Barel v Barel

Chronology of Events

1. A chronology of the events leading up to the Notice of Motion is set out in MFI 1. Having read the file and the evidence, I am satisfied that that chronology is accurate. The chronology is as follows: 5 August 2022 Statement of claim filed 23 September 2022 Notice of motion for default judgment filed by plaintiff 26 September 2022 Registrar rejects the motion of 23 September 2022 (Initial Decision) 9 October 2022 Plaintiff filed a motion seeking a review of the Initial Decision October 2022 Order of the Court for substituted service (Statement of claim taken to be served 7 days after being left) 6 January 2023 Plaintiff filed motion seeking default judgment 8 January 2023 Mr Raphael Barel dies 9 January 2023 Court orders default judgment against Mr Barel (now deceased) and Mrs Barel 10 January 2023 Plaintiff swears affidavit in support of motion for garnishee order against Mr Barel (now deceased) and Mrs Barel 11 January 2023 Funeral for Mr Barel occurs. Plaintiff attends the funeral of his late brother • 12.39pm the plaintiff filed a notice of motion seeking a garnishee order against St George - A Division of Westpac Banking Corporation Limited seeking payment of $173,669.29 plus interest. 11 January 2023 • 12.50pm the plaintiff filed a notice of motion dated 10 January 2023 seeking a garnishee order against ING Bank (Australia) Limited trading as ING Direct seeking payment of $173,669.29 plus interest. • the Court issued garnishee orders for debts to each of St George/Westpac and ING Bank. 19 January 2023 Mrs Barel becomes aware that $173,727.29 has been withdrawn from the ING bank account January 2023 Mrs Barel becomes aware of the statement of claim for the first time, via her solicitors

The Notice of Motion

1. The Notice of Motion seeks orders pursuant to r 36.16 of the UCPR setting aside the judgment entered against both defendants on 9 January 2023 and setting aside the garnishee orders made on 11 January 2023. The first defendant seeks an order that she be granted leave to file a Defence in the form of a draft Defence which is annexure A to her affidavit sworn on 16 February 2023.
2. The first defendant notified the plaintiff that she would also seek to rely upon r 36.15. This was not opposed by the plaintiff.
3. The Notice of Motion also seeks an order, wrongly characterised as an order pursuant to s 30 of the Local Court Act 2007 (NSW), that there be restitution of the monies that the plaintiff obtained by garnishee order from the joint account of the defendants.
4. The defendants also seek an order for the plaintiff to pay the costs of the Notice of Motion.

Setting Aside a Judgment Made Irregularly

1. Rule 36.15 of the UCPR provides as follows: "36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3) (1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (2) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent."

Setting Aside Default Judgments

1. Rule 36.16(2)(a) provides that the court may set aside or vary a judgment or order after it has been entered if it is a default judgment.

Garnishee Orders

1. Part 8 Div 3 of the Civil Procedure Act 2005 (NSW) (the CPA) deals with garnishee orders. By s 117 of the CPA a garnishee order operates to attach, to the extent of the amount outstanding under a judgment, to all debts that are due or accruing from the garnishee to the judgment debtor at the time of service of the order. In the present case the garnishee order was served upon ING Bank, where the defendants conducted a joint account which was in credit.
2. By s 123(1) of the CPA a payment under a garnishee order must be made in accordance with, and to the judgment creditor specified in, the order.
3. Section 124A of the CPA provides as follows: "124A Variation, suspension or repayment of payments under garnishee orders The court may, at any time on the application by a judgment debtor, vary or suspend the making of payments by the judgment debtor under a garnishee order, or order the total amount paid by the judgment debtor under the garnishee order to be repaid, if the court is satisfied that it is appropriate to do so."

