GEMINI PROPERTY INVESTMENTS v WOODARDS INVESTMENTS No. SCGRG-99-1346 [2000] SASC 210

1 DEBELLE J. (ex tempore) This is an appeal from a decision of Master Kelly refusing to set aside judgment entered by the plaintiff in default of defence by the defendants. The first, second and third defendants are related companies. The fourth defendant is a director of all three companies.

2 On 11 November 1999, the plaintiff commenced this action by summons to which a statement of claim was annexed. The summons and statement of claim were served on 22 November. It was, therefore, necessary for the defence to have been entered on or before 21 December 1999. The defendants entered an appearance but failed to file a defence within the period of 28 days prescribed by the Supreme Court Rules. On 22 December 1999, the plaintiff entered judgment against all defendants in default of defence. The default judgment was entered as a final judgment against each defendant for specific sums, that is to say, as if the claims were liquidated demands. As will be seen, this was not correct. By application made on 3 February 2000, the defendants all applied to set aside the default judgments. The application was heard by Master Kelly on 13 April 2000. He dismissed the application. He did, however, amend the order so that it was not a final judgment but an interlocutory judgment for damages to be assessed. The defendants appealed from that decision. As Master Kelly gave no reasons for his decision. I must, therefore, exercise the discretion afresh.

3 The defendants contend that the default judgment was irregularly obtained, in that the plaintiff signed judgment on the footing that their demand was a liquidated demand. While there may be elements of a liquidated demand in the plaintiff's claim, it is beyond question that part of the claim is for damages for alleged misrepresentation.

4 In its statement of claim the plaintiff alleges that, on 11 November 1998, it purchased a building in Currie Street, Adelaide from the first defendant. It alleges that, when it purchased the building, it relied on representations made by the first and fourth defendants that the second and third defendants would each enter into a lease for portion of the building. The second and third defendants had executed leases. However, they failed to occupy the premises, pay rent, or sublease the premises. On 9 April 1999, the plaintiff terminated the leases and demanded payment of the rent under the leases, outgoings and other costs. The plaintiff claims that the second and third defendants acted in breach of the leases and claims damages. In addition, the plaintiff has claimed damages against the first and fourth defendants for misrepresentation. Those claims have been made pursuant to the relevant provisions of the Trade Practices Act 1974 or the Fair Trading Act 1987 and the Misrepresentation Act 1972.

5 Four affidavits have been filed in support of the application. Two are sworn by Mr Kadis, the solicitor for the defendants. The other two are sworn by Mr Callegher, the fourth defendant. Mr Callegher is a