Carr v Finance Corporation of Australia Ltd

The respondent submits that the appeal is incompetent because the judgment appealed from is not a final judgment within s. 35 of the Judiciary Act. The question whether a judgment is final or interlocutory for the purpose of the rules relating to appeals is one productive of much difficulty. The test now applied in this Court for determining whether a judgment is final or not is whether the judgment or order appealed from, as made, finally determines the rights of the parties: Licul v. Corney [1] . An order refusing to set aside a default judgment does not as a matter of law finally dispose of the rights of the parties, for it is open to the disappointed defendant to apply again to have the judgment set aside: Hall v. Nominal Defendant [2] . In practice, in some cases a second application of that kind might be successful, for example, when the first application had been dismissed on a technicality. In other cases, however, the second application would be doomed to failure because the issues of substance which it raised would have been decided adversely to the defendant in the first application. The appellants here submit that their right to make a further application is purely theoretical, since any such application must necessarily fail, and urge that in these circumstances the judgment should be regarded as a final one.

1. (1976) 50 A.L.J.R. 439, at p. 444. 2. (1966) 117 C.L.R. 423, at p. 440.

In my opinion the test in Licul v. Corney requires the Court to have regard to the legal rather than the practical effect of the judgment. If this were not so, the question whether a judgment is final or interlocutory would be even more uncertain than it is at present. In some cases it would be necessary for the Court, for the purpose of determining the practical effect of an order refusing to set aside a default judgment, to embark on a detailed inquiry as to the facts of the matter and the course of the proceedings already taken - an inquiry quite inappropriate when the only issue is whether a right of appeal exists. As will be seen, it would be necessary to make an inquiry of that kind in the present case if the practical test were to be adopted. The rigour of the rule that the legal effect of the judgment is decisive may of course be mitigated by the exercise of the Court's power to grant special leave to appeal.

I therefore hold that the judgment appealed from is not a final judgment and that the appeal is incompetent.

It is then necessary to turn to the application for special leave to appeal. The material discloses that some of the mortgaged properties had been sold by the respondent, which had given credit to the appellants for the amounts realized on the sales. However, the appellants submitted that the power of sale given by the mortgages was rendered ineffective by reason of the failure of the respondent to give a notice of sale which complied with s. 57 (3) of the Real Property Act 1900 N.S.W., as amended. A new s. 57 was inserted by the Real Property (Amendment) Act 1976 N.S.W. and took effect on 1 July 1978. The notices in the present case were given after that date, but the power of sale under the mortgages had arisen before that date. It was held in the Supreme Court, following Morrisey v. Bright [3] , that the section did not affect the respondent's accrued right to exercise a power of sale which had come into existence before the amending legislation took effect. It is clear that the Supreme Court would not allow the appellants, on a further application, to ventilate that question again. The appellants, by ground (2) of their amended notice of appeal, now raise a question which was not discussed in the Court of Appeal. That ground reads: "The Court of Appeal should have allowed the appellants to set aside default judgment on the ground that there was an arguable or triable issue in the appellants' defence that none of the moneys allegedly owing by the appellants to the respondent were due and payable because the provisions of s. 57 (5) of Act No. 96 of 1976 rendered any covenant under which the whole of the principal or other money secured by the mortgage became payable of no force or effect due to failure by the respondent to comply with the provisions of that section". Section 57 (5), in the form which it assumed after its amendment by the Real Property (Amendment) Act 1976, read as follows:

Without prejudice to any other manner in which it may be deprived of force or effect, a covenant, agreement or condition whereby upon a default referred to in subsection (2) (a) -

(a) the whole of the principal or other money of which the payment is secured by a mortgage or encumbrance becomes payable; or

(b) a part of that principal or other money (not being a part to which that default relates) becomes payable,

has no force or effect until the powers conferred by section 58 become exercisable by reason of that default. Section 58 deals with powers of sale, and the appellants' argument is that those powers did not become exercisable in the present case because no notice complying with s. 57 (3) had been served. However, the respondent disputes that the covenants in the mortgages were of the kind referred to in s. 57 (5), and submits that the moneys had become due under the mortgages because the time for payment fixed by the mortgages had arrived, and not "upon a default referred to in subsection (2) (a)" of s. 57. In written submissions lodged without leave after the conclusion of the hearing, the appellants submitted that if the matter went to trial they would tender evidence to show that the term of the mortgages had been extended. This ground of appeal raises two issues, one of fact and one as to the effect of s. 57 (5). If the Court were concerned to discover the practical effect of the order now appealed from, it would be necessary to inquire whether that order would prevent the appellants from raising these issues in the action. However, it is clear that it would not be appropriate to allow new issues of fact to be raised for the first time in this Court. 1. [1978] 2 N.S.W.L.R. 1.

