Dimitrovski v Australian Executor Trustees Limited

Supreme Court of NSW|2013-04-04|Before: Pembroke J

Introduction 1This is a last ditch attempt by George Dimitrovski to save a valuable family asset. He seeks to have an order for possession of land at Thirroul set aside. The judgment for possession was given on 4 May 2011 in favour of Australian Executor Trustees Ltd (AET). It was a default judgment but it followed a long history of discussion and negotiation culminating in a considered decision being taken to allow AET to have the judgment for possession of the land - to which the defendants thought at the time it was entitled.

Rule 36.15 2George has now changed his mind. His application is made pursuant to Rule 36.15 of the Uniform Civil Procedure Rules 2005 NSW. That rule is not a general panacea but is confined in its operation to strictly limited circumstances. It requires, in this case, proof that the judgment was given or entered, or the order was made 'irregularly'. If that hurdle is passed, it remains necessary to demonstrate that there is 'sufficient cause' to justify the application of the rule in the particular circumstances. 3The language of Rule 36.15 focuses on the steps pursuant to which the judgment or order was 'given' or 'entered' or 'made'. It does not direct attention to the underlying merits of the position of the party against whom the decision was made. The rule is concerned with irregularity in the process by which the judgment was obtained, not with the correctness of the decision. It is certainly not concerned with whether there was an available defence that might have been relied upon at the time the judgment was given or the order was made. See Perpetual Trustees Australia Ltd v Heperu Pty Ltd [No 2] [2009] NSWCA 387 at [16]; Avery v Saree Holdings Ltd [2012] NSWSC 463 at [100] and [103]. 4This is such a case. After successively retaining five sets of solicitors and eventually receiving some percipient advice from Mr Moore of Counsel, George Dimitrovski has found an arguable defence. He wishes to contend that the mortgage, pursuant to which the judgment for possession was given, was and is invalid. That is because it was executed by his father (Kosta) pursuant to a power of attorney from George's late grandmother (Trena), allegedly in contravention of Section 12(1) of the Powers of Attorney Act, 2003. 5At first glance, there does appear to have been a contravention. Section 12(1) states that a prescribed power of attorney does not authorise an attorney to execute an assurance or other document ... 'as a result of which a benefit would be conferred on the attorney unless the instrument creating the power expressly authorises the conferral of the benefit'. There was no such express authorisation and Kosta received a benefit because the mortgage of the Thirroul land secured a guarantee by Trena, which was given in support of a loan by AET to a company in which he had an interest. However, the point is not straightforward. If this proposed defence had been raised, AET would have responded with a number of contentions in opposition to it, including an allegation that Trena personally and expressly authorised the mortgage and that she, or those who now claim through her, are estopped from relying on a contravention of the Act.

Irregularity 6The real point however is that this arguable defence is being invoked almost 2 years after the event, to demonstrate that there was an 'irregularity' in the way the judgment 'was given or entered, or the order was made'. The submission seems to assume that simply because judgment for possession might not have been given if the defence now raised had been earlier ventilated, then the obtaining of the judgment must be infected by irregularity. 7This is false reasoning. As I have been at pains to point out, the limited meaning of 'irregularly' in Rule 36.15(1) is informed by its linguistic and policy context. The word in question is an adverb which modifies the verbs 'was given', 'was entered' and 'was made'. It is clear that its scope is confined to the process by which the judgment or order was given, entered or made. And there are sound policy reasons why this should be so - to which I will shortly turn. 8The position is not assisted by attempting to characterise the obtaining of the judgment as an irregularity on the ground that 'obtaining a judgment for possession when nothing is owed' constitutes an irregularity. This somewhat emotive analysis simply assumes the validity of the contention that there was a contravention of Section 12(1) of the Powers of Attorney Act. In truth, it is no more than an arguable defence that was not thought of. It does not mean that the judgment for possession was obtained irregularly.

