Procedure - Setting aside judgment in default of defence - Irregularity conceded at hearing to set aside judgment - Whether irregularity cured - Judgment obtained unworkable

1 TEMPLEMAN J: This is an application to set aside a judgment entered in default of defence, on the ground that it was entered irregularly. Although the plaintiff now accepts that the judgment is irregular, the application is opposed. The plaintiff contends that the irregularity was cured by an order of a registrar. The plaintiff contends further that the affidavit evidence relied on by the defendant is largely inadmissible.

2 There is an application by the plaintiff to cross-examine the defendant on his affidavit, should he be permitted to rely on it.

3 The action is brought by Timothy Michael Fagan as plaintiff, against Neil Edouard Morien as first defendant and two companies controlled by Mr Morien as second and third defendants respectively. They are Boab Finance Accounting Pty Ltd (Boab) and Rortes Management Investments Pty Ltd (Rortes). I am told that Boab is now deregistered: it has played no part in these applications.

4 The writ, indorsed with a statement of claim, was filed on 10 March 2006. The matters pleaded in the statement of claim may be summarised as follows (the numbering is mine):

(1) At all material times Mr Fagan has been employed as a logistics consultant/manager.

(2) Mr Morien carried on business as an accountant and financial adviser, in trade or commerce.

(3) At all material times, Mr Morien controlled Boab, Rortes and a company known as Boab Group (Australia) Pty Ltd (BGA).

(4) In about 1990, Mr Fagan and Mr Morien agreed verbally in Derby, Western Australia, that Mr Morien would, for reward, prepare or cause to be prepared and lodged for that financial year and subsequent years, Mr Fagan's annual income tax return.

(5) Alternatively, in about 1990 in Derby, Mr Fagan and Boab (represented by Mr Morien) made a verbal agreement to the same effect.

(6) In the period after the making of one or other of those agreements, Mr Morien (alternatively Boab) prepared Mr Fagan's annual income tax returns and lodged them: and there was 'social contact' between Mr Fagan and Mr Morien and their respective families.

(7) By 2002, there was 'a relationship of trust and confidence' between Mr Fagan, Mr Morien and Boab.

(8) Between 15 and 17 June 2002, Mr Fagan and Mr Morien met at the latter's and Boab's then place of business in Carine, when Mr Morien, on his own behalf and as a director and agent for Boab and Rortes, verbally advised Mr Fagan that he should assign the responsibility for managing his finances to Rortes; albeit Mr Morien, in his capacity as sole director of that company, would actually be responsible for the management.

(9) Mr Morien represented that Rortes was a shelf company under his control which had never traded and had no liabilities. Mr Morien represented also, that because Mr Fagan's employment and residence were remote from Perth, and because he had 'extended offshore employment assignments' it was difficult for Mr Morien to manage his (Mr Fagan's) taxation affairs, investments and financial matters and to communicate with him about those matters. Mr Morien advised Mr Fagan to assign the responsibility for the management of his finances to Rortes, of which Mr Morien was the sole director, and in which capacity he would be responsible for such management.

(10) Mr Morien represented to Mr Fagan that all income and expenditure referable to his finances would be brought into account in Rortes' records and that Rortes would not be involved in any other activity. Mr Fagan was told that he would be an employee of Rortes and that he would, in effect, be engaged by employers from time to time under contracts between those employers and Rortes. Mr Fagan would have the benefit of a range of accounting services and financial advice offered by Mr Morien and the companies he controlled: and payments from the employers which, in effect, would be the income from Mr Fagan's personal exertion, would be made to Rortes, as would the income from Mr Fagan's properties at Karratha and Hillarys.

(11) Mr Morien told Mr Fagan that Rortes would pay his (Mr Fagan's) expenses from his income and would retain the balance, in effect, as a trustee for Mr Fagan.

(12) By an e-mail dated 27 June 2002, Mr Morien, on his own behalf and as a director and agent of Boab and Rortes, confirmed all the representations summarised above, except for the representation that the balance of Mr Fagan's income would be retained by Rortes as a trustee for Mr Fagan.

(13) It was implicit in those representations that Mr Morien, Boab and Rortes, as appropriate, would exercise their powers under the proposed arrangements to advance Mr Fagan's interests and not otherwise.

(14) By an e-mail he sent to Mr Morien on 28 June 2002, Mr Fagan informed Mr Morien, Boab and Rortes that he accepted the advice summarised above. He gave instructions to put those proposals into effect and said that he was forwarding a cheque for $5,000 as requested in Mr Morien's e-mail of 27 June 2002.

