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[2014] NSWLC 12
Local Court of NSW
2014-07-31
Original judgment source is linked above.
Judgment 1This is an application made on behalf of Richard Dunn, the plaintiff in these proceedings, seeking to set aside a default judgment entered in open Court against Mr Ghobon, the first defendant, on 31 October 2013 and a default judgment entered by the Registrar in chambers against Nandi Services Pty Limited on 7 January 2014. The notice of motion relies on the power of the Court to set aside a default judgment or a judgment given in the absence of a party under Uniform Civil Procedure Rule 36.16(2) or, alternatively, under Uniform Civil Procedure Rule 36.15 which permits a Court to set aside a judgment that is entered "irregularly, illegally or against good faith". 2An unusual feature of this application is that it is the plaintiff who applied for, and successfully obtained, judgment in his favour who now seeks those judgments to be set aside. The defendants resist the plaintiff's application. To understand why the plaintiff makes this application a brief summary of the history of the litigation is necessary. 3Mr Dunn was involved in a motor vehicle collision with a taxi driven by Mr Ghobon and owned by Nandi Services Pty Limited on 2 October 2012. As a consequence of the collision Mr Dunn's vehicle was damaged and, while it was being repaired, he hired a replacement vehicle through Compass Claims. Mr Dunn lodged a claim with his insurer, NRMA, in respect to the property damage claim. In respect to his claim for loss of use of his motor vehicle Mr Dunn signed a document dated 3 October 2012 appointing Compass as his agent to recover charges related to the hire of the replacement vehicle. 4On 16 May 2013 these proceedings were commenced at the Local Court in North Sydney on behalf of Mr Dunn by Jonathan D'Arcy & Co Solicitors claiming damages arising from the collision limited to loss of use. A defence was filed on 20 June 2013. The proceedings were listed for pre-trial review on several occasions. On 13 September 2013 the proceedings were listed for hearing in Sydney on 5 December 2013 and a further order was matter listing the matter for directions on an application to set aside a notice to produce. On 17 October the issue of the notice to produce was adjourned to 31 October 2013. On 31 October 2013 the presiding magistrate stood over the issue regarding the notice to produce to the date of the hearing and granted a notice of motion for default judgment to be entered against the first defendant in the sum of $10,856.00. 5Meanwhile, NRMA acting under rights of subrogation instructed Holman Webb Solicitors to commence proceedings in the name of the plaintiff to recover the plaintiff's costs of repairs. A statement of claim seeking costs of repairs in the sum of $19,667.32 was filed on 31 October 2013 and served on the second defendant on 6 November 2013. 6A file note dated 21 November 2013 records a telephone conversation between Ms Bertrand of Holman Webb and Mr Dunn referring to concurrent court proceedings for a car hire claim. The file note states "This is the first we have heard of hire car claim - no notes received from NRMA re: hire car." A file note indicates that contact was then made by Ms Bertrand with an officer of Jonathan D'Arcy and Co Solicitors proposing to join the two proceedings. On 3 December 2013 an email was sent by Mr Bokhari of Jonathan D'Arcy and Co Solicitors declining to amend the pleadings and referring to a letter sent on 20 May 2013 to NRMA putting the insurer on notice of the hire claim. 7On 5 December 2013 I struck out the defence on the loss of use claim by reason of the second defendant's failure to attend and prosecute the defence. On 7 January 2014 default judgment was entered against the second defendant in those proceedings. 8On 8 January 2014 the defendants filed a defence in the proceedings relating to costs of repairs pleading, inter alia, res judicata. Those proceedings have been adjourned until 5 August 2014. 9The default judgments of 31 October 2013 against the first defendant and 7 January 2014 against the second defendant operate to prevent the plaintiff from prosecuting the separate cost of repairs claim. Section 24 of the Civil Procedure Act 2005 prohibits splitting a cause of action by providing a right to the defendants to obtain judgment in their favour in the second proceedings. The defence raised of res judicata also would similarly prevent the subrogated insurer from succeeding on the cost of repairs claim as the cause of action which the subrogated insurer seeks to rely has merged upon judgment being entered on the loss of use claim. 10Accordingly, it is necessary from the point of view of the plaintiff's subrogated insurer, to remove the barrier and seek to set aside the judgments entered. 