgment. That judgment was entered on the same day.
According to an affidavit of Mr Bibawy, he received the statement of claim on 21 July 2015. He arranged for it to be forwarded to his solicitors on the same day. His solicitors contacted the solicitors for Sur in order to determine whether a notice of motion had been filed seeking default judgment. On 22 July 2015, his solicitors were provided with a copy of the notice of motion seeking default judgment that had been filed on 16 July 2015, and already granted.
On 31 July 2015, B&B filed and served a notice of motion seeking to have the default judgment set aside, along with an affidavit sworn by Mr Bibawy.
That motion was heard by her Honour on 26 August 2015. At the conclusion of the hearing, her Honour delivered an ex tempore judgment dismissing the notice of motion. Her Honour also made a gross sum costs order in the sum of $2730 in favour of Sur.
Judgment at first instance
In the judgment, her Honour placed substantial emphasis upon whether her Honour was satisfied that there was an adequate reason for the delay in filing a defence, and also upon whether a defence on its merits had been established by B&B.
As for the former factor, her Honour accurately recounted the unfortunate chain of events whereby the principal of B&B did not come to appreciate that his company was being sued until after the litigation had culminated in a judgment against B&B. After noting that personal service was not required under the Uniform Civil Procedure Rules 2005 (NSW), the learned Magistrate said "I'm not satisfied that the delay has been reasonably explained".
On a contingent basis, her Honour went on to express the view that B&B had not established a defence on its merits. That was said to be because a limitation point in the draft defence could not succeed, and also because, on her Honour's reading, the draft defence disputed quantum but not the anterior question of liability.
Submissions for Sur in resistance to appeal
The position of counsel for Sur before me, refined by discussion between Bench and Bar table, may be summarised as follows.
First, he explained that, in truth, the claim of Sur was for money had and received, in the sense that B&B had had the benefit of the unwitting overpayment by Sur to the local council.
Secondly, he submitted that the question of whether to set aside default judgment is a discretionary one, and accordingly any appellate review of that decision is bound by the well-known principles enunciated in House v The King [1936] HCA 40; (1936) 55 CLR 499.
Thirdly, he noted that the quantum of the claim in its entirety is $10,881.38 (plus interest and costs), and submitted that the overarching principles contained in s 56 of the Civil Procedure Act 2005 (NSW) call for this extended litigation about a rather small sum to come to an end now.
Fourthly, he accepted that the appeal creating provisions in s 39 and s 40 of the Local Court Act permit B&B to bring an appeal based upon a question of law as of right, an appeal based upon a question of mixed law and fact by leave, and an appeal against an interlocutory decision, also by leave. In truth, he submitted, the appeal must be characterised as pertaining to an interlocutory decision (albeit one that has a degree of finality about it). In light of the quantum involved, he submitted that I would not grant leave to appeal to B&B.
Fifthly, he submitted that there was no error in her Honour finding that the proposed draft defence to be relied upon by B&B was inadequate.
Sixthly, he submitted that the finding by her Honour that the explanation for the delay was inadequate was open, and is therefore not amenable to appellate review.
Seventhly and finally, he submitted that, to the extent that counsel for B&B sought to rely upon asserted errors of law that were neither the subject of submissions on behalf of his client at first instance, nor indeed were the subject of explicit reference in her Honour's judgment, I would not take such asserted errors into account.
Determination
The primary submission of B&B before me was that there had been an error of law, in that her Honour had focused too precisely upon the factors that inform whether it is in the interests of justice for a default judgment to be set aside, rather than upon the interests of justice themselves. Speaking generally, and despite the diligence and force with which the submissions of Sur were prepared and presented, I accept that the discretion of her Honour miscarried.
True it is that the factors guiding the discretion of a court to set aside a default judgment are whether there was an adequate explanation for the failure to defend; the length of delay in doing so; and whether the applicant has a bona fide defence: see Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [43], citing Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 at 506; and Violi v Commonwealth Bank of Australia [2015] NSWCA 152 at [76]. However, the authorities support the proposition that the ultimate question in determining whether to set aside a default judgment is whether it is in the interests of justice to allow the moving party to be permitted to defend the proceedings on the merits: see Dai v Zhu [2013] NSWCA 412 at [83], citing Reinehr Industrial Lease & Finance Pty Ltd v Jordan (NSW Court of Appeal, 4 June 1974, unrep); and Violi v Commonwealth Bank of Australia at [76].
Analysis of the judgment under consideration shows that her Honour (with respect, correctly) considered whether the delay had been adequately explained, and considered whether the defence outlined an arguable case. As I have said, the latter factor was analysed on a contingent basis, as against the possibility that her Honour was wrong with regard to her assessment that the delay had not been adequately explained.
But the result of each of those "sub-assessments" was, I respectfully consider, not open to the evaluative judgment of her Honour.