(15) As from 28 June 2002 there was an agreement between Mr Fagan, Mr Morien, Boab and Rortes (alternatively Mr Morien and Rortes) which was 'partly written, partly verbal and partly to be implied'. This is said to be the Management Agreement.

(16) In summary, the express terms of the Management Agreement were:

• as from 28 June 2002 Rortes would not be involved in any activity other than the provision of services under the Management Agreement;
• as soon as arrangements could be made, Mr Fagan would cease to be employed by his employers and would become an employee of Rortes, which would thereafter enter into contracts with the same employers to provide Mr Fagan's services to them;
• Mr Fagan's income would be paid to Rortes;
• Rortes would pay Mr Fagan's debts and discharge his liabilities from his income and retain the balance for his benefit; and
• Rortes would maintain records of Mr Fagan's income and expenditure in its accounting records.

(17) The Management Agreement contained implied terms. In summary, these were:

• Mr Morien, Boab, Rortes and BGA would be paid reasonable fees for any services provided under the Management Agreement;
• the moneys remaining from Mr Fagan's income after the payment of his debts etc would be retained by Rortes for Mr Fagan's benefit;
• Rortes would account to Mr Fagan as and when he required it to do so in relation to his income and expenditure and pay to Mr Fagan the balance of his income;
• the Management Agreement would be terminable by Mr Fagan upon notice;
• the services to be provided under the Management Agreement would be provided with reasonable skill, care and diligence.

(18) In the financial years ended 30 June 2003, 2004 and 2005, Rortes contracted with the employers to provide Mr Fagan's services; and the income generated from such employment was paid to Rortes, which employed Mr Fagan and paid his debts.

(19) In about May 2005, Mr Fagan terminated the Management Agreement.

5 The statement of claim then pleads the amounts paid to Rortes pursuant to the Management Agreement, the payments made by Rortes from Mr Fagan's income for his benefit and the amounts claimed by BGA, Rortes and Boab for services rendered to Mr Fagan in each of the financial years 2003, 2004 and 2005.

6 It is then alleged that there were breaches of the Management Agreement in that Mr Morien used Mr Fagan's credit facilities for his own purpose to a total of $64,445.08. Particulars of those payments are set out. It is alleged further that amounts totalling $98,445 which were paid out of Mr Fagan's income to Mr Morien, Boab, Rortes and BGA for services provided under the Management Agreement, were not reasonable fees for those services.

7 It is then alleged that during the term of the Management Agreement and since its termination, the defendants had 'refused, neglected and failed to account to' Mr Fagan in respect of his income: and that they had failed to pay to him the balance of his income after the payment of his debts, in an amount of $163,453.

8 It is alleged further, that Mr Fagan was required to incur credit charges to pay debts which Mr Morien should have paid; and that Mr Morien made purchases for himself using Mr Fagan's credit card facilities. The loss flowing from these alleged breaches of the Management Agreement were said to have been $1,104, $11,344 and $31,413 in the financial years ended 30 June 2002, 2004 and 2005 respectively.

9 Mr Fagan alleges that the defendants breached their duty of care to provide services under the Management Agreement with reasonable skill, care and diligence; that they engaged in conduct which was 'a contumelious disregard of [Mr Fagan's] rights and unconscionable' and committed breaches of their fiduciary duties. It is alleged also that the representations made by Mr Morien, on which Mr Fagan relied in entering into the Management Agreement, were misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) or s 10 of the Fair Trading Act 1987 (WA).

• damages for breach of contract;
• damages for breach of the duty of care;
• exemplary damages for breach of the duty of care;
• damages for misleading and deceptive conduct;
• an order for an account to be taken of his income;
• an order for the payment to Mr Fagan of the moneys found due to him on taking of the account;
• equitable compensation for breach of fiduciary duty;
• interest on damages or other moneys payable to Mr Fagan;
• costs.

11 On 22 March 2006, Mr Morien, who was acting in person, entered an appearance to the writ. In an affidavit sworn on 6 February 2008, Mr Morien says that at the same time, he attempted to enter appearances on behalf of Boab and Rortes. Mr Morien says he was told by a clerk at the Supreme Court registry that he was not permitted to enter an appearance for those companies because the rules required corporations to be represented by a solicitor. Mr Morien did not instruct a solicitor to act on behalf of Boab and Rortes. No appearance has ever been entered for those companies.

