Finlayson v Indigenous Business Australia [2014] VSCA 95

2 Mr Patrick Finlayson is the registered owner of land at 27 Victoria Cross Parade at Wodonga in Victoria. By proceeding commenced on 28 August 2013 in the County Court Victoria, Indigenous Business Australia (IBA)[1] sought recovery of possession of the land on the basis that Mr Finlayson had defaulted under the terms of his mortgage with IBA.

3 On 13 February 2014, IBA obtained judgment in default of defence against Mr Finlayson for possession of the land.

4 Mr Finlayson applied to set aside the default judgment. After a contested hearing on 11 April 2014, a County Court judge made an order dismissing the application to set aside the default judgment. Mr Finlayson applies for leave to appeal from this order and for a stay of the judgment.[2] IBA, the respondent, opposes both applications.

5 An order refusing to set aside a default judgment is interlocutory in nature.[3] Under s 74(2D) of the County Court Act 1958 (Vic), leave of the Court of Appeal is needed to appeal from an interlocutory order.

6 The test for granting leave to appeal from an interlocutory order is whether the decision below is wrong or is attended by sufficient doubt to warrant it being reconsidered on appeal and substantial injustice would be done if the order was allowed to stand.[4]

7 The writ and statement of claim in this proceeding were taken to be served on Mr Finlayson on about 28 October 2013 pursuant to orders made by the judge on 22 November 2013.[5]

8 On 19 December 2013, a Mr David Avery, solicitor, telephoned Ms Jennifer Lim of the Australian Government Solicitor (AGS). He stated that he acted for Mr Finlayson and requested an extension of time until 15 January 2014 to file a defence. Ms Lim consented to this course but as at 5.00pm on 16 January 2014, no defence had been served on AGS. Subsequent inquiries by Ms Lim to Mr Avery culminated in a telephone call from Mr Avery to Ms Lim on 20 January 2014 during which Mr Avery advised that he no longer acted for Mr Finlayson.[6]

9 On 20 January 2014, Ms Robyn Curnow, who is a senior lawyer employed by AGS, telephoned Mr Finlayson and advised him that AGS may be instructed to file an application for judgment in default of defence.[7]

10 On 21 January 2014, AGS received correspondence by email from Mr Finlayson which attached an affidavit sworn by Mr Finlayson together with an undated document styled 'Notice of Defence'. In his email, Mr Finlayson asked for a copy of the 'bank loan' and in response to his request, on 24 January 2014, AGS sent the applicant a copy of the loan agreement (number 123979) which had been executed by Mr Finlayson on 28 September 2010.[8]

11 Ms Curnow deposes that on or about 12 February 2014, Ms Lim searched the County Court records of the proceeding which recorded that Mr Finlayson had attempted to file a notice of defence on 24 January 2014 but the notice was returned to Mr Finlayson because it was not in the correct form.[9]

12 On 13 February 2014, judgment was obtained for recovery of possession of the land together with an order that Mr Finlayson pay IBA's costs.

13 Mr Finlayson has applied to set aside the default judgment supported by affidavits sworn on 12 March 2014, 2 May 2014 and 9 May 2014 respectively. In substance, Mr Finlayson deposes that IBA failed to properly serve him with the proceeding, failed to follow his instruction not to pay the builder, Metricon, for a stage of construction of his house on the land; and that the AGS emailed him the wrong notice of defence forms.

14 Even though the 'Notice of Defence' document was not filed with the County Court, it was brought to the attention of his Honour as an exhibit to the affidavit of Ms Lim which had been filed in support of the application for judgment in default of defence. The 'Notice of Defence' states:

IBA failed to provide a proper service under the ASIC Act of 2001_._

1. I disagreed.

2. I disagreed.

3. I disagreed.

4. I disagreed.

5. I disagreed.

6. I disagreed.

7. I disagreed.

8. I disagreed.

15 I presume, though it is not at all clear, that the disagreement expressed in the 'Notice of Defence' records disagreement with the contents of corresponding paragraphs in the statement of Claim (even though the statement of claim consists of nine rather than eight numbered paragraphs). The statement of claim sets out the cause of action. In substance, IBA alleges that Mr Finlayson owns the land; that he mortgaged his interest in the land to secure repayment of a loan from IBA; that he is in default under the mortgage and the loan agreement by failing to repay the money secured; that he remains in default and, despite demand, has failed to pay the amount owing and that IBA is entitled to possession of the land.

