Bendigo and Adelaide Bank Ltd v Dimitrov

Consideration of Facts relevant to Rule 36.15

1. It is convenient at this point in the history to pause and consider the application under r 36.15. The facts which occurred up to the entry of default judgment are those which are relevant to the application under this rule.
2. The defendant submits that an inference should be drawn that the plaintiff, knowing that the Pekell decision had been given and thus realising the possibility that the FOS dispute would be re-opened, decided to obtain the default judgment with a view to closing off the defendant's right to re-agitate his issues before FOS. Had FOS become seized of the matter again, there would have been a further contractual bar to the plaintiff seeking to pursue its rights under the Statement of Claim. Where a dispute has been lodged with FOS, a financial services provider must not pursue legal proceedings relating to debt recovery and in particular must not seek judgment in those legal proceedings.
3. The plaintiff was entitled under the Rules to apply for default judgment by the time its solicitor told the defendant's new financial adviser on 31 May 2016 that default judgment would be entered. It took no steps to obtain default judgment between 31 May 2016 and 16 June 2016 when the matter was referred to FOS. After FOS closed the notice of dispute with effect from 14 September 2016, a matter notified to the plaintiff on 16 September 2016, the plaintiff could have sought default judgment between 16 and 23 September 2016 when FOS was willing to reopen the matter. In that period between 16 September 2016 and 23 September 2016, the following crucial matters occurred: 1. On Friday 16 September 2016 the defendant became aware that FOS had closed the file, but was willing to deal with the dispute again if the Supreme Court of Victoria changed its approach; 2. On Monday, 19 September 2016 Mr Flamer-Smith ascertained the precise amount owing by the defendant; 3. On Tuesday, 20 September 2016 Mr Flamer-Smith sworn an affidavit in support of an application for a default judgment; 4. On Wednesday, 21 September 2016 the decision in Pekell was delivered; 5. Armed with the affidavit of Mr Flamer-Smith, the plaintiff applied to this Court on the day after the Pekell decision, being Thursday, 22 September 2016 for default judgment; 6. Judgment was ordered by an administrative process, unknown to the plaintiff, on that same day 22 September 2016. 7. The default judgment was entered on Friday, 23 September 2016.
4. The defendant submits as follows. The inference should be drawn that, since the plaintiff had not taken steps to obtain default judgment before the matter was referred to FOS, the reason it applied for default judgment on 22 September 2016 was to close off the possibility that FOS could re-open the defendant's application, in the light of the decision in Pekell. The plaintiff well knew that the defendant wished to assert that he was entitled to raise defences and cross-claims which were not covered, in his view, by the approval of the settlement by Justice Croft. In the light of FOS, as it were, leaving the door open to the matter being considered again if the Victorian Supreme Court changed its mind, when that in effect occurred on 21 September 2016 as a result of the Pekell decision, the plaintiff moved rapidly to obtain default judgment so as to prevent the matter going back to FOS. If it had gone back to FOS two things would have flowed. The first was that while the dispute was again before FOS the plaintiff could not seek judgment or otherwise pursue the proceedings brought by the Statement of Claim. The second was that if FOS made a determination as between the defendant and the plaintiff, that determination would have been binding upon the plaintiff. True it is that FOS may well have found that the plaintiff was entitled to all of its funds. However, the alternative result was that the FOS decision would mean that the plaintiff would not be able to recover any or all of the funds sought in the proceedings. In effect, there was a risk to the plaintiff if the FOS reconsidered the defendant's dispute in the light of the Pekell decision.
5. Of course the defendant had no direct evidence that these matters motivated the plaintiff to seek the default judgment the day after the Pekell decision. It was pointed out for the plaintiff that the affidavit of Mr Flamer-Smith was obtained on the day before the Pekell decision was handed down. However, when a judgment is reserved, it is standard practice for the parties to the proceedings to be notified of the proposed date of delivery of judgment, so that there can be an attendance for both sides before the judge who is delivering judgment. At the very latest, this notification would have occurred on 20 September 2016. Judges never sit in an empty court room to deliver judgments but do arrange for a representative of each party to be there to receive judgment.
6. The plaintiff sought to characterise the sequence of events as "a coincidence of dates". That is quite possible, although Mr Flamer-Smith, who swore affidavits for use in these proceedings, and who was the bank officer responsible for these debts and this recovery, did not say it was simply a coincidence. If the timing of the application for default judgment was purely fortuitous, he was the person who could have given evidence to say so. There was no such evidence.
7. In Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352, the High Court said: "In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing and evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so the choice between them is a mere matter of conjecture… But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusions sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise…"
8. As previously recited, the defendant points to the circumstantial evidence surrounding the application for default judgment and asks the court to find that the probable inference is that this judgment was entered, as a matter of urgency, in order to frustrate the defendant in his attempt to agitate his arguments before FOS, which was perfectly willing to re-open the dispute. The person who could give evidence for the plaintiff to negate that inference has chosen to remain silent. If the sequence of events is a mere coincidence of dates, it is a most remarkable coincidence of dates. As the American philosopher Yogi Berra said: "That's too coincidental to be a coincidence".
9. I find that the probable inference is as put forward by the defendant. I find that the application for default judgment filed on Thursday, 22 September 2016 was filed at that time for the purpose of closing off the defendant's opportunity to have FOS re-open the dispute in the light of the Pekell decision delivered on Wednesday, 21 September 2016. This was a decision to which the plaintiff was a party and the plaintiff would have had some advance notice of delivery of the decision.
10. Whether that factual finding by inference is enough to satisfy r 36.15 is another matter. I turn to consideration of the authorities in relation to that rule.