12 On 23 March 2006, Mr Morien served a copy of his memorandum of appearance on Mr Fagan's solicitors.

13 Although he had entered an appearance, Mr Morien did not file a defence. In those circumstances, on 13 April 2006, Mr Fagan's solicitor entered a judgment in default of defence. It was in the following terms:

No defence having been served by the defendants herein, it is this day adjudged that the defendants do pay to the plaintiff damages to be assessed.

14 On 3 May 2006, Mr Fagan's solicitor sent Mr Morien an e-mail in the following terms:

I have entered judgment against you and the other defendants for damages to be assessed. Do you have any thoughts on the proper process for assessment or perhaps and [sic] offer in settlement?

15 It is accepted by counsel for Mr Fagan that the default judgment was irregular. That is clearly an appropriate concession, having regard to O 22 of the Rules of the Supreme Court 1971 (WA). Because Mr Fagan's claim is 'a claim of a description not mentioned in Rules 2 to 5' a judgment in default of defence can be made only by summons pursuant to O 22 r 7(1) and (3).

16 At the hearing of the application to set aside the judgment, I asked Mr Fagan's counsel (who, as his solicitor, entered the default judgment) if he appreciated when he did so that it was irregular. Counsel informed me, and I accept, that he believed, at the time, that the judgment was in order.

17 On or about 29 March 2006, Mr Morien was notified by the court that a case management directions hearing (status conference no 1) would take place before a registrar on 8 May.

18 It appears from the transcript of the hearing that Mr Fagan was represented by counsel and that Mr Morien appeared in person.

19 At the commencement of the hearing, the registrar asked Mr Morien whether he had received a copy of the default judgment. Mr Morien said he had received it late on the Friday afternoon, that being the Friday before the Monday on which the directions hearing took place. Later, Mr Morien referred to the e-mail having been sent late on Wednesday, 3 May. However, nothing turns on that discrepancy for present purposes.

We will be seeking a number of applications, obviously, to seek to have the default judgments struck out and there is certainly provision in the rules for that, explicit provision in the rules for that.

Mr Morien went on to say that he thought that the hearing before the registrar was the appropriate forum to seek orders for 'a stay of judgment' and for the applications to be referred to the master.

21 Mr Morien said that Mr Fagan's solicitor had had since 13 April to inform him of the default judgment: that he had done so only within the last two working days before the hearing and that he had not had time to complete the documentation that he believed necessary. (I pause to note that in fact, it was not until 3 May that Mr Fagan's solicitor was informed by the court that his default judgment had been entered.)

22 Mr Morien offered to show the registrar the affidavits that had been prepared over the weekend. The registrar said he did not need to see them.

23 Mr Morien said he sought the registrar's 'judicial guidance ... as to the outcome and process of this particular hearing'. There was then the following exchange between the registrar and Mr Morien:

THE REGISTRAR: I was quite expecting that no-one would turn up to this as a result of that judgment which effectively brought the matter to a close but I left it there just in case it hadn't been served or that something was contemplated. As it turns out, I was wrong in assuming no-one would attend and they have, so I would just re-emphasise that the matter had been completed by that judgment.

MORIEN, MR: Yes, subject to applications filed elsewhere, it seems.

THE REGISTRAR: It is not subject to that. It's there. If you want to alter that, you will have to take steps to do so.

MORIEN, MR: Which I will be doing.

THE REGISTRAR: I'm not going to place any time in which you have to do it.

MORIEN, MR: No, certainly.

THE REGISTRAR: That is entirely up to you.

MORIEN, MR: Yes.

THE REGISTRAR: You can change your mind. You can proceed.

MORIEN, MR: Yes, certainly, sir.

THE REGISTRAR: But if there are time limits imposed by the rules or any act, you should take notice of those.

MORIEN, MR: Yes, sir. There are circumstances in relation to my failure to attend within the time of the rules which I will make clear in my applications to have the default judgment set aside.

24 After some discussion between the registrar and Mr Fagan's solicitor as to the appropriate procedure to assess the damages claimed by Mr Fagan, the registrar made the following orders:

1. The Status Conference be adjourned sine die.
2. The Plaintiff be excused from attending the case management conferences until further order.
3. It is further declared that judgment in default was entered on 13 April 2006 for the Plaintiff for the Defendants to pay damages to be assessed.
4. There be no order as to costs.

Did the registrar's order cure the irregularity in the default judgment?

25 Counsel for Mr Fagan submits that the irregularly entered default judgment was perfected by the registrar's 'declaratory order' which has not been appealed.

26 That submission must be based on O 2 r 1 of the Rules of the Supreme Court which provides, so far as relevant, as follows:

(1) Where in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these Rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.

(2) Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings, or any document, judgment or order therein or exercise its powers under these Rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.