11On 5 June 2014 Holman Webb, on instructions from the plaintiff, filed a Notice of Change of Solicitor in the loss of use claim and filed this notice of motion seeking to set aside the default judgments. The change of legal representative coincides with a change of approach on the part of the plaintiff who now seeks to set aside the judgments, no doubt having regard to the interests of his subrogated insurer. 12The plaintiff relies firstly on Uniform Civil Procedure Rule 36.16(2) to set aside the default judgments. That Rule relevantly provides: (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (b) if it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order... 13There is no doubt that the Rule applies with respect to the default judgments entered against the first and second defendants. While the Rule is ordinarily one which is relied upon by the defaulting party the plaintiff relies on comments made by Jenkyn J in Nicholson v Nicholson [1974] 2 NSWLR 59 at [65] that "it would seem to be anomalous that the privilege of setting aside or varying an order should be reserved for a party in default, and be denied to a party who sought and obtained an order, if a variation of the order so obtained or its setting aside is being sought for reasons which to the court seem just." 14The plaintiff also relies on the decision in Buckland v Palmer [1984] 1 WLR 1109. In that case the plaintiff owner of a motor vehicle damaged in a collision sued the defendant for an excess amount and accepted payment from the defendant that operated as a stay of proceedings. The plaintiff's insurer then initiated an action in the plaintiff's name claiming the balance of the cost of repairs. Sir John Donaldson MR struck out the second claim brought in the name of the plaintiff. However, at 1115 Donaldson MR considered the wider implication of reviving the earlier proceedings if a judgment, as opposed to a stay, had been obtained in the earlier proceedings. 15Donaldson MR acknowledged that in those circumstances the judgment would extinguish the cause of action by merger and thus frustrate the remainder of the plaintiff's claim. He went on to consider the plaintiff's position stating: However, I should be surprised and disappointed if this left the courts powerless to do justice if, for example, advantage had been taken of an ill-informed plaintiff by an experienced defendant who offered to submit to judgment in a small sum, well knowing that the plaintiff was under some misapprehension as to the effect on his right thereafter to proceed with his substantial claim. Just as I think that I detect a difference in the approach to the exercise of discretion in relation to removing a stay on an action in Lambert v Mainland Market Deliveries Ltd in 1977, as compared with Derrick v Williams in 1939, so I would expect the courts to reappraise the circumstances in which a judgment could be set aside, if justice so required. 16The plaintiff submits that the interests of justice in the present case require the judgment to be set aside. The plaintiff submits that the subrogated insurer should not be precluded from recovering the substantial cost of repairs by reason of the judgment in the separate loss of use proceedings. The plaintiff states that the subrogated insurer took immediate and appropriate steps when it became aware of the existence of the separate proceedings for loss of use on 21 November 2013 to attempt to consolidate the proceedings. 17The plaintiff states that the second defendant was aware of the second proceedings from 6 November 2013 when it was served with the statement of claim for costs of repairs yet it took no positive steps to raise the potential impediment to the second proceedings until after judgment was obtained in the first. The plaintiff submits that it is open for the Court to infer that defendants intended to take advantage of the impediment by filing a defence pleading res judicata in the second proceedings the day after judgment was entered in the first proceedings. 18The defendants submit that the subrogated insurer was made aware of the claim for loss of use by way of a letter dated 20 May 2013 from Jonathan D'Arcy & Co Solicitors to NRMA. The letter states relevantly: The purpose of this communication is to advise that Compass has commenced proceedings, as agent for and in the name of Richard Dunn, against the Third Party, in order to seek recovery in respect of the demurrage/credit hire claim. We anticipate that the Third Party's insurer, acting pursuant to rights of subrogation, will conduct the defence and, and any negotiations for settlement, of those proceedings. As you would appreciate, by reason of s 24 of the Civil Procedure Act 2005 (NSW) and principles of res judicata, issue estoppel and Anshun estoppel, there is a real risk that a determination of the proposed proceedings by Compass as agent for and in the name of Richard Dunn might operate to prejudice or prevent recovery by you of the insured loss in any proceedings commenced by you against the Third Party. 