Consideration of Rule 36.15

1. The default judgment obtained by the defendant could not be said to have been obtained irregularly. This word in context means that there has been a failure to comply with proper procedure or the rules. The classic example is where a party has not been given notice of a hearing and yet judgment is entered against them. Here the rules were complied with when the plaintiff obtained the default judgment.
2. Nor could it be said that the judgment has been obtained illegally. No such submission was made by the defendant.
3. The question is therefore whether the default judgment was given or entered against good faith.
4. In Coles v Burke (1987) 10 NSWLR 429, Kirby P said at 437C: "The genus which is involved in the phrase 'irregularly, illegally or against good faith' appears to me to be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of that judgment warranting the exceptional course for which r 12A [the previous version of the current rule] provides."
5. In Roach v B & W Steel Pty Limited (1991) 23 NSWLR 110 a judgment was obtained ex parte. The legal advisers of the plaintiff knew or ought to have known that the absence of the defendant from the hearing was the result of some mistake and did not reflect a deliberate decision on its part to no longer contest the making of the order. The court said at 113G: "It does not matter that the legal practitioner who acted to obtain the judgment or order was not aware that his or her conduct was contrary to an earlier promise or representation made by or on behalf of the client. It would still be contrary to good faith for a client to attempt to retain the benefit of an order innocently obtained by his legal practitioner if it had been obtained contrary to a promise or representation binding on the client."
6. In the present case there was no such promise or representation. Indeed, the notification back in May 2016 was notification that default judgment would be entered. There is no evidence of any promise or representation to refrain from entering default judgment if FOS closed the dispute and declined to consider it further.
7. In Kendell v Carnegie (2006) 68 NSWLR 193 at [60], the Court of Appeal said: "There is not and could not, I would think, ever be an exhaustive judicial definition of what is against good faith; only very broad limits are set by proceeding by analogy from circumstances in which judicial remedies are based on good faith, unconscionability or other concepts closely related to good faith… 'Against good faith' is an expression which requires the impeachment of the intention or behaviour of the person whose good faith is impugned."
8. In the present case, while the plaintiff may have moved very rapidly after FOS closed the dispute, it had a right to do so, and there could be no impeachment of its intention or behaviour so as to constitute acting against good faith.
9. I find that the defendant has not made out a case for relief under r 36.15. The written submissions for the defendant acknowledged that there was no misconduct by any person in procuring the default judgment. What the plaintiff did was described variously as "sharp practice", serving an "ulterior purpose" and "sneaky". Against the background of the authorities cited above, even though I have drawn the inference sought by the plaintiff, the actions of the plaintiff were not against good faith and thus the application under r 36.15 fails.