(3) ...

27 In The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257 [52], the Court of Appeal noted that the discretionary power conferred by O 2 r 1(2) could be exercised by a court of its own motion. The court referred to a statement to that effect by Slade LJ in Metroinvest Ansalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513, 522.

Like all judicial discretions unconfined by any express conditions, the discretion should be exercised judicially and, adopting the language of Lord Denning in Harkness, any irregularity should be rectified so long as it can be done without injustice [52].

29 The reference to Harkness is to Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729, where Lord Denning MR said of the equivalent English rule:

This new rule does away with the old distinction between nullities and irregularities. Every omission or mistake in practice or procedure is henceforward to be regarded as an irregularity which the court can and should rectify so long as it can do so without injustice (735 - 736).

30 In the present case, counsel for Mr Fagan submitted that in making the declaration that the default judgment was entered on 13 April 2006, the registrar must be taken to have appreciated that the judgment had been entered irregularly and determined to rectify it.

31 Order 60A r 2(1) gives a Case Management Registrar jurisdiction to exercise the powers of the court under O 2 in a case to which O 29A applies. It must follow, if the above submission is correct, that the registrar, of his own motion, decided that he should exercise the jurisdiction under O 60A r 2.

32 In my view, this submission is untenable. As is clear from the transcript of the hearing before the registrar, nothing was said either by him or by Mr Fagan's solicitor to suggest that the default judgment might be irregular. As I have noted above, that had not occurred to Mr Fagan's solicitor.

33 In my view, there being on the court file a default judgment which appeared regular on its face and which had been entered by an extremely experienced practitioner, the registrar had no reason to suspect that the judgment might be irregular. And, Mr Morien, acting in person, could hardly have been expected to apply his mind to the complexities of O 22 in order to consider for himself whether the judgment might be irregular.

34 Further, Mr Morien told the registrar that he had made an application to be permitted to represent Boab and Rortes. It is clear that he wanted to defend the action on behalf of all three defendants. It is equally clear that he intended to apply to have the default judgment set aside. As appears from the extract of the transcript set out above, the registrar told Mr Morien that he would not impose any time limit on the making of such an application, but that Mr Morien should take notice of any time limits imposed by the rules.

35 Of course, an application to set aside a default judgment may be made whether or not the judgment has been entered regularly. However, a defendant who seeks to set aside a regular default judgment is likely to face greater hurdles than he would if the judgment was irregular.

36 In my view, it is inconceivable that the registrar, without informing Mr Morien that in his view the judgment had been obtained irregularly, and without informing Mr Morien that he considered that the irregularity could be cured without any injustice, should have told Mr Morien that he could apply to have the judgment set aside, when the effect of an order made under O 2 r 1(2) would have been that Mr Morien could proceed only by way of an appeal against that order.

37 The default judgment having been entered, it stood as a judgment of the court which could be enforced (according to its terms) without more. In other words, the declaration that the registrar made at the status conference added nothing to the force of the judgment. In my view, the registrar's objective in making the declaration was simply to bring home to Mr Morien that the judgment would stand unless he applied to have it set aside. I do not consider it would have been appropriate for Mr Morien to appeal against the registrar's declaration, in order to achieve that result.

38 According to the submissions filed on Mr Morien's behalf, his application is made under O 22 r 10, which provides that:

The Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order.

39 Although Mr Morien seeks to have the court exercise its general jurisdiction under this rule, it is clear from his submissions that his primary contention is that the judgment should be set aside on the grounds that it was obtained irregularly. That being so, I think his application ought to have been made under O 2 r 2, which provides:

(1) An application to set aside for irregularity any proceedings, any step taken in any proceedings or any document, judgment or order therein shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity.

(2) An application under this Rule shall be made by summons or motion, as the case may require, and the grounds of objection must be stated in the summons or notice of motion. (emphasis supplied)

40 In fact, Mr Morien's chamber summons dated 13 December 2007 by which he seeks to have the judgment entered on 13 April 2006 set aside, does not state any grounds of objection. It is therefore irregular.

41 However, because the issues have been canvassed in considerable detail in the inter-solicitor correspondence, I think it would be appropriate to exercise the discretion under O 2 r 1(2) and permit the application to proceed under O 2 r 2(2). The irregularity can therefore be rectified without injustice.

42 Mr Morien swore an affidavit on 6 February 2008 in support of his application. In his affidavit, Mr Morien sets out the history of the matter and explains his delay in dealing with it.