19The defendants further submit that the subrogated insurer failed to respond to this letter and delayed taking action for a further five months before commencing proceedings. In those circumstances, the defendants submit that it is the subrogated insurer's own conduct which has left it unable to prosecute its claim. 20The defendants also submit that the Court should have regard to the provisions of section 56 and 58 of the Civil Procedure Act 2005. The defendants submit that it is consistent with the overriding purpose of court to give effect to the finalising judgments particularly in light of the delays of subrogated insurer. 21The defendants deny that filing a defence pleading res judicata after judgment was obtained in the first proceedings constitutes an absence of good faith. The defendants submit that the present case is distinguishable from the decision in Chand v Zurich Australian Limited [2013] NSWSC 102 where the Court of Appeal dismissed an appeal against a decision by Magistrate Townsden (as he then was) to set aside a judgment entered by consent. In that case Magistrate Townsden considered that the "Morganite" principle applied with the effect that the insurer's right of subrogation will not be defeated in circumstances where the wrongdoer, with knowledge of the insurer's interest, nonetheless procures a release with the insured that infringes the insurer's rights. The consent judgment in Chand was set aside implicitly on the basis that it was obtained against good faith. 22In the present case the defendants neither procured a release or a consent judgment.
Should the default judgments be set aside? 23The power to set aside a default judgment under Rule 36.16 is to be exercised with regard to the interests of justice. The Court is to have regard to the competing considerations "that controversies once resolved, are not to be re-opened" (D'Orta-Edenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 at [34]), and "whether any useful purpose would be served in setting aside the judgment" and "how it came about that the applicant found himself to be bound by a judgment regularly obtained" (Sackville AJA in Dai v Zhu [2013] NSWCA 412 at [89]). 24The Court is also required to have regard to the overriding objective of the Court to achieve the "just, quick and cheap" resolution of the matter in dispute in section 56 in conjunction with the dictates of justice identified in section 58 of the Civil Procedure Act 2005. 25The alternative power to set aside a judgment under Rule 36.15 allows the Court to set aside a judgment if it was given or entered, or the order was made, irregularly, illegally or against good faith. The plaintiff submits that judgment was entered "against good faith" in at least to the extent that judgment was obtained against the second defendant. 26The operation of the Rule was considered in Coles v Burke (1987) 10 NSWLR 429 where Kirby P (with whom Samuels and McHugh JJA concurred) said of the earlier version of Rule 36.15 contained in Part 12A of the District Court Rules (at 437): 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 provides. 27If it were only on the basis of the arguments pressed by the applicant the Court would not be satisfied that the judgments should be set aside under either Rule. 28The plaintiff cannot be described as the ill-informed plaintiff referred to by Donaldson MR in Buckland v Palmer. There is no evidence to suggest that the plaintiff was operating under some misapprehension as to the effect that obtaining judgment in the loss of use claim would have against the subrogated insurer. To the contrary, the plaintiff was represented by a legal practitioner who was well aware of the potential prejudice to the subrogated insurer. The letter to the insurer prepared by Jonathan D'Arcy & Co Solicitors in May 2013 outlines in detail the likely adverse consequences. 29Presumably, Jonathan D'Arcy & Co procured judgments against both the first and second defendants in accordance with the instructions provided by Mr Dunn. There is no evidence given by Mr Dunn to suggest otherwise. The plaintiff obtained the judgments with knowledge of the insurer's interest and presumed knowledge of the impact of the judgments on those interests through his authorised legal representative. 30The conduct of the plaintiff is capable of binding the subrogated insurer. 