16 Mr Finlayson appeared in person before the County Court on 28 March 2014 on the return of the summons to set aside the default judgment. At his request, the hearing was adjourned to 11 April 2014.

17 The judge ordered that Mr Finlayson file and serve any further affidavit material upon which he sought to rely by 4 pm on 7 April 2014.

18 By statutory declaration dated 7 April 2014, Mr Finlayson declared that:

(a) on 29 March 2011, a Mr Shahidullah (of IBA) had rung him and told him that he had authorised the completion stage of the property;

(b) he had spoken to a Mr Kevin Wighton (of IBA) 'well before the completion stage of the property ... in regards to stopping the payment for the completion stage of the property' and that Mr Shahidullah stated that 'he would see if he could reverse the completion stage payment but told [Mr Finlayson] that he could not.'[10]

19 Ms Curnow deposes that Mr Finlayson appeared in person before the court on 11 April 2014. From notes taken at the time, Ms Curnow recorded that Mr Finlayson relevantly submitted that:

(a) he had not authorised the final payment of the loan moneys for the fix up stage by IBA and that IBA had acted improperly by releasing these moneys;

(b) he wanted his partners (that is IBA and the builder, Metricon) 'to come on board and fulfil their role in this matter and get Metricon to fix the property';

(c) that his defence was that IBA did not fulfil its obligations, had failed in its duty of care to him, and had not fulfilled its promise to him;

(d) cracks had appeared in the fix up stage and he had written to Metricon several times about these defects but they refuse to fix them up because he is Indigenous;

(e) he intended to have Metricon charged with theft because they removed documents from the property.

20 Ms Lim made submissions on behalf of IBA rejecting Mr Finlayson's allegations that IBA had acted improperly. She explained the loan agreement in place between the parties, and the payment of money in stages to Metricon after the receipt by IBA of invoices endorsed by Mr Finlayson. It was submitted that Mr Finlayson's dispute with Metricon was unrelated to this dispute and had been resolved by Consumer Affairs Victoria by way of a meeting held at the security property between Mr Finlayson, representatives of Metricon, the Victorian Building Authority and Consumer Affairs Victoria on 4 December 2013. Other submissions were made which are not presently relevant.[11]

21 The judge dismissed Mr Finlayson's application and gave oral reasons for his decision. These reasons were subsequently reduced to writing.[12] The judge determined that the principles applicable in determining whether or not to set aside a default judgment include whether:

(c) the application to set aside was made promptly; and

(d) if the judgment was set aside, the plaintiff would be prejudiced in some way not able to be adequately compensated by a suitable award of costs.

22 His Honour noted that the claim by IBA relates to Mr Finlayson's failure to make payments to IBA due under the mortgage and found that it was not clear that there is any defence on the merits. His Honour noted Mr Finlayson's contention that there was 'some kind of partnership arrangement which presumably existed between himself, the plaintiff and Metricon, a home builder company.' His Honour stated that he had not seen any documentation which suggests the existence of such a partnership or that IBA had any relevant obligations to Mr Finlayson apart from those in the mortgage. His Honour also stated that to the extent that Mr Finlayson had a complaint in relation to the house the subject of the mortgage, the complaint appears to relate to the performance of building works and the defective nature of those works, as Mr Finlayson sees it.

23 Mr Finlayson had brought to court photographs to which he referred for the purpose of demonstrating alleged defects in the building works at the property.[13]

24 His Honour referred to these photographs and stated that one could accept that Mr Finlayson might have had some complaint with the builder, assuming the photographs accurately represented the state of the house.