Finality - Legal Principle 9At least since the eighteenth century, the finality of litigation has been a paradigm which has shaped our system of justice. In Port of Melbourne Authority v Anshum [1981] HCA 45; (1981) 147 CLR 589 at 609, Brennan J summarised the general principle this way: Both public policy and the interests of the litigants require that there should be an end to litigation as to a particular subject matter once a judgment determining the rights and liabilities of the parties as to that matter has been recovered. 10In D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1 at [34], Gleeson CJ, Gummow, Hayne and Heydon JJ emphasised the bedrock importance of finality in the system of justice: A central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances. That tenet finds reflection in the restriction upon the reopening of final orders after entry ... 11See also Perpetual Trustees v Heperu [No 2] especially at [45]. The overriding discretion that attaches to the exercise of the power to set aside a judgment under Rule 36.15 is informed, among other things, by this principle of finality: Kendall v Carnegie [2006] NSWCA 302; 68 NSWLR 193 at [45]; Kahlefeldt Securities Pty Ltd v Guraparan [2012] NSWSC 476 at [25]. Even where the relevant narrowly defined circumstances have been established, the exercise of the power to set aside an entered judgment remains discretionary. 12An illustration of the operation of the principle in similar although not entirely analogous circumstances, can be seen in Greathead v Bromley (1798) 7 TR 455; 101 ER 1073. In that case it was held that an action to recover a second judgment giving more copious relief than the first judgment, could not be brought merely because some point was omitted from the argument then put to the court. 13In fact, there is no known decision in a civil case that allows a judgment to be set aside simply because an available argument was overlooked or forgotten, or a new point has been perceived. Our system of justice does not recognise the utility of 'second thoughts' after a judgment has been regularly obtained and entered. The disappointed litigant against whom a judgment has been regularly given, may have rights against his lawyer, but there is no right to set aside the judgment on that ground alone.

Finality - Facts 14In this case, the uncontroversial facts that led to the obtaining of the judgment for possession on 4 May 2011, powerfully indicate why the principle of finality should be adhered to. They provide an additional reason for refusing the application to set aside the judgment. 15Trena died on 17 May 2008. On 24 October 2008, her son (Kosta) and grandson (George) lodged a transmission application and became the registered proprietors of the land which became the subject of the judgment for possession in 2011. The obtaining of judgment was preceded by the following events: (a)On 1 October 2010, AET's solicitors sent a demand to Kosta, George and Trena, as guarantors of the liability of Thirroul Property Holdings Pty Ltd. They did not know that Trena had died. (b)On 8 October 2010, AET's solicitors sent to Kosta and George, as registered proprietors, a notice pursuant to Section 57(2)(b) of the Real Property Act, 1900. The amount owing at that stage was approximately $84,000. (c)On 10 January 2011, AET's solicitors sent further demands to Kosta, George and (mistakenly) to Trena. The amount demanded by this time was approximately $3.2 million. (d)On 13 January 2011, AET's solicitors filed a statement of claim in the Supreme Court, Common Law Division, (e)seeking, among other things, judgment for possession of the land in question. Kosta and George were defendants. (f)On 16 March 2011, a firm called 'Wollongong Legal' served on AET's solicitors a notice of appearance on behalf of, among others, Kosta and George, together with a joint affidavit from them sworn on 14 March. (g)The joint affidavit contained the following statement: Although it has been resolved that the properties are to be sold, the first and second defendants reside in the immediate area and therefore seek the Court's compassion in allowing them the opportunity to personally handle the sale of the properties as opposed to a mortgagee in possession. (emphasis added) (h)On 15 March 2011, Wollongong Legal filed a notice of motion seeking the following orders on behalf of Kosta and George, among others:

An order for a postponement and stay in the Supreme Court proceedings 2011/00012370 commenced by the Plaintiff for a sufficient period of time to allow the Second and Third Defendants to sell the First Land and Second Land as referred to in the Plaintiff's Statement of Claim. (emphasis added)
An order that the Second and Third Defendants retain possession of the First Land and the Second Land pending the sale of those properties or otherwise the repayment of all monies owing to the Plaintiff by the Defendants. (i)On 21 March 2011, AET's solicitors pointed out that there did not appear to be a proper legal basis for the application and that it was in effect 'an application to stay the enforcement of any judgment obtained'. (j)On the same day, Wollongong Legal responded by saying that their clients would agree to 'sign a consent judgment to be held in escrow provided that they be granted a period of six months to complete a sale ... and repay the entire loan or alternatively the arrears'. (k)Between 24 March and 2 May 2011, further correspondence ensued, the premise of which, on both sides, was that AET was entitled to possession but that Kosta and George wanted time to repay the loan or the arrears. (l)On 2 May 2011, after failing to meet various target dates, Wollongong Legal made a final plaintive request: We are again instructed to press for additional time before the lender files for judgment or seeks an order for possession. (m)On 3 May 2011, AET applied for default judgment, which was given on 4 May and entered on 5 May. (n)On 21 June 2011, Wollongong Legal wrote to AET's solicitors requesting 'that the lender stay the enforcement of the judgment to allow for [a sale transaction] to progress'. (o)On 28 June 2011, AET's solicitors advised Wollongong Legal that 'AET is prepared to defer enforcement action for a period of 2 weeks'. (p)By 12 October 2011, Kosta and George had instructed new solicitors. On that date, a firm called 'Good Legal' provided to AET's solicitors a copy of the first page of a contract for sale of the land together with the special conditions. (q)By 18 November 2011, it was clear that no sale had occurred or would occur. (r)On 31 January 2012, AET appointed a receiver and manager of the land in question. (s)On the following day, 1 February 2012, a third solicitor appears to have been instructed by Kosta and George. (t)On 12 March 2012 AET obtained a writ of possession. Notice to vacate was required by 7 May. (u)On 4 May 2012, Kosta, who had by now retained a fourth solicitor (a Ms Saldaneri), applied informally for an ex parte order staying the enforcement of the writ of possession. This was the Friday before the date stipulated in the writ for the premises to be vacated - Monday 7 May 2012. (v)On 9 May 2012, Kosta filed a notice of motion seeking a continuation of the ex parte order staying enforcement of the writ of possession. The application was supported by an affidavit, which did not purport to disclose a substantive defence. It simply stated Kosta's belief that a contract for sale of land would settle in approximately four weeks and that the mortgage would be discharged.

Proceedings before Garling J 16A year after the judgment for possession had been obtained, the saga appeared to come close to resolution. On 11 May 2012, the possession proceedings were before Garling J in this court. Ms Saldaneri represented Kosta, the second defendant. George, the third defendant, represented himself. Ms Saldaneri stated that she was confident her client understood 'exactly' and that she had been instructed to consent to orders. She explained: We have come to an arrangement with the plaintiff [AET] which the second defendant is happy with and which I have executed. I believe the third defendant requires a little bit more time to decide ... 17Garling J made the following statement to George: Frankly, Mr [George] Dimitrovski, I don't feel inclined to give you another week. The fact is this. This case has been going on for a very long time. At no time, so far as I can see in the file, and if I have mistaken it, please tell me, but at no time has the debt been disputed. At no time has there been any dispute about the existence of the mortgage or the right of Australian Executor Trustees to get a judgment against you. They got a judgment a year ago. No-one has asked to set the judgment aside. The matter has stayed for 12 months enabling you to do something about selling the property. At the last moment last week a stay was obtained. You are asking me to stay the matter for yet another week, if not more. Now, frankly, I don't see why I should. Can you tell me any good reason why I should not let Australian Executor Trustees take possession of the land? (emphasis added) 18After some further discussion, Garling J gave judgment dismissing Kosta's application for a stay. George had not in fact made his own application. The reasons for judgment included the following statement: This matter has now been extant in the Court for nearly sixteen months, judgment was entered twelve months ago. The plaintiff is entitled to possession of the property as a consequence of that judgment. No attempt has been made by any of the parties affected by the judgment to apply to set the judgment aside. Indeed, after the statement of claim was issued in the first place no defence was filed by any party to the claims which were made. (emphasis added) 19In addition to orders, Garling J noted several agreements between the parties, including the following: (a)An undertaking by Kosta and George that they would not make any further application to stay the writ of possession. (b)An agreement that the Sheriff would be requested to re-schedule eviction from the land to a date after 25 May 2012. (c)An agreement by Kosta and George that before 25 May 2012, they would provide to AET, $700,000 and the deposit of $250,000 in respect of a contract of sale of part of the mortgaged land, together with the exchanged contract of sale. 20Predictably, Kosta and George failed to comply with those agreements. On 25 May 2012, the Sheriff issued a further notice to vacate. In August, George lodged a caveat on the title to the land. In September, he commenced proceedings in the Equity Division of this court. He was now represented by a fifth solicitor. His statement of claim raised, for the first time, the point that is now relied upon to set aside the judgment for possession - namely, that the mortgage is invalid because it was executed pursuant to a power of attorney in contravention of Section 12(1) of the Powers of Attorney Act.