Setting Aside the Default Judgment - under Rule 36.16

1. To set aside a default judgment pursuant to Rule 36.16, a defendant must establish that there is a defence on the merits and an adequate explanation for default and delay - Cohen v McWilliam (1995) 38 NSWLR 476.
2. In the present case the plaintiff made sensible and proper concessions that: 1. default and delay were not in issue; 2. the proposed Amended Defence disclosed arguable defences on the merits.
3. However, the plaintiff submitted that the effect of the approval in the Supreme Court of Victoria by Justice Croft meant that the defendant had released his rights to raise matters of the kind set out in the proposed Amended Defence.
4. The defendant was a group member in representative proceedings in the Supreme Court of Victoria. On 11 December 2014 the Supreme Court of Victoria approved the settlement of the proceedings. The settlement was subject to the terms of a Deed of Settlement. Clause 4 of this Deed contained releases of claims on behalf of the group members in favour of the current plaintiff and an acknowledgement on behalf of group members that all of the plaintiff's loans were valid and enforceable. The release was set out in simple terms in paragraph 4.1.10 of the Deed as a release "from all Claims".
5. Clause 1.1 of the Deed contained the definitions applicable within the document. The relevant definition of "Claim" was: "Claim" means any claim, demand, action, suite or proceeding for damages, debt, restitution, equitable compensation, account, injunctive relief, specific performance, declaratory relief or any other remedy, whether by original claim, cross-claim, claim for contribution or otherwise whether presently known or unknown and whether arising at common law, in equity, under statute or otherwise and whether involving a third party or party to this Agreement and all liabilities, losses, damages, costs (including legal costs on a full indemnity basis), interest, fees, and penalties of whatever description (whether actual, contingent or prospective) arising out of, or in connection with the contents of or the facts giving rise to, the PDSs, the Loan Agreements and or the allegations made in or the facts giving rise to each of the Proceedings."
6. The plaintiff in these proceedings submits that the release in the Deed is wide enough to encompass a release of the defendant's rights to raise the defences and claims set out in the proposed Amended Defence. It can be seen straight away that this contention throws up a need for a court to consider whether the matters raised by the defendant are matters "arising out of, or in connection with the contents of or the facts giving rise to, the PDSs, the Loan Agreements and or the allegations made in or the facts giving rise to each of the Proceedings".
7. Clause 1.1 of the Deed defines "Proceedings" to mean: "The Group Proceedings, the Contribution Proceedings, the M+K Counterclaim proceedings, the Other Proceedings, the Uplifted Proceedings and the Section 6 Proceedings."
8. It is plain that facts need to be determined, on the plaintiff's contention concerning the release, to determine what kind of proceedings were brought by or concerning the present defendant, and then whether the issues raised in those proceedings fall within the matters released, in accordance with the definition of "Claim" in the Deed.
9. In Karam v ANZ Banking Group Limited & 1 Ors [2001] NSWSC 709 [at 406] Santow J set out the principles applicable to construing releases or purported releases by reference to the following a series of propositions: "(1) In construing a release... the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS [1997] UKHL 28; [1998] 1 All ER 98 per Lord Hoffman at 114. (2) In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon [1758] EngR 153; (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley. (3) Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed). (4) Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER 961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali(supra) at 971-72 who was of the view that for the purposes of construction a general release is simply a term in the contract). (5) Although each release should be considered against its own matrix of facts, an example of this line of "cautionary principle" (Lord Bingham's phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Limited (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his "Principles of Contract" (Stevens: London, 1950) 13th ed at 412, that "in equity a release shall not be construed as applying to something of which the party executing it was ignorant." (6) Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman. (7) In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973."
10. These principles make clear that there are factual matters which need to be taken into account in construing the effect and width of a release. Those matters are: 1. the background knowledge available to the parties at the time they entered into the release; 2. the matters specifically in the contemplation of the parties at the time when the release was given; 3. whether the parties were unaware or could not have been aware of certain rights and claims; 4. whether there was an obligation to disclose the existence of claims known to one party but not the other.
11. The plaintiff has drawn attention to a number of decisions, subsequent to the approval of the settlement of the group proceedings by Justice Croft, where the release has been held to be wide enough to deny a defendant the opportunity to raise individual defences. At the appellate level, there is the decision of the Court of Appeal of the Supreme Court of Victoria in Bendigo and Adelaide Bank Ltd v Pekell Delaire Holdings Pty Ltd [2017] VSCA 51. One of the first instance decisions is Bendigo and Adelaide Bank Limited v Zipevski [2018] NSWDC 54, a judgment of Judge Dicker SC of this court. His Honour found at [87] that the defendant was bound by the Deed of Settlement and was estopped from defending the plaintiff's claims in the proceedings. To come to that conclusion his Honour considered the nature of the defendant's claim in the Victorian group proceedings and the evidence in relation to the defences raised in the District Court. Consideration of those matters was of course necessary, to enable his Honour to come to an ultimate conclusion that the release was wide enough to operate to prohibit the defendant raising the matters put forward in defence of the plaintiff's claim. A similar approach was taken by the District Court of Queensland in Bendigo and Adelaide Bank Limited v Gaedtke [2017] QDC 28 July 2017 and the District Court of South Australia in ABL Custodian Services Pty Limited v Kunz [2016] SADC 145. In each of those cases the trial judge found it necessary to hear evidence surrounding the background facts, before coming to the view that the release operated to bar the defences raised.