43 It is not necessary to refer again to the events which took place down to and including the status conference on 8 May 2006. At that conference, Mr Fagan's solicitor foreshadowed the filing of his client's particulars of loss and damage within 21 days. As the registrar pointed out, he no longer had any jurisdiction in the matter, and any application for directions should be made to a master.

44 On 17 May 2006, Mr Morien received a draft chamber summons from Mr Fagan's solicitors. The summons sought programming orders for the assessment of Mr Fagan's damages. Mr Morien said he did not take steps at that time to apply to set aside the judgment because on or about 18 and 19 May he was in hospital for surgery to remove skin cancer lesions; and until 7 June 2006, he was recovering from that surgery.

45 On 12 June, Mr Fagan's solicitors filed an amended chamber summons. This was returnable on 21 June before a master. However, there was no appearance by either party. Later, the hearing was re-listed for 31 August.

46 On 31 August, Master Newnes made orders essentially in the terms of the chamber summons dated 12 June. Mr Morien says he did not attend the hearing because he did not receive any notice of it. Mr Fagan disputes that Mr Morien did not receive notice. In an affidavit sworn 15 February 2008, Mr Fagan exhibits a copy of a letter said to have been sent by his solicitors to Mr Morien by facsimile on 28 August 2006, together with a copy notice from the Supreme Court of notification that the matter had been listed on Thursday, 31 August 2006 at 9.15 am.

47 In reply, Mr Morien says in an affidavit of 18 March 2008, that at the material time he received all facsimile transmissions via a modem installed on his computer. He says he routinely checked his computer for any incoming facsimiles and would have done so on 28 August 2006. He has no record of ever having received the facsimile.

48 I cannot resolve this dispute on affidavit evidence. However, nothing turns on it because although Master Newnes made an order requiring Mr Fagan to file and serve any affidavits in support of his assessment of damages by 30 September 2006, Mr Fagan's solicitors did not comply with that order. Apparently without obtaining any further directions, Mr Fagan's solicitors did not file affidavits as directed until 10 September 2007, nearly 12 months later.

49 On 8 October 2007, Mr Fagan's solicitors served (and on 23 October, filed) a chamber summons for directions by which they sought to vary a number of the directions made on 31 August 2006. Orders were sought to ratify the late service of the affidavits and to fix a date for assessing the damages.

50 At about that time, Mr Morien, who had not been represented thus far, engaged his present solicitors to act for him. The solicitors advised that because of Mr Fagan's lengthy delay, he could not proceed without first serving a notice of intention to do so. On 1 November 2007, Mr Fagan's solicitors filed and served such a notice.

51 By letter dated 6 November 2007, Mr Morien's solicitors invited Mr Fagan to consent to the default judgment being set aside on the basis that it had been obtained by 'a significant procedural irregularity'. Mr Fagan declined to do so, on the ground that the registrar had affirmed the judgment by declaration and that the appropriate course for Mr Morien to take would be to appeal that judgment.

52 Following further exchanges of correspondence, Mr Morien commenced the application by chamber summons dated and filed on 13 December 2007.

53 It is clear from the chronology summarised above, that neither Mr Morien nor Mr Fagan has proceeded expeditiously. Mr Morien says in his affidavit of 6 February 2008 that he has been preoccupied with a number of other court proceedings in which he, or companies related to him, are plaintiffs or defendants. Although Mr Morien did not provide any details of these matters, I was told by Mr Fagan's counsel that bankruptcy proceedings had been brought against Mr Morien. Clearly, it would have been imprudent for Mr Fagan to proceed against Mr Morien while there was a risk that he might be declared bankrupt. I was told that judgment in the bankruptcy proceedings was not delivered until some 10 months after the hearing and that the application was dismissed.

54 Mr Morien says in his affidavit that for several years, he has suffered from a number of debilitating physical and psychiatric conditions. These are said to include depression, chronic dermatological conditions, skin cancer, insomnia, sleep apnoea and chronic airways disease. Mr Morien says he has been hospitalised and has undergone surgery and other treatments at various times since the judgment was entered. He says that by way of example, he was hospitalised in May 2006 for the removal of skin cancer lesions and that during August and September 2007 he was admitted to a psychiatric institution for a month, to be treated for clinical depression.

55 Counsel for Mr Fagan was somewhat dismissive of the debilitating effect of the various ailments Mr Morien claims to have suffered. Further, as counsel pointed out, there is no medical evidence to support Mr Morien's claim.

56 However, I have no reason to doubt Mr Morien's evidence about his medical condition and its effect on him. Furthermore, Mr Morien himself accepts that 'to date, I have not appropriately progressed the defence of Mr Fagan's claim' (par 27 of the affidavit of 6 February 2008).