Discretion & Prejudice 21Even if I were satisfied that there had been an irregularity for the purpose of Rule 36.15(1), there are too many discretionary reasons that militate against the exercise of my discretion to set aside the judgment for possession obtained on 4 May 2011. There was ample notice given by AET of its claims prior to the order for possession being made and ample opportunity for any defence to be raised. The first guarantor demands were made on 1 October 2010; Section 57(2)(b) notices were issued on 8 October 2010; the second guarantor demands were made on 10 January 2011; possession proceedings were commenced on 13 January 2011; George and Kosta filed a notice of motion on 15 March 2011; the motion was dismissed by consent on 22 March 2011; and both Kosta and George have been legally represented. 22The result is that AET has been put to exorbitant expense and considerable delay in having the benefit of its legal remedy. George has not provided any explanation for that delay other than, possibly, the curious contention (unsupported by evidence) that he believed he was sued in a personal capacity and not as executor. The truth of the matter is that, prior to the judgment for possession being obtained, and for almost a year and a half afterwards, George believed, and acted on the basis, that AET was validly entitled to possession. Kosta appears to have maintained that view at all times. In the meantime, AET incurred much avoidable expense because of the fanciful and optimistic expectations of George, and to a lesser extent Kosta, that they would be able to discharge the loan or pay out the arrears. I am informed that the receiver's costs to date are $452,000. 23The defence based on the Powers of Attorney should have been raised before the judgment for possession was given on 4 May 2011. The application to set aside the judgment should have been made 'as soon as it comes to [the] defendants' attention': Australian Regional Credit Pty Ltd v Rukavina [2010] NSWSC 1466 at [39]. Prompt action to set aside a judgment is necessary to satisfy the demands of commerce and to maintain the interests of justice. In this case, there has been a complete failure in that regard. The only possible excuse for not doing so is the omission of all lawyers retained on behalf of Kosta and George, except the last, to perceive the point that is now relied upon. I am afraid that is not good enough. 24The true complexion of the facts is that Kosta and George made a tactical decision to allow judgment for possession to be entered. They appeared to think that they would be able to realise some or all of the properties and discharge the indebtedness. They elected not to defend the claim for possession. And at the hearing before me, George elected not to go into evidence and to submit to cross-examination. He was present in court but there was no explanation from him as to why he did not attempt to raise the issue of the validity of the mortgage before September 2012. There will often be valid commercial reasons for not raising a defence or not contesting a claim or not incurring the expense of obtaining counsel's advice. In such a case, a party will usually be bound by the outcome of his election to do so, even if that election proceeded on a false premise or an ignorance of a possible available defence.

Estoppel & Res Judicata 25The dismissal of the application to set aside the judgment for possession has a correlative result in the Equity proceedings. It prevents the validity of the mortgage based on the alleged contravention of the Powers of Attorney Act, being raised in those proceedings. It would be invidious if the point that I have shut out because of the defendants' conduct, could be raised by them in separate proceedings. The judgment for possession given on 4 May 2011 was predicated on the validity of the mortgage. My decision to refuse George's application to set aside the judgment for possession, is also predicated on the validity of the mortgage. There would be a fundamental inconsistency if I allowed George to proceed with his challenge to the mortgage in the Equity proceedings, having regard to my decision in the possession proceedings in the Common Law Division. 26A default judgment can give rise to a res judicata: Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 NSWLR 508. And the reasoning in Morelend Finance Corporation (Vic) Pty Ltd v Levine (1990) VR 205 at 211 applies. See also Angel v National Australia Bank [2001] FCA 1053 and Accom Finance Pty Ltd v Mars Pty Ltd [2007] NSWSC 726; cf Permanent Custodians Limited v Ali [2008] NSWSC 1264. In this case the judgment for possession, which I have preserved and confirmed, precludes a challenge in separate proceedings to the validity of the mortgage and the debt it secured.