(a) failed to make clear why any dispute with the builder would prevent IBA from exercising its rights under the loan agreement;

(b) did not give a detailed explanation as to how the default arose;

(c) was aware of the proceeding from around mid October 2013, and was served with copy orders in late November 2013;

(d) had said he intended to file a defence when he attended the offices of AGS on 28 November 2013;

(e) sought, and IBA agreed to, an extension of time to file the defence;

(f) did not serve any defence by the extended date and that the document sent to IBA, on 21 January 2014 'was not very illuminating'; and

(g) had acknowledged that it was because of his own conduct that the default judgment came about.

26 Finally, his Honour found that there was no issue about the application having been made reasonably promptly, and that IBA would not be likely to suffer any significant prejudice if the judgment were set aside. Nevertheless, his Honour decided that because he did not consider that Mr Finlayson had raised any defence on the merits which could (if accepted) succeed at trial, he did not propose to set aside the default judgment.

27 Accordingly, his Honour dismissed Mr Finlayson's application.

28 Before this court, Mr Finlayson relied on a decision of the High Court of South Africa in Ikhaya RMBS Ltd v Abrahams.[14] Ikhaya concerned an application for summary judgment where the applicant had failed to make out a proper cause of action. It was not necessary for the Court to determine whether the relevant respondent had made out a bona fide defence.

29 Ikhaya has no application to the current circumstances. This proceeding concerns a regularly entered default judgment where a cause of action is made out on the pleadings. In the circumstances it was incumbent on Mr Finlayson to demonstrate that he had a defence on the merits.

30 Mr Finlayson also relied on First National Bank of Montgomery v Daly,[15] an unreported decision of the Justice Court in the Township of Credit River in the State of Minnesota, County of Scott, delivered on 9 December 1968. The defendant in that case submitted that the plaintiff had created the money and credit upon its own books by a bookkeeping entry and alleged a failure of consideration for the relevant mortgage deed. This decision has been overruled and has been described by this Court as 'worthless ... authority'.[16] I agree. In my view, this aspect of Mr Finlayson's argument is frivolous. There is no basis for any suggestion that the loan was a mere bookkeeping entry or that the sums were not advanced by IBA.

31 Before this Court, Mr Finlayson submitted orally that there was no evidence of any loan agreement or any mortgage. He accepted that someone had advanced approximately $300,000 to enable his house to be built but did not say who it might have been. Further, he said that he would be happy to pay the arrears if the original loan agreement was produced to him.

32 By way of response, counsel for IBA submitted, correctly, that where a defendant fails to file a defence the matters in the statement of claim are taken to be admitted,[17] that in the circumstances it was not pertinent for IBA to exhibit the loan agreement or the mortgage to defend the application to set aside a default judgment.

33 I am satisfied that proceedings were served on Mr Finlayson and that the default judgment was regularly entered. There is no dispute that Mr Finlayson failed to file a defence before judgment was entered. In the circumstances, it was incumbent on the applicant to demonstrate a defence on the merits.

34 Having reviewed the documents before the County Court on 11 April 2014 and the reasons of the primary judge, having heard Mr Finlayson's submissions and considered the cases he relies upon, in my view, no error is demonstrated and there is nothing in the reasoning of the primary judge which would suggest that the order is attended by sufficient doubt to warrant it being reconsidered on appeal. Further, there would be no substantial injustice because any appeal from the decision would be bound to fail.

36 Strictly, the application for a stay of the order made in the County Court on 11 April 2014 is misconceived because the order made on that day was an order dismissing the application to set aside the default judgment. Nevertheless, for the purposes of Mr Finlayson's application, I am prepared to treat the summons filed on 24 April 2014 as an application for a stay of the default judgment for possession entered on 13 February 2014.