Evidence on the Motion

1. The first defendant applicant relied upon the following: 1. Affidavit of the first defendant dated 16 February 2023 (DX 1). 2. Exhibit LB-1 to DX 1 (DX 2). 3. Affidavit of N Siddiq dated 29 March 2023 (DX 3). 4. Defendant's Chronology (MFI 1).
2. The plaintiff relied upon the following: 1. Affidavit of the plaintiff dated 27 March 2023 and Exhibit EB-1 referred to in that affidavit (PX 1). 2. Notice of Motion filed on 6 January 2023 and affidavit of the plaintiff dated 5 January 2023 (PX 2). 3. Documents produced on subpoena by St George Bank (PX 3). 4. Plaintiff's Written Submissions (MFI 2).

The Statement of Claim

1. The plaintiff's Statement of Claim was filed on 5 August 2022. In par 9 it is alleged that the defendants and the plaintiff advanced monies to and on behalf of each other and agreed to provide services personally and/or through their businesses in part-payment of and as set-offs against monies advanced and received from the other. Put shortly, the allegation made by the plaintiff in the Statement of Claim is that he lent money from time to time to the defendants and was not repaid. He therefore sues for breach of contract.
2. Counsel for the plaintiff summarised the allegations made in the Statement of Claim in pars 6 and 7 of MFI 2. I accept that summary as accurate. It identifies four amounts allegedly lent by the plaintiff to the defendants but not repaid. They are: 1. Prior to February/March 2013 the defendants were already indebted to the plaintiff for $28,822. 2. In February/March 2013 the defendants borrowed money from the plaintiff to assist with renovation works to a property in Dover Heights. Such funds were to be repaid upon the sale of that property. The amount advanced was $62,000. 3. In May/June 2014 the plaintiff lent a further $33,730 to the defendants to assist with renovation works to the Dover Heights property. Again, the monies were to be repaid on sale of the Dover Heights property. 4. In February 2015 the plaintiff advanced further funds to the defendants to assist with the renovation works at Dover Heights. Again, the funds were to be repaid on sale of the Dover Heights property. The amount advanced was $19,500.
3. The plaintiff pleads that the Dover Heights property was sold in December 2017 but the defendants have failed to repay the amounts owing.
4. It is noted that there were other entities involved in the alleged loans. In par 4 of the Statement of Claim it is pleaded that Raphael Barel was the principal of an accountancy practice conducted by R Barel & Co Pty Ltd. In par 8 of the Statement of Claim it is pleaded that the plaintiff conducted a company Chit Chat Communications Pty Ltd, and that that company was a client of R Barel & Co Pty Ltd. As previously recited, par 9 of the Statement of Claim pleads that monies were advanced to and on behalf of each other. It is also pleaded that monies were advanced, and services were provided, "through their businesses". The pleading of these matters is noted at this stage, as the Defence proposed by the first defendant, inter alia, alleges that some loans made between the two families were not owed personally by the defendants, but were advances to and from family businesses and corporations.

Was the Judgment Against the Second Defendant Entered Irregularly?