57 In any event, delay is only relevant if it is prejudicial. In the present case, I do not think the delay has been prejudicial for two reasons. First, Mr Fagan has not sought until recently to enforce his judgment.

58 The second reason arises from the judgment itself. The irregularity is not, in my view, a mere technicality. That is because, as it stands, the judgment seems to me to be of little practical effect. The judgment is for the assessment of damages. However, it will be recalled that Mr Fagan's claim included not only damages, but an account of moneys said to be due to him, and 'equitable compensation'.

59 In my view, because the judgment does not encompass those claims, it must remain open to Mr Morien to defend them. And in so doing, it would be necessary for the court to make a decision about the terms of the agreement between Mr Fagan and Mr Morien. The damages would therefore fall to be assessed on the basis of the findings made by the court in relation to the outstanding claims. Had Mr Fagan made an application by summons for judgment in default of defence (as he should have done, under O 22 r 7) this point would no doubt have emerged.

60 I raised the point with counsel at the hearing of this application. When I did so, counsel for Mr Fagan apparently appreciated the difficulty, because he said, without hesitation, and without taking instructions, that if the default judgment stood, his client would not pursue any claim for equitable relief. Damages would therefore be assessed on the basis that the facts alleged in the statement of claim were true.

61 That would no doubt resolve the difficulty to which I have referred above. However, it seems to me that until Mr Fagan informed me, through his counsel, of his decision to abandon his claim for equitable relief, the difficulty stood in the way of the assessment of damages. In effect, therefore, time has been running against Mr Morien on the default judgment only from the date of the hearing of his application to set it aside.

62 In his affidavit in support of the application, Mr Morien has deposed to his belief that he has a good defence to Mr Fagan's claim and has summarised that defence (par 25). In essence, Mr Morien says that in February 2003, Mr Fagan became a full-time employee of Rortes, which offered his services as a logistics operator to third parties. Mr Morien says that Mr Fagan undertook, over a five-year period, to develop Rortes' business: and that between February 2003 and February 2008, income generated by Rortes would be used to develop its business, pay Mr Fagan's expenses and liabilities and pay him a modest salary. Mr Morien says that the money earned by Rortes was used for those purposes.

63 Mr Morien says that at the end of the five-year period all the shares in Rortes would be transferred to Mr Fagan.

64 Mr Morien says also that he was responsible for attending to Mr Fagan's personal and financial affairs, collecting rent for his property and discharging his expenses from Rortes' income. Mr Morien says that he was entitled to be remunerated a reasonable sum by Mr Fagan for work performed in relation to the management of his affairs: that the remuneration was to be paid to him or to companies related to him, and that the invoices he or the companies rendered to Mr Fagan for their services were for reasonable amounts and were based on timesheets.

65 Mr Morien denies that he took any money from Mr Fagan and used it for his personal benefit.

66 Mr Fagan's counsel submits that much of Mr Morien's affidavit is inadmissible since it contains conclusions, and is generally argumentative. Counsel submits also that Mr Morien has not presented a credible defence because he has not sought to respond to detailed matters set out in the affidavit of Kristina Anne Hampson sworn 7 September 2007 in support of Mr Fagan's damages claim. Further, counsel pointed out that Mr Morien had not produced any invoices in support of his alleged entitlement to remuneration, nor had he produced any timesheets as a basis for the invoices.

67 The objections to which I have referred above were summarised in an outline of submissions filed on behalf of Mr Fagan on 4 March 2008.

68 On 18 March, the day before the hearing of Mr Morien's application, he filed an affidavit of some 136 pages including 122 pages of timesheets, being the timesheets referred to in his affidavit of 6 February.

69 The explanation given by Mr Morien for the late provision of this material was that:

The timesheets were in electronic format only and amongst voluminous files and documents on my computer system. I did not annex the timesheets to my primary affidavit because identifying and collating the timesheets was time consuming and this task was only recently completed (par 5).

70 It is, of course, wholly unacceptable for a party to seek to rely on an affidavit containing extremely detailed material when the opposing party has been given no opportunity to give it proper consideration. However, counsel for Mr Morien attempted to overcome that difficulty by disavowing any attempt to rely on the details. Counsel submitted, in effect, that the object of producing the timesheets was merely to prove that they existed.

71 It is well settled that a party who applies to set aside a judgment obtained in default of defence must support his application with an affidavit made by a person who is competent to depose to the facts relied on which, if proved at trial, would satisfy the court that the applicant has a good defence on the merits: Palmer v Prince [1980] WAR 61.