However the question whether Morrisey v. Bright [4] was correctly decided is one of some importance. Moreover that decision stands in the way of any defence or counterclaim which the appellants can raise in the action. In opposition to the grant of special leave the respondent submitted that there is a pending action brought by the appellants against the respondent which raises the issue whether the sale of the properties had been wrongfully made, and we have now been supplied with a copy of the statement of claim in that action. However, in that action also the Supreme Court would of course follow and apply Morrisey v. Bright, and the fact that that action is pending is no reason for refusing this application for special leave to appeal. In my opinion special leave should be granted to enable the correctness of the decision in Morrisey v. Bright, and the effect of s. 57, to be considered.

For these reasons I would allow the objection to competency. I would grant special leave to appeal but would limit the issues to prevent the appellants from attempting to raise any questions of fact not raised in the court below. I would order that the costs of the present proceedings be costs in the appeal.

The appellants appeal as of right, from an order of the Court of Appeal dismissing their appeal from an order of Master Allen, refusing their application to set aside a default judgment which had been entered against them. The respondent having objected to the competency of the appeal, the appellants in the alternative seek special leave in the event that the respondent's objection is upheld.

A brief summary of the history of the litigation is essential to an understanding of the issues which now arise. The respondent commenced an action in the Supreme Court of New South Wales seeking to recover $232,462.46 alleged to be owing by the appellants, together with various amounts for interest. According to the respondent's statement of claim it held three mortgages and an indenture of mortgage over various properties owned by the appellants, to secure repayment of loans made to them together with interest. The appellants made default in the payment of instalments of principal and interest due under the mortgages. The respondent exercised its power of sale under the three mortgages and sold the properties to which they related. The appellants sold the property subject to the indenture of mortgage and paid to the respondent the proceeds of sale. The respondent claimed the amount of $232,462.46 after taking into account the proceeds of sale which it received under the mortgages and from the appellants. On 24 April 1980 the respondent obtained a default judgment for want of a defence in the amount of $244,381.66 together with $200 costs. The amount for which judgment was entered included a sum for interest accrued since the commencement of the action.

The appellants moved for an order setting aside the judgment and letting them in to defend. The defence which they sought to raise turned on two matters. First, they alleged that the notice given by the respondent which preceded the exercise of the power of sale did not comply with s. 57 of the Real Property Act 1900 N.S.W., as amended. This section, which was the subject of an amendment made by Act No. 96 of 1976, prescribes the procedure which is to be followed by a mortgagee wishing to exercise the power of sale conferred by s. 58 when default has taken place under a mortgage. According to the appellants s. 57 (2) enables a registered mortgagee to exercise that power of sale if default has taken place in the payment, in accordance with the terms of the mortgage, of the principal or interest where the default relates to that payment and a written notice that complies with s. 57 (3) is served and the requirements of the notice are not complied with in the time notified pursuant to s. 57 (3) (d). Section 57 (3) of the Act provides that a notice complies with the sub-section if it observes certain prescriptions which the sub-section contains. One of these prescriptions is that the notice specify that it is a notice pursuant to s. 57 (2) (b) of the Act. The notice served by the respondent did not comply with this requirement.

Without prejudice to any other manner in which it may be deprived of force or effect, a covenant, agreement or condition whereby upon a default referred to in subsection (2) (a) -

(a) the whole of the principal or other money of which the payment is secured by a mortgage or encumbrance becomes payable; or

(b) a part of that principal or other money (not being a part to which that default relates) becomes payable,

has no force or effect until the powers conferred by section 58 becomes exercisable by reason of that default.

The second matter of defence raised by the appellants was that the properties were sold at so gross an undervalue as to indicate that the respondent was in breach of its duty as a mortgagee.