1. A judgment will have been obtained irregularly if there has been a failure to comply with proper procedure or the rules. Examples are where a party has not been given notice of a hearing and yet judgment is entered against them, where judgment is entered prematurely or before actual default is made by the defendant, or where judgment is entered for too much.
2. At common law, a cause of action abated if the defendant died. This was reversed by s 2(1) of the Law Reform (Miscellaneous Provisions) Act 1944 (NSW) which provides: "2 Effect of death on certain causes of action (1) Subject to the provisions of this section, on the death of any person after the commencement of this Act all causes of action subsisting against or vested in the person shall survive against, or, as the case may be, for the benefit of, the person's estate: Provided that this subsection shall not apply to causes of action for defamation or seduction or for inducing one spouse to leave or remain apart from the other or to claims under Division 2 of Part 3 of the Property (Relationships) Act 1984."
3. While a cause of action survives against a person's estate, it is necessary that there be a representative of the estate before further steps can be effectively taken in the proceedings. That is the whole point of r 7.10 of the UCPR. Until there is a person appointed to represent the estate of the deceased defendant, there is no person against whom the court may make any order.
4. Attempts were made to serve the defendants, but the process server had been unable to personally serve either of them. Thus the plaintiff applied for, and obtained, an order for substituted service against the defendants, who resided in an aged care facility at Vaucluse. The Statement of Claim was served in accordance with that order and was thus taken to have been duly served seven days after being left at the aged care home where the defendants resided.
5. The plaintiff gave evidence that from 2015 onwards his brother Raphael suffered from dementia and he was unable to handle any simple tasks. He was unable to walk without a person holding him. He had severe memory loss, he was unable to find words and he would stutter. By 2016 Raphael was unable to conduct a conversation.
6. When the Statement of Claim was served pursuant to the order for substituted service, the second defendant was clearly a person under legal incapacity as defined in r 7.13 of the UCPR. He was a person who was incapable of managing his affairs.
7. The status of the second defendant as a disabled person was not revealed in the application made for substituted service.
8. Rule 10.12 of the UCPR deals with service of process on a person under legal incapacity. Personal service on a person under legal incapacity may not be effected otherwise than in accordance with the rule. Rule 10.12(4) provides: "The document may be served on any person (including the person under legal incapacity, whom the court may, before or after service, approve."
9. No application was ever made by the plaintiff for the court to approve a person who could be served in lieu of the second defendant.
10. Clearly at the time that the Statement of Claim was served upon the second defendant, pursuant to a substituted service order, Raphael Barel was a person who was incommunicative and unable to understand or deal with his own affairs. Even if that service was effective (a matter which I seriously doubt), no further steps should have been taken in the proceedings against the second defendant until a tutor was appointed.
11. By r 7.17 of the UCPR, a plaintiff in proceedings against a defendant, who is a person under legal incapacity, may take no further step in the proceedings following service of the originating process until a tutor has entered an appearance on behalf of the defendant.
12. No tutor was ever appointed to represent the interests of the second defendant Raphael Barel.
13. In spite of that the plaintiff filed a motion on 6 January 2023 seeking default judgment. The plaintiff was aware of the death of his brother on 8 January 2023. There was no communication of that fact by the plaintiff to the court, and the plaintiff allowed the court to go ahead and enter default judgment against Mr Barel on the day after he died. As previously recited, there was no legal entity to represent the estate of Mr Barel. I find that the default judgment entered against Mr Barel on 9 January 2023 was a nullity, as he had died the day before. Such judgment was entered irregularly within the meaning of r 36.15 of the UCPR.
14. If the obtaining of default judgment on the day after Mr Barel died was irregular, then for the plaintiff to attend his brother's funeral on 11 January 2023, and later that day, to apply for a garnishee order against the joint bank account is even more irregular. I find that the garnishee order was made against the second defendant irregularly, within the meaning of r 36.15 of the UCPR.
15. For those reasons the default judgment against the second defendant Mr Barel, and the associated garnishee order against him, should be set aside.

Default Judgment Against the Defendants

1. I accept the submission of counsel for the plaintiff (MFI 2, par 23) that the liability to repay the loans alleged by the plaintiff was a joint and several liability and thus even if the judgment against the second defendant is set aside as irregular, that alone does not affect any liability of the first defendant. Counsel for the first defendant submitted orally that there was a "unitary" judgment, without explaining what that was or how it might have arisen. I reject that submission.
2. The first defendant cannot rely upon r 36.15 of the UCPR, as the substituted service order was regularly obtained against her, and the default judgment was regularly obtained.
3. The first defendant must therefore rely upon r 36.16(2)(a) of the UCPR. I accept the submission of counsel for the plaintiff (MFI 2, par 20) that the ultimate question is whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits. I also accept his submission that the principal considerations in this case are: 1. Whether the applicant has a bona fide ground of defence. 2. Whether the applicant has an adequate explanation for the failure to defend. 3. The length of any delay. 4. Whether the plaintiff will be prejudiced if the judgment is set aside.