31Barwick CJ in State Government Insurance Office (Queensland) v Brisbane Stevedoring (1969) 123 CLR 228 (at 240-241) noted: It is also settled law that an insured may not release, diminish, compromise or divert the benefit of any right to which the insurer is or will be entitled to succeed and enjoy under his right of subrogation. On occasions an attempt by the insured to do so will be ineffective against the insurer because of the knowledge of the circumstances which the person under obligation to the insured may have. On other occasions when the insured's act has become effective as against the insurer, the insured will be liable to the insurer in damages, or possibly, on some occasions for money had and received... 32The present case is one where I would consider that the conduct of the insured is capable of being effective against the insurer. 33Furthermore, there was nothing in the conduct of the second defendant that would warrant a finding that the judgment should be set aside by reason of it being against good faith. The second defendant did not play any active role in procuring the judgment. Even if it is accepted that the second defendant was aware of the interests of the subrogated insurer when it was served with the second statement of claim on 6 November 2013 this is immaterial given that the legal representative for the subrogated insurer was on notice of the claim for loss of use prior to the judgment being entered against the second defendant. Both the insurer and the plaintiff were aware of their respective claims but failed to take steps to consolidate the proceedings or alternatively, amend pleadings. 34Finally, it should not be forgotten that the legal principles that prohibit the splitting of an action are intended to protect against multiplicity of proceedings and defendants being vexed by the same cause of action twice. By initiating a notice of motion to set aside judgments the plaintiff seeks the Court to excuse it from its own disregard to these principles. The plaintiff has an obligation to ensure that it gets its house in order and commences single proceedings for the entirety of the loss suffered. In the absence of some compelling explanation as to why the prejudice to be suffered in this case was not of the plaintiff's own making the plaintiff cannot satisfy the Court that the prejudice likely to be suffered constitutes a sufficient basis to set aside the judgments.
Judgment of 31 October 2013 entered irregularly 35Although the applicant has not succeeded on the arguments pressed there is clearly a further basis upon which the judgment entered on 31 October 2013 against the first defendant should be set aside. A perusal of the Court record shows that it was entered irregularly within the meaning of Rule 36.15. 36In Perpetual Trustees Australia Limited v Heperu Pty Ltd (No. 2) [2009] NSWCA 387; (2009) 78 NSWLR 190, the Court of Appeal said: 16 The focus of Pt 36.15(1) is on the judgment or order that is attacked and question is whether it was "given... entered, or.... made" irregularly etc. The focus is on irregularity in those steps, not on the merits of any decision, or the irregularity of other steps in the proceedings, or in the proceedings below. 17 The rule applies with particular force to default or consent judgments and orders, and those given or made ex parte.... 37In Zakaria v Dr Noyce [2012] NSWSC 981 Davies J referred to irregularity in the following terms (citations omitted): 24 Ordinarily irregularity is concerned with a failure to comply with Rules of Court. That will extend to the position where, for example, default judgment has been obtained on a Statement of Claim that does not properly plead a debt or liquidated sum; or does not plead an essential element of the cause of action. In addition, a judgment entered for more than is due will be irregular. 25 A denial of procedural fairness will be a fundamental irregularity that will entitle a person aggrieved to set aside an order as a matter of unconditional right. That right is part of the court's inherent power. Further, such an irregularity falls within r36.15. 38The irregularity of the default judgment entered by the presiding magistrate at North Sydney on 31 October 2013 is apparent upon a perusal of the Court file. A defence was filed by Legal Wisdom on 20 June 2013. The filed form of defence contains following filing details: "Filed for Second Defendant". The pleading and particulars use the plural term "defendants". It is apparent that the defence was filed on behalf of both the first and second defendants. 39Notwithstanding this, the plaintiff filed a notice of motion on 9 September 2013 seeking default judgment against the first defendant. That motion was refused by the Registrar, acting under delegated powers of the Court, on 15 September 2013. Presumably, the application was refused due to the presence of the defence filed on behalf of the first defendant. 40On 2 October 2013 Mr D'Arcy filed an affidavit attaching a copy of correspondence between his firm and Legal Wisdom. A letter dated 16 September 2013 from Jonathan D'Arcy & Co concludes "We are proceeding to judgment as against the 1st Defendant". 