The Master held that the first matter of defence was disposed of by the Court of Appeal's decision in Morrisey v. Bright [5] . In that case the majority (Reynolds and Hutley JJ.A.) held: (1) that the unexercised power of sale of a mortgage is an accrued right, and (2) that there was nothing in the scheme provided for by ss. 57, 58A of the Real Property Act, as amended by Act No. 96 of 1976, that came into operation on 1 July 1978, which operates to take away a power of sale accrued to a mortgagee by reason of default by the mortgagor in the performance of one or more of the covenants in the mortgage before that date. They held, further, that the mortgagee was attempting to exercise, not the power of sale conferred by the new s. 58, but the power of sale already in existence and that s. 57 (2) was not directed to the exercise of that power of sale. Mahoney J.A. dissented on the ground that the amended s. 57 (2) restricts the power of sale which arose from s. 58 before the amendments became operative and does not only apply to powers of sale arising thereafter. He went on to express the view that a covenant to pay interest is one in respect of which amended s. 58 (1) does not permit notice to be dispensed with by the mortgagee, so that s. 57 (2) requires that notice to be given. His view would apply with equal force to a covenant to re-pay principal by instalments.

In the present case the default took place before 1 July 1978, but the notices preceding the exercise of the power of sale were all dated 20 July 1978.

The Master also held that if Morrisey v. Bright was wrong, the respondent would still be entitled to sue for moneys due under the mortgages and the indenture, the mortgagors being entitled to pursue their claim for damages by cross-claim. This reason also disposed of the second point of defence.

The appellants' appeal from the Master's order was referred by Fisher J. to the Court of Appeal for the determination of certain questions of law. The Court of Appeal considered that it should follow Morrisey v. Bright. Reynolds J.A. (with whom Hutley and Glass JJ.A. agreed) noted that the only other argument by the appellants was that the exercise by the mortgagees of the power of sale in breach of duty rendered the mortgages void with the result that the moneys owed under them were not recoverable. He referred to this as "a somewhat startling proposition" - a mild comment in the circumstances.

After an original notice of appeal had been filed in this Court, an amended notice of appeal was filed pursuant to an order made by Gibbs J. on 26 November 1980. It sets out two grounds of appeal:

1. The Court of Appeal was in error in holding that the provisions of sections 57 and 58 of the Real Property Act 1900 as amended by Act No. 96 of 1976 did not operate so as to render the respondent's power of sale ineffective.

2. The Court of Appeal should have allowed the appellants to set aside default judgment on the ground that there was an arguable or triable issue in the appellant's defence that none of the moneys allegedly owing by the appellants to the respondent were due and payable because the provisions of S57(5) of Act No. 96 of 1976 rendered any covenant under which the whole of the principal or other money secured by the mortgage became payable of no force or effect due to failure by the respondent to comply with the provisions of that section.

The objection to competency is that the order of the Court of Appeal is not a final order. The respondent contends that an order dismissing an application to set aside a default judgment is not a final order because it does not prevent the defendant from making another and later application to set aside the judgment.

In Licul v. Corney [6] , Gibbs J., after noting that there had been disagreement as to the test for determining whether a judgment is final or interlocutory, said:

One view - which was preferred by the Court of Appeal in Salter Rex & Co. v. Ghosh [7] - is that the test depends on the nature of the application made to the court. The other view which, since Hall v. Nominal Defendant [8] , should, I think, be regarded as established in Australia, depends on the nature of the order made; the test is: Does the judgment or order, as made, finally dispose of the rights of the parties? Within either of those tests the judgment of the Full Court in the present case is not a final judgment. It does not have the effect of finally disposing of the rights of the parties. It leaves it open - at least in theory - to the applicants to make a further application, upon prior notice served on the respondent himself, for an extension of time for service of each summons, and if that extension is granted, and the summonses are served, to proceed with the actions. 1. (1976) 50 A.L.J.R. 439, at p. 444. 2. [1971] 2 Q.B. 597. 3. (1966) 117 C.L.R. 423.

This approach to the question was adopted and applied by this Court in Port of Melbourne Authority v. Anshun Pty. Ltd. [9] where it was held that an order perpetually staying an action finally disposed of the case.

