Dunn v Ghobon and Nandi Services Pty Limited

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.