Other Irregularity 27Two other grounds were relied upon by George but they can be dealt with briefly. It is true that there was some deficiency in AET's pleading in support of its claim to possession. But this does not amount to an irregularity in the way the judgment was obtained. The facts that were proved entitled AET to judgment and nothing turns on the inaccuracies and infelicities of the drafter. 28Secondly, it was contended that 'there was no reference in the Possession Proceedings pleadings or in the conduct by AET of the Possession Proceedings to suggest that Kosta and George were joined in the Possession Proceedings in other than their personal capacity'. This reflects confusion about the legal concept of capacity. The capacity of Kosta and George was irrelevant to AET's claim. AET sued Kosta and George, and obtained judgment for possession against them, because they were the registered proprietors of the land. It did not matter whether they were executors or trustees or had some other representative capacity. 29It is a common misapprehension that a legal owner who holds some representative capacity should be sued and described as 'X in his capacity as ...'. This is an unnecessary complication. If the legal owner is a trustee or executor or holds some other representative capacity, he will be entitled to be indemnified for any liability which he has properly incurred. But that is an internal matter between executor and estate. It need not concern the plaintiff who brings an action against the legal owner. The point was made forcefully in argument by the late Lehane J, and summarised in the Full Court's reasons, in ASIC v Perpetual Trustee Co (Canberra) Ltd [2000] FCA 1726; (1999) 30 ACSR 532 at 539: It is, we think, to cloud the issue to speak of the capacity in which Perpetual acted when it obtained the benefit of the promise in clause 6 of the deed of indemnity. If any of the documents were dutiable, all parties accepted in argument that that could be so only if it were properly to be regarded as a transfer or assignment of (or an agreement to transfer or assign) a lease. If it had that character, and was dutiable, then Perpetual was liable to pay the duty. The effect of the Stamp Duties Act does not depend on the capacity in which a transferee or assignee acts-: it imposes liability on the transferee or assignee regardless of capacity. (The notice of assessment of 9 June 1992 purported to assess Perpetual 'as trustee for the Capital Property Trust'; but the quoted phrase must be regarded as surplusage.) (emphasis added) 30Third, it was submitted that the possession proceedings were a nullity (and presumably therefore that the judgment was irregular) insofar as they purported to join Trena, who had died before commencement. This may be true - but only insofar as concerns the claim against Trena. It did not affect the validity of the proceedings against Kosta and George, or the regularity of the judgment obtained against them.

Application by Kosta 31It remains only to deal with Kosta's separate application. He applies for an order that the judgment entered against him on 5 May 2011 be set aside. He does not contend that there has been an irregularity, but submits, somewhat incredibly, that at the time that he consented to judgment, he was focussed on the claim for possession rather than the monetary claim against him. He asserted that he 'did not believe he was signing anything for himself'. 32This contention is made notwithstanding that Kosta was represented by a solicitor who informed Garling J that she was confident that her client understood everything 'exactly'. I do not accept what Kosta now contends and I am against him as a matter of discretion. 33Further, Rule 36.16(2)(a), on which Kosta relies, requires an explanation of the delay and proof of a defence on the merits. I am not satisfied about either requirement. The delay is now almost two years. Kosta swore an affidavit but his affidavit does not address his retention of lawyers, his consent to and acquiescence in the judgment, or the conduct of the hearing before Garling J. And there is no apparent defence on the merits. I refuse Kosta's application.

Orders 34For those reasons, I make the following orders:

Common Law Proceedings No 12370 of 2011 (a)I dismiss the third defendant's notice of motion dated 3 October 2012 with costs. (b)I dismiss the second defendant's notice of motion dated 14 March 2013 with costs.

Equity Proceedings No 280051 of 2012 (c)I dismiss the proceedings other than in relation to the cause of action based on the alleged sale of the mortgaged property at an under value. (d)I order the plaintiff to pay the first defendant's costs of the application. 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: 24 April 2013

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