37 In Maher v Commonwealth Bank of Australia,[18] DoddsStreeton J summarised the principles applicable. In substance, an applicant is required to show the existence of special circumstances which warrant the court departing from the general rule that a successful party should be entitled to the fruits of its judgment even though the categories of what may constitute special circumstances are not closed.

38 Having refused the application for leave to appeal in this matter on the basis that no defence on the merits has been demonstrated, in my view it follows that the application for a stay should also be refused. No special circumstances have been established which would warrant the Court granting a stay.

In Mr Finlayson's submissions in support of the application for a stay, he relied on Plumstead v The Standard Bank of South Africa, a case heard in the High Court of South Africa.[19] In that case the applicant sought a stay of the imminent sale of certain property of the applicant and established that he had not been duly served with relevant documents. Plumstead has no application to this case as there is no doubt Mr Finlayson was served with the relevant documents.

39 In my opinion, the application for a stay should also be refused.

40 I agree with the reasons of Almond AJA and the orders which his Honour proposes. Subject to anything Mr Finlayson or counsel may say, the orders we make are these:

1. The application for leave to appeal against the orders of Judge Cosgrave of 11 April 2014 is dismissed.

2. The application for a stay of the default judgment for possession entered 13 February 2014 is dismissed.

3. The applicant pay the respondent's costs of the applications.

[1] A statutory authority established under s 145 of the Aboriginal and Torres Strait Islander Act 2005 (Cth).

[2] Two summonses were filed in the matter, dated 16 April 2014 and 24 April 2014.

[3] Carr v Finance Corporation of Australia (No 1) [1981] HCA 20; (1981) 147 CLR 246, 248; Permanent Custodians Limited v Palmer [2009] VSCA 80, [3].

[4] Niemann v Electronic Industries Ltd [1978] VicRp 44; [1978] VR 431, 441-442.

[5] Affidavit of Robyn Joy Curnow sworn 7 May 2014 (Curnow Affidavit) [5]-[6].

[10] Statutory Declaration dated 7 April 2014, Curnow Affidavit, exhibit RJC-1, 63.

[12] Reasons for Ruling (Unreported, County Court of Victoria, Judge Cosgrave, 11 April 2014).

[14] Ikhaya RMBS Ltd v Ahdill Abrahams (Unreported, High Court of South Africa, No 6429 of 2008, Moosa J, 17 December 2008) ('Ikhaya').

[15] Unreported, Justice Court, State of Minnesota, 9 December 1968 (M V Mahoney, Justice of the Peace) ('Daly').

[16] Permanent Custodians Ltd v Virgin Investments Pty Ltd [2009] VSC 429, [50] (J Forrest J); see also National Australia Bank Limited v McFarlane [2002] VSC 116, [8] (Byrne J), which was cited with approval in Walter v National Australia Bank Limited [2004] VSC 36, [246] (Dodds-Streeton J). For the overruling of Daly in the United States, see Zurn v Northwestern National Bank of Minneapolis, 170 NW 2d 600 (Minn, 1969); Daly v Savage State Bank 171 NW 2d 218 (Minn, 1969); see also Sneed v Chase Home Finance LLC WL 1851674 (SD Cal, No 07CV0729-LAB (AJB), 27 June 2007), 3-4.

[17] Stewart v Coughlan [1885] VicLawRp 59; (1885) 11 VLR 279; National Bank of Australasia v Cohen [1897] VicLawRp 50; (1896) 22 VLR 269; Cribb v Freyberger [1919] WN 22; Nixon v W Phelan & Son Pty Ltd [1959] VicRp 14; [1959] VR 83; Lombank Ltd v Cook [1962] 3 All ER 491, 498; Parkville Court Pty Ltd v Salvaris [1975] VicRp 38; [1975] VR 393, 395.

[18] Maher v Commonwealth Bank of Australia [2008] VSCA 122.

[19] Plumstead v The Standard Bank of South Africa (Unreported, High Court of South Africa, No 592 of 2012, Nepgen J, 11 October 2012 ('Plumstead').