The issue then is whether the refusal of the appellants' application finally disposed of the action. Part 40, r. 9 (2) of the Supreme Court Rules enables the Court, on terms, to set aside a judgment where the judgment has been entered pursuant to Pt 17 (which relates to default judgments). The Rules contain no provision dealing with the question whether dismissal of an application to set aside a default judgment is a bar to a further application to set aside the same judgment. However, it is said that there is a generally accepted principle that the refusal of an application to set aside a default judgment is not a bar to the making of a fresh application. Two cases appear to support that proposition.

The first is the Court of Appeal decision in Atwood v. Chichester [10] where the point was assumed, for it was not discussed. There a wife, having a separate estate without power of anticipation, was sued for a debt contracted during coverture, the action then not being maintainable under the existing law. After an earlier application by the wife to set aside a default judgment had failed, she made another application which ultimately succeeded in the Court of Appeal. It was not suggested in the judgments that the earlier refusal could constitute a bar. The report does not identify the grounds of that refusal.

The second case is Hewitt v. Mirror Newspapers Ltd. [11] where an interlocutory judgment in a defamation action was obtained. The defendant applied to set aside the judgment. The application was refused on the ground that no proper affidavit of merits had been filed. A second application was made, based on a proper affidavit of merits and this succeeded. Connor J. followed Atwood v. Chichester [12] taking the view that three members of this Court in Hall v. Nominal Defendant [13] had indorsed it.

1. (1977) 17 A.C.T.R. 1. 2. (1878) 3 Q.B.D. 722. 3. (1966) 117 C.L.R. 423.

In that case the Court by majority held that the refusal of an application for extension of time within which to commence an action against the Nominal Defendant under the Traffic Act 1923 Tas. was not a final order, but Barwick C.J., dissenting, considered that there was no right to make a second application either by reason of the construction of the statute, "or by reason of the estoppels arising from a refusal of an application to extend the time" [14] . His Honour distinguished the case from setting aside a default judgment, saying [15] :

The matter, it seems to me, is quite different from the case of successive applications for extensions of time for the taking of a step in an action or for setting aside a default judgment in an action. In these cases, the matter is under the control of and generally within the discretion of the court in which the action is brought. 1. (1966) 117 C.L.R., at p. 430. 2. (1966) 117 C.L.R., at p. 429.

Taylor J. (with whom Owen J. agreed), after indicating that the question was whether the order finally disposed of the rights of the parties, said [16] :

So an order made in the course of an action or suit which does not conclude the rights of the parties inter se, although it may, of course, conclude the fate of the particular application in which it is made, is interlocutory only. On this basis an order staying proceedings against one of several defendants on the ground that they are scandalous, vexatious and an abuse of the process of the Court has been treated as interlocutory: Hind v. Marquis of Hartington [17] . The same view was taken of an order striking out a plaintiff's statement of claim on the ground that it disclosed no reasonable cause of action: Jones v. Insole [18] and of an order dismissing an action as frivolous and vexatious in In re Page [19] . In Manley Estates Ltd. v. Benedek [20] there were successive applications to extend time under a provision similar to that in question here, whilst Atwood v. Chichester [21] shows that an order dismissing an application to set aside a default judgment did not constitute a bar to a subsequent application of the same character. 1. (1966) 117 C.L.R., at p. 440. 2. (1890) 6 T.L.R. 267. 3. (1891) 64 L.T. 703. 4. [1910] 1 Ch. 489. 5. [1941] 1 All E.R. 248. 6. (1878) 3 Q.B.D. 722.

Although Windeyer J. did not directly deal with the point, his judgment leaves little room for doubt that he considered an order refusing an application to set aside a default judgment to be interlocutory. He was at pains to say that it is: " never enough to ask simply does the order finally determine the actual application or matter out of which it arises; because, subject to the possibility of an appeal, every order does that, unless it be an order that is expressly declared to be subject to variation" [22] .

In my opinion Barwick C.J. was entirely correct when he said that the setting aside of a default judgment is a matter "under the control of and generally within the discretion of the court in which the action is brought" [23] . That, so it seems to me, is precisely how it is placed by Pt 40, r. 9 (2) and I can see no justification for arbitrarily imposing upon that discretion a rigid rule that the refusal of an application is a complete bar. The Court should preserve the generality of its discretion so as to protect its capacity to see that justice is done in a wide variety of cases.