12. It seems to me inevitable that there would need to be a hearing of the facts relevant to the construction of the release, before a finding could be made by a judge that the release operated to bar the defences and claims put forward by the defendant in these proceedings. This is particularly so when, as properly conceded, Mr Dimitrov has arguable defences and counter claims which he could bring forward, in the absence of such matters being released by the Victorian Deed of Settlement. In none of the first instance decisions cited has the judge simply looked at the terms of the Deed of Settlement and held that the defendant is out of court. In each case there has been detailed consideration of the evidence put forward upon which an ultimate finding of estoppel by deed of release can be based.
13. Because the claim of each claimant in the Victorian group proceedings could have different features, one cannot extrapolate a result in one case to an automatic result in another where there are different background facts.
14. For those reasons my conclusion is that the default judgment should be set aside and the defendant should be allowed to agitate the defences and counter claims set out in his proposed Amended Defence.
15. This was certainly the course foreseen by Justice Edelman in Dimitrov v The Supreme Court of Victoria [2017] HCA 51 at [37], although his Honour recognised that the defendant first had to get over the hurdle of obtaining an order in the District Court setting aside the default judgment - at [13].
16. A recent example of the importance of determining the necessary background facts before a conclusion can be reached that a claim has been released and a party is estopped from pursuing that claim or defence is the decision of Justice Lee in the Federal Court in Dillon v RBS Group (Australia) Pty Limited (No. 2) [2018] FCA 395. The court was asked to approve an overall settlement sum in group proceedings as fair, reasonable and adequate. One of the terms provisionally agreed to by the applicants was a proposed Settlement Deed which contained a release. The release was in the following terms: "The Applicants and Group Members release and discharge the Respondents and the Related Parties of the Respondents jointly and severally from all claims and actions (including any claim for costs), present and future, relating to the Dispute and the Proceeding."
17. His Honour indicated at the commencement of the hearing for approval of the settlement that he had "serious misgivings about approving a proposed settlement which required a participating group member to sign a document of the type proposed" - at [33].
18. His Honour pointed out that there may be a distinct claim of a participating group member which is not a claim for the purposes of the litigation and the release. Such a claim is not a claim with respect to the subject of the proceeding, but is a claim with respect to the claim available to an individual. His Honour pointed out that the whole focus of the mechanism for approval of the settlement of a group claim is upon the particular claim of the group members brought in the proceedings, and not "individual, distinct claims which do not arise out of the same, similar or related circumstances as the claims the subject of the proceedings" - at [40].
19. His Honour referred to the decision of the High Court of Australia in Timbercorp Finance Pty Limited (In Liquidation) v Collins [2016] HCA 44; (2016) 259 CLR 212 at [53] where the following was said: "The provisions of Part 4A therefore confirm that a plaintiff in group proceedings represents group members only with respect to the claim the subject of that proceeding, but not with respect to their individual claims. The lead plaintiff is not a privy in interest with respect to the respondents' claims. This is so regardless of whether they should have been raised in the group proceedings. That leaves for consideration the question whether the respondents themselves are estopped from raising them in these proceedings."
20. Justice Lee said at [50]: "There is a need to focus on the foundational notion that the representative person, or applicant, only represents group members with respect to the claim which is the subject of the proceeding, and not further. Put another way, the applicants have no role whatsoever in purporting to represent group members in respect of individual claims other than the claim of the individual group member that is the subject of the representative proceeding."
21. His Honour went on to consider the facts before him and reached a conclusion that the release was connected with the subject matter of the proceeding and with "very considerable reluctance" he was "grudgingly persuaded" to approve the inclusion of the release in the provision relating to the Deed. In doing so his Honour stressed at [62] "that representative applicants should understand that their role is restricted to the claim the subject of the proceeding and nothing else".
22. This judgment confirms my conclusion previously expressed - that before a finding can be reached that the release was intended to close off the defences and claims raised by the defendant in his proposed Amended Defence in this court, and that he is estopped from raising those matters, the factual matrix surrounding the Victorian group proceedings, their settlement and the approval must be the subject of evidence and consideration. As I have previously stated, this means that, since there is no problem concerning delay and since it is acknowledged that but for the purported release the defendant has arguable defences and cross-claims, the default judgment should be set aside and the defendant should be let in to defend.
23. It may well be that the same result is reached on a full hearing as was reached by Judge Dicker SC and other first instance judges. However, that point can only be decided after receipt and consideration of appropriate evidence.

Conclusion and Orders

1. The default judgment should be set aside and the defendant should be allowed to file his proposed Amended Defence and Cross-Claim.
2. My orders are: 1. Set aside the default judgment entered in favour of the plaintiff against the defendant on 23 May 2016; 2. Grant leave to the defendant to file and serve a Defence and Cross-Claim (if any) within 28 days. 3. Order the plaintiff to pay the defendant's costs of this Motion.

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: 15 June 2018