72 That is, however, the basic requirement when a party seeks to set aside a judgment which has been obtained regularly. Different considerations apply where the judgment has been obtained irregularly.

73 The authorities were reviewed by Parker J in ACN 076 676 438 Pty Ltd (In Liq) v A-Comms Teledata Pty Ltd [2000] WASC 214.

It has been long established that where a judgment in default has been entered irregularly, ie without proper compliance with the Rules, or has been obtained in breach of good faith, it will be set aside ... [17].

(I do not refer to the authorities cited in support of that proposition.)

Some more recent decisions suggest that not every irregularity in the means by which a judgment in default is obtained will necessarily entitle the defendants to have the judgment set aside as of right [18].

His Honour then referred to a number of decisions in which irregularities had been relatively minor and had not caused prejudice to the party affected.

76 For the reasons I have given above, I consider that the irregularity in the present case was very significant. It resulted in a situation which was, for practical purposes, unworkable, until counsel for Mr Fagan, apparently appreciating the difficulty, said his client would not pursue claims for equitable relief.

77 In these circumstances, it seems to me that there being no prejudice, the judgment should be set aside and Mr Morien and Rortes given leave to defend. (As I have noted above, Boab is no longer in existence.) That being so, it is not necessary to rule on the objections to Mr Morien's affidavit. Nor would it be appropriate to have Mr Morien cross-examined on his affidavit. It is clear that the object of so doing was to demonstrate that Mr Morien's defence was shadowy and was inconsistent with contemporaneous documents. It was sought also to cross-examine Mr Morien on the documents annexed to Ms Hampson's affidavit which are said to demonstrate that Mr Morien did use Mr Fagan's income for his own purposes. Cross-examination would therefore anticipate the trial to a considerable extent.

78 That course would be followed only rarely in an application to set aside a regular default judgment. In the present case, given that the judgment was irregular, and unworkable, and that Mr Morien has outlined his defence, I consider that he should now be given an opportunity to plead it.

79 I therefore propose to order that the judgment in default of defence entered on 13 April 2006 be set aside and that appropriate directions be given for the filing of defences and the further conduct of the action. The action will be entered in the CMC List.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : FAGAN -v- MORIEN [2008] WASC 54 (S)

RORTES MANAGEMENT INVESTMENTS PTY LTD (ACN 087 349 228)

Costs - Application to set aside judgment in default of defence and application to cross­examine on supporting affidavit - Unexceptional outcome on application to set aside judgment - Voluminous material on application to cross­examine - Applications inextricably linked - Whether award costs before trial - Whether indemnity or special costs order

1 TEMPLEMAN J: In a judgment delivered on 15 April 2008, I held that judgment entered by the plaintiff in default of defence should be set aside on the ground of irregularity: Fagan v Morien [2008] WASC 54. I held further that the plaintiff should not be given leave to cross-examine the defendant on an affidavit he had filed in support of his application to set the judgment aside: [77].

2 The parties have since filed outlines of submissions in relation to costs and have requested me to deal with that issue on the papers. The defendant's responsive submissions were served one day later than directed. I will, however, receive them - despite objection from the plaintiff. No prejudice results from the slight delay.

3 The plaintiff accepts that usually, a plaintiff will be ordered to pay the defendant's costs of setting aside a judgment obtained irregularly. However, in this case, the plaintiff submits that costs should be reserved to the trial judge because the defence is 'shadowy and inconsistent with contemporaneous documents': and because there is affidavit evidence which is said to contradict at least part of the defence.

4 In my view, these considerations are irrelevant to the costs of the application to set aside the judgment. That is because, as I said in my reasons, I considered that the irregularity was very significant and resulted in a situation which was, for practical purposes, unworkable: [76].

5 That being so, the defendant was entitled as of right to have the judgment set aside and entitled to defend the claim, as he wished.

6 The issue then, is whether costs should be taxed under the scale or whether, as the defendant contends, he should be awarded costs on an indemnity basis or on the basis of a special costs order.

7 The defendant relies on a letter dated 6 November 2007 from his solicitors to the plaintiff's solicitors in which they expressed the view that the judgment was irregular and that the defendant was entitled to have it set aside. The defendant's solicitors sought the plaintiff's consent to this course. They said:

If your client does not consent and it is necessary for our client to apply to the Court and the application is successful (and in our view it will be) we will refer to this facsimile in support of an application for indemnity costs.