Explanation for Failure to Defend

1. In her affidavit dated 16 February 2023 (DX 1) the first defendant says that she was unaware of the service of the Statement of Claim or of the entry of default judgment against her.
2. On 19 January 2023 she checked her bank account online and saw a withdrawal of $173,727.29. She contacted the bank and was told that the withdrawal was made pursuant to a court order. On 23 January 2023 the first defendant spoke to her solicitor and learned for the first time that there were proceedings in the District Court against her brought by the plaintiff. On 24 January 2023 the plaintiff was informed by her solicitor of the sequence of events leading up to the default judgment.
3. In par 17 of DX 1 the first defendant swore that she had never seen a copy of the Statement of Claim prior to it being given to her by her solicitor on 24 January 2023. She swore that she was never given a copy of the Statement of Claim by any person at the aged care facility where she lived. The first defendant said that if she had seen the Statement of Claim she would have caused a Defence to be filed.
4. The first defendant was not cross-examined. Her unchallenged evidence is that she never saw the Statement of Claim until after default judgment had been entered. While I accept that the Statement of Claim was served at the aged care facility in accordance with the order for substituted service, I find that it never came to the attention of the first defendant.
5. I accept the submission of counsel for the plaintiff (MFI 2, pars 27-29) that the first defendant cannot dispute the validity of service achieved by compliance with the substituted service order. However, if the first defendant never saw the Statement of Claim or knew about it, that provides an explanation for her failure to defend.
6. I find that the first defendant has provided an adequate explanation for the failure to defend.

Bona Fide Defence

1. In relation to whether the first defendant has a bona fide defence on the merits, she relies upon two matters.
2. The first matter is set out in par 18 of DX 1 where the first defendant says: "If I had seen the Statement of Claim, I would have caused a defence to be filed as I refute the plaintiff's claims set out in the Statement of Claim. I deny that the plaintiff is owed any amounts by me or my husband as alleged in the Statement of Claim. As set out in the draft defence all of the payments referred to in the statement of claim were repayments of amounts owed by the plaintiff's company Chit Chat Communications Pty Limited to either R. Barel & Co Pty Ltd or Pimtoka Pty Ltd as trustee for the Barel Family Trust or were not made at all. Annexed to this affidavit and marked with the letter 'A' is a copy of the draft defence prepared on my behalf. I believe that the matters referred to in the draft defence are true and correct to the best of my knowledge and belief."
3. The second matter upon which the first defendant relies is annexure A to her affidavit, which is a copy of a draft Defence. In par 18 of her affidavit the first defendant says that the matters in the draft Defence are true and correct.
4. In the draft Defence the first defendant denies that either she or her late husband are indebted to the plaintiff. In pars 14-29 of the draft Defence the plaintiff sets out, in some detail, loans which went back and forward between the two brothers, and their respective companies. The first defendant also says that interwoven in those loans was the involvement of Pimtoka Pty Ltd as trustee for the Barel Family Trust (BFT) and Chit Chat Communications Pty Ltd (CCC) as trustee of the Lilly Settlement Trust.
5. The four amounts alleged to be owing pursuant to loans made by the plaintiff to the defendants, as pleaded in the Statement of Claim, are summarised in par 22 above. In relation to those four allegations, the draft Defence says: 1. The existing indebtedness of $28,822 is not owing, and as at 1 March 2023 CCC owed BFT $155,024.38 - par 16 of the draft Defence. 2. In relation to the first alleged loan concerning the Dover Heights property the agreement is denied and further, payments of $63,800 were made, not as a loan from the plaintiff to the defendants, but as a payment made by CCC to BFT in reduction of the indebtedness of CCC - pars 19-21 of the draft Defence. 3. In relation to the second alleged loan concerning the Dover Heights property, the loan is denied, and any monies flowing between the parties were payments by CCC in reduction of its indebtedness to BFT - pars 22-26 of the draft Defence. 4. In relation to the third alleged loan concerning the Dover Heights property, the loan is denied, and any payments made between the parties were payments made by CCC in reduction of its indebtedness to BFT - pars 27-29 of the draft Defence.
6. It is obvious from a reading of the Statement of Claim, and DX 1, that the dealings between the parties in relation to loans which flow both ways are much more complicated than personal loans between family members. There are family companies and family trusts involved. A further illustration of this is a dispute between the plaintiff and the defendants about the plaintiff's perception that they treated one of their daughters poorly in a financial sense and favoured the other daughter. The emotional and vituperative correspondence from the plaintiff which was annexed to the affidavits shows that there is a lot more at play in this case than simple loans.
7. I find that the first defendant has satisfied the court that she has sworn to a bona fide defence and that she should be permitted to defend the proceedings on the merits.