By that I mean, with regard to the first question, that the combination of personal service not being required; the accountant not being aware that the principal of B&B had changed residences; and the fact that the sister of the principal happened to be overseas for an extended period at the very time when the litigation commenced (and therefore not in a position to forward the served documents to her brother), in my assessment did indeed constitute an adequate explanation as to how this unfortunate chain of events unfolded.
I also mean, with regard to the second question, that I respectfully consider that it was not open to her Honour to assess the draft defence as not showing an arguable, bona fide case. It is true that the document was concise, perhaps to the point of being a little obscure in some ways. But to my mind, the draft defence clearly enough raised three issues: a limitation question; an assertion that there had been an adjustment of rates on the sale of the land in question; and, finally, an assertion that the calculation underpinning the statement of claim, alleged to be founded on land area size alone, was erroneous.
To my mind, each of those assertions was put forward with tolerable clarity in the defence, and is arguable.
In considering the adequacy of the proposed defence, I should say that I have borne in mind that one would not expect a draft defence pertaining to a claim in the Local Court for, at the most, a sum of $15,000 to be drafted with the same precision and detail with regard to legal and evidential matters as a claim in this Court for many hundreds of millions of dollars.
In short, I am satisfied that the discretion of her Honour miscarried, in that the evaluative judgments with regard to two important "sub-assessments" were not open in the sense discussed in the final category of error contained in House v The King.
And in any event, leaving aside the "sub-assessments", and turning to the overarching question of whether it was in the interests of justice to set the default judgment aside, here a state of affairs developed whereby B&B was simply unaware that proceedings had been taken against it. Once the principal of B&B did become aware of that state of affairs, he very promptly engaged a solicitor. But by then it was too late: default judgment had already been entered against B&B without its knowledge.
Of course, in recounting that state of affairs I make no criticism of Sur or its lawyers: personal service was not required under the rules, and (contrary to an ancillary submission of B&B) I do not accept there was anything inappropriate in default judgment being sought ex parte with regard to this relatively small sum.
The fact remains, however, that, in the unfortunate set of circumstances that arose, B&B remains a litigant that is ready, willing and able to dispute the claim made against it, and yet the door of the Local Court is currently shut in its face. I cannot accept that it was or is in the interests of justice for that door to remain closed.
For those reasons, I accept the submission of B&B that the judgment at first instance demonstrates, at the least, an error of mixed fact and law with respect to an interlocutory decision.
As for the ancillary submissions made on behalf of B&B, in the circumstances of B&B enjoying success on the primary basis, I shall not deal with them in detail. It is enough to say that I do not accept that (unless most unusual circumstances arise) an error of law can be established on appeal when analysis of the transcript at first instance shows that no submission was made in support of any relevant underlying legal proposition, and when analysis of the judgment at first instance also shows that, as a result of no submission having been made about it, no mention whatsoever of the legal principle complained about on appeal had been made by the judicial officer at first instance.
Finally, it is true that many decisions of this Court have shown that, in appeals such as this, the requirement of leave is not a mere formality, especially when relatively small sums are involved: see, for example, Ashi Pty Limited v Karasco Investments Pty Ltd [2009] NSWSC 780 at [29]-[35]. But here the correction of a clear injustice to B&B calls for leave to be granted: Carolan v AMF Bowling Pty Ltd t/as Bennetts Green Bowl; He v Yeung [2015] NSWCA 392 at [49]; The Age Company Ltd v Liu [2013] NSWCA 26 at [13], citing Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38].
Costs and related matters
With regard to the proceedings before me, there is no reason why the unsuccessful respondent, Sur, should not pay the costs of the successful appellant, B&B.
With regard to the proceedings before her Honour, however, I consider that the appropriate order that should have been made, were the motion of B&B granted at that stage, would have been for each party to have paid their own costs. That is because there is force in the submission of Sur before me that it remained the fact that that motion was necessitated by the failure of B&B to have in place arrangements whereby its principal could promptly become aware of matters to do with B&B that required his urgent attention.
Finally, it was said on behalf of Sur that it would not be inappropriate for monies to be paid into court by B&B if it were successful on the appeal, as a sign of its good faith in defending the substantive proceedings. But, to my mind, there is nothing in the circumstances of this case that calls for such a step.
Orders
I make the following orders:
1. Leave to appeal granted.
2. Appeal upheld.
3. The order of 26 August 2015 dismissing the notice of motion of 31 July 2015 is quashed.
4. In substitution, the default judgment in favour of Sur Holdings Pty Ltd of 16 July 2015 is set aside.
5. The gross sum costs order of 26 August 2015 of $2,730 in favour of Sur Holdings Pty Ltd is quashed.
6. In substitution, each party must pay its own costs of the proceedings before Stafford LCM.
7. The respondent to the appeal, Sur Holdings Pty Ltd, must pay the costs of the appellant, B & B Enterprise (Aust) Pty Ltd, of the proceedings before me.
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Decision last updated: 22 April 2016