The question remains whether the refusal of an application amounts to a final order, when the practical effect of that order is to preclude the defendant from making another application to set aside the judgment, although in strict law the defendant is free to bring his application, knowing that it will inevitably fail. The present case is a striking example. Naturally the Court of Appeal could not be expected to depart from its earlier decision. Consequently a further application to set aside the judgment is of no value to the appellants. In Hewitt [24] it was very different.

The choice for the Court is whether it should continue to adopt the traditional classification of orders of this kind as interlocutory because there is the right to make another application and because the order does not deal directly with the rights in contest in the action or whether it should now classify such orders as final when their practical effect is to shut out the defendant from contesting the default judgment.

Although the second alternative has some attractions, it has the disadvantage that the character of the order (whether it be final or interlocutory) could not be determined on its face, but could only be ascertained after an examination of the grounds on which the application to set aside was made, the grounds on which it was refused and the formation of a judgment as to the impact of the grounds of refusal on the prospects of bringing a second application. The adoption of this approach would bring yet a further complication to the complexities which already bedevil the existence of appeals as of right to this Court.

The prospect that there could be a steady stream of appeals to this Court from orders on applications to set aside default judgments, if the character of a final order be conceded to them, is by no means an inviting prospect. Even so, I would not shrink from making that concession if it be correct in law so to do, in order to do justice to the parties. However, for the reasons already given, I do not consider it to be a correct approach. It goes without saying, that the unsuccessful party can, in an appropriate case, apply for and obtain special leave to appeal.

I would therefore allow the objection to competency.

This brings me to the appellants' application for special leave to appeal. The question on which the Court of Appeal divided in Morrisey v. Bright [25] is a difficult and an important question, worthy in my view of the grant of special leave. However, success on that point would not avail the appellants unless they can also rely on s. 57 (5). If the judgment of Reynolds J.A. correctly sets out the case presented for the appellants in the Court of Appeal no reliance was placed on that sub-section - instead a wholly untenable argument was presented. However, if it were now to appear that the appellants have an arguable defence involving an important question of law, even though part of the defence has not hitherto been presented, special leave should be granted.

The respondent submits that s. 57 (5) has no application to the case because the dates of redemption of the mortgages, and the indenture of mortgage respectively were 10 October 1974, 7 March 1974, 8 February 1975 and 3 October 1974, and the respondent is suing to recover the balance of principal and interest due under the general covenant to repay, the action having been commenced in 1979. It seems reasonably clear that s. 57 (5) is directed to covenants and agreements, breach of which makes the whole of the principal or other money secured by the mortgage due and payable. However, it appears from the statement of claim that the respondent is suing on the covenants to pay principal and interest by instalments before the expiry dates of the mortgages and relying upon breach of those covenants in order to make the principal due and payable at earlier dates and claiming interest on the principal from those dates. Section 57 (5) therefore remains as an obstacle to be surmounted.

In these circumstances I would grant special leave to appeal, limited to exclude consideration of any issues of fact not raised in the Supreme Court.

I should express my dissatisfaction with the way in which the appellants' case has thus far been presented. I have already referred to the absence of any reference to s. 57 (5) before the matter reached this Court. After argument had concluded in this Court lengthy written submissions dealing with issues not hitherto raised and a further affidavit were filed. The affidavit asserts that the mortgages were extended but no attempt is made to specify the extended expiry dates or the facts giving rise to the alleged extension. The material was submitted without leave having been given by the Court. The impression, unfortunately abroad, that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived. We have to say once again, firmly and clearly, that the hearing is the time and place to present argument, whether it be wholly oral or oral argument supplemented by written submissions.

In the result I would allow the objection to competency and dismiss the appeal as incompetent. I would grant special leave conditioned as I have indicated earlier.

The appeal instituted in this Court is incompetent. The judgment in the Court of Appeal dismissed an appeal from an order refusing an application to set aside a default judgment. That judgment was interlocutory, not final, and therefore provides no foundation for an appeal as of right under the Judiciary Act 1903.

Special leave to appeal should be granted limited as proposed.