Prejudice

1. In relation to the factor of prejudice, I take into account the following: 1. If the Defence succeeds, then monies should never have been garnisheed from the joint bank account. 2. Prima facie those monies should be returned to the first defendant, as I propose to set aside the default judgment. 3. However, to return the monies to the first defendant, could result in them being dissipated, and unavailable to the plaintiff if he succeeds on his claim. 4. There is no evidence to suggest that the first defendant desperately needs the monies to be returned to her. The first defendant has put on no evidence concerning her financial position, apart from saying that the funds garnisheed from the bank are "critically important to me" and that this was "all of the money that I have to pay my living expenses". There is no evidence about the financial position of the first defendant apart from that bare assertion, no evidence about her income (if any) and no evidence about her living expenses or living arrangements. It is noted that even after the amount was garnisheed from ING Bank, there was still $49,000 in that account.
2. On balance, I find that the best way to deal with any prejudice suffered by both parties would be to order that the funds obtained by the plaintiff under the garnishee order be disgorged by him and paid into court to await the outcome of the hearing.

Delay

1. I find that the first defendant is not guilty of any subsequent delay, having taken steps within days of finding out about the garnishee order to instruct a solicitor and move to set aside the judgment.

Conclusion on Rule 36.16 of the UCPR

1. I find that the default judgment against the first defendant should be set aside pursuant to r 36.16 of the UCPR.
2. I am also satisfied that the default judgment against the second defendant (represented on this motion by the first defendant) should be set aside under r 36.16 of the UCPR, if I should be found on appeal to be in error in relation to r 36.15 of the UCPR. My reasons are the same as those set out above in relation to the first defendant.

Garnishee Order

1. It follows from the findings above that the garnishee order should be set aside. The plaintiff should not be able to retain those monies pending determination of the issues set out in the proposed Defence. However, if I order that the monies be returned to the first defendant, there is a risk that the plaintiff would suffer prejudice if those funds were dissipated, and there is nothing left to recover even if the plaintiff ultimately succeeds at a defended hearing.
2. To do justice between the parties, I propose to order that the plaintiff pay the monies obtained under the garnishee order, together with any interest earned thereon, to the Registrar of the District Court to await determination of the defended hearing.

Costs

1. The costs order usually made where a defendant seeks to set aside a default judgment is that, having come to court to seek an indulgence, the defendant should pay the plaintiff's costs of obtaining that indulgence.
2. However, in this case I have found that the judgment against the second defendant, and the garnishee order against the second defendant, were irregular and should be set aside. The plaintiff should have applied for a tutor to appointed to represent the second defendant. The plaintiff should have disclosed to the court that it was being asked to enter default judgment against a dead man. The plaintiff should have also disclosed this to the court rather than making an application, on the same day as the second defendant's funeral, for a garnishee order against him.
3. In those circumstances the "indulgence" approach seems inappropriate.
4. I will therefore make an order that each party pay their own costs of the motion.

Orders

1. My orders are as follows: 1. Appoint the first defendant to represent the estate of the late Raphael Barel, the second defendant, in these proceedings. 2. Set aside the default judgment entered on 9 January 2023 against both defendants. 3. Grant leave to the first defendant to file within 14 days a Defence on behalf of both defendants, in accordance with annexure "A" to Exhibit DX 1. 4. Order pursuant to s 16 of the Civil Procedure Act 2005 (NSW) that the plaintiff pay the sum of $173,727.29, paid to him on 18 January 2023 by force of a garnishee order, together with any interest earned thereon, to the Registrar of the District Court to abide the outcome of these proceedings and to be dealt with in accordance with Part 41 of the Uniform Civil Procedure Rules 2005 (NSW). 5. Order each party to pay their own costs of the Notice of Motion filed on 16 February 2023.

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 May 2023