41An email dated 19 September 2013 from Mr Amin of Legal Wisdom responds: Furthermore, would you kindly explain how you would be in a position to enter judgement against the First Defendant, if a Defence has been filed for the First AND Second Defendant. 42There is no evidence as to whether the plaintiff's legal representative extended the courtesy of providing an explanation. 43On 31 October 2013 the proceedings were listed before the presiding magistrate for determination of an objection to a notice to produce issued against the second defendant. Although the proceedings were listed for a specific purpose that did not require attendance of the first defendant the plaintiff made an oral application for default judgment against the first defendant. The presiding magistrate made the following orders in open court in the absence of the first defendant: Motion for default judgment granted. Judgment entered against first defendant for $10,856.60. 44The motion was raised orally, without notice to the first defendant, and on a date when the matter was listed before the magistrate for the limited purpose of determination of an objection by the second defendant to a notice to produce that required no attendance on the part of the first defendant. The judgment gives no details on the components of the judgment that relate to the claim, pre-judgment interest or costs. These matters of themselves raise issues of procedural fairness. 45More fundamentally, however, is that as at 31 October 2013 the first defendant was not in default within the meaning of Uniform Civil Procedure Rule 16.2. That Rule relevantly provides: (1) A defendant is in default for the purposes of this Part: (a) if the defendant fails to file a defence within the time limited by rule 14.3(1) or within such further time as the court allows, or (b) if the defendant fails to file any affidavit verifying his or her defence in accordance with any requirement of these rules, or (c) if the defendant having duly filed a defence, the court orders the defendant to be struck out. 46The first defendant had filed a defence in accordance with the Rules. No order was made by the magistrate to strike out the first defendant's defence prior to entering default judgment. It was not open to the magistrate to consider an application for default judgment. 47A further irregularity arises in that there was no affidavit filed in support of the motion as required by Uniform Civil Procedure Rule 16.3(2)(b). There was no order by the Court dispensing with the need for the affidavit to be filed in support of the motion. In Ion v Danutz [2012] NSWSC 941 Harrison AsJ considered the consequences of failing to file an affidavit in support of an application for default judgment: 47 Hence, if there is no affidavit in support of an application for judgment under UCPR r 16, a court is not empowered to give judgment, unless it has ordered otherwise pursuant to UCPR r 16.3(2). ... ... 52 ...The Magistrate should not have granted default judgment and in so doing he also erred in law. 48I am mindful that these are issues not agitated during the course of submissions on hearing the motion. While I considered that it was open for me to relist the matter for further submission on the issue the irregularities identified in the judgment against the first defendant are so apparent and fundamental that the Court could not conceivably allow such a judgment, having been challenged, to stand. 49Accordingly, I am satisfied that pursuant to Uniform Civil Procedure Rule 36.15 the judgment entered against the first defendant on 31 October 2013 is irregular and the Court orders that it be set aside. 50The decision that the judgment entered against the first defendant be set aside necessitates a reconsideration as to whether the judgment entered against the second defendant should also be set aside. 51The statement of claim asserts that the second defendant is vicariously liable for the negligent acts or omissions of the first defendant. The first defendant is asserted to be the employee or agent of the second defendant. To my mind it would be anomalous for the judgment to stand against the second defendant when the liability of the alleged tortfeasor remains undetermined. It may lead to inconsistent outcomes with respect to the same liability. In those circumstances, it is in accordance with the interests of justice to set aside the default judgment entered against the second defendant on 7 January 2014 pursuant to Rule 36.16. 52The applicant's motion is granted. Assessor Olischlager 31 July 2014
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: 04 September 2014
Dunn
Ghobon and Nandi Services Pty Limited
(1987) 10 NSWLR 429
(2005) 223 CLR 1
(2009) 78 NSWLR 190
(1969) 123 CLR 228