8 This is clearly not a Calderbank letter. It is an expression of the defendant's opinion which clearly, the plaintiff was not obliged to accept. The letter therefore provides no basis for awarding indemnity costs.

9 The defendant submits alternatively, that the application to set aside the judgment:

... was necessitated and continued almost solely by reason of the plaintiff maintaining a position that was untenable in circumstances where the plaintiff, properly advised, should have known his position had no real prospects of success, or was advanced with wilful disregard for known facts or clearly established law.

That submission is derived from the decision in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397, 401. As Roberts-Smith J held in SDS Corporation Ltd v Pasdonnay Pty Ltd [2004] WASC 26 (S2) [50]:

The type of case referred to in Fountain is therefore only one example of cases in which indemnity costs may be awarded. It applies not only to a plaintiff but to a party who persists in the defence to a case which it knows, or ought to have known if it had competent legal advice, to be hopeless, and so causes unnecessary expense and cost to the plaintiff (Penfold v Higgins [2003] NTSC 89 at [6]; BC200304556).

10 In the present case, the plaintiff contended, until the commencement of the hearing, that the judgment had been obtained regularly. That was clearly an untenable position. However, the plaintiff persisted in his alternative contention that the irregularity had been cured by an order of a case management registrar.

11 I held that that argument was equally untenable. However, many arguments are rejected on that basis, without the proponent being visited with an indemnity costs order. In the present case, the circumstances were unusual: and there was no 'clearly established law' which could be applied.

12 I do not think it appropriate, therefore, to make an order for indemnity costs of the application to set aside the judgment. In any event, there was very little that could be said, either for or against the argument that the registrar's order had cured the irregularity. In other words, untenable though the argument might have been, an order for the defendant's costs to be taxed on the scale (or fixed in accordance with Practice Direction No 4 of 2007) would be likely to have provided an adequate degree of reimbursement for the defendant.

13 In my view, the real problem in the present case was the plaintiff's application to cross-examine the defendant on his affidavit sworn in support of his application to set aside the default judgment. That was a relatively short affidavit in which the defendant explained why he had not filed a defence and summarised the defence which he wished to file.

14 In response, the plaintiff filed an affidavit of three pages to which he exhibited some 100 pages of correspondence and other documents, including an affidavit filed by the defendant in District Court proceedings some two years previously.

15 In response to that affidavit, the defendant filed an affidavit of five pages to which he annexed over 120 pages of timesheets and inter-solicitor correspondence. This affidavit was served on the plaintiff's solicitors at about midday on the day before the hearing of the application to set aside the judgment and the application to cross-examine the defendant on his affidavit.

16 Counsel for the plaintiff accepted at the hearing that the discretion to permit cross-examination on affidavits filed in interlocutory proceedings was 'rarely exercised' (ts 28). However, the defendant could not exclude the possibility that the discretion might be exercised in the present case. That being so, it was prudent, and therefore reasonable, for the defendant to consider in detail the materials relied on by the plaintiff in his affidavit of 15 February 2008 and to respond to it. I do not think it relevant for present purposes that his responsive affidavit was filed only the day before the hearing and that the plaintiff therefore had no proper opportunity to deal with it. He could have had an adjournment, at the defendant's cost, in order to do so.

17 The defendant claims that as a result of the need to deal with these interlocutory exchanges, he has incurred substantial costs, far in excess of those recoverable on the relevant scale.

18 In these circumstances, the defendant seeks a special costs order pursuant to s 215(2) of the Legal Practice Act 2003 (WA). That provision permits a judicial officer to order the payment of costs above the scale if the scale is inadequate 'because of the unusual difficulty, complexity or importance of the matter'.

19 In the present case, it may be said that the work carried out by the defendant's solicitors in preparing for the application to cross-examine the defendant on his affidavit was much more difficult than would ordinarily be expected in an application of that kind, and therefore involved 'unusual difficulty': see generally, Heartlink Ltd v Jones [2007] WASC 254 (S).

20 However, even if that was so, I think it would be unjust to require the plaintiff to pay the costs of the application if it transpired that the evidence on which the defendant sought to rely was (as the plaintiff submits) unsatisfactory in some way.

21 If that was the case, it would not become apparent until the trial. Therefore, although I can see merit in the argument that this application stands alone and that the associated costs issue should be resolved now, I think the fairer course is to reserve the question to the trial judge.

22 Because the application to set aside the judgment is inextricably linked with the application to cross-examine the defendant on his affidavit, I consider that the costs of both applications should be dealt with at the same stage.

23 The order will therefore be that the costs of both applications will be reserved. The action should now be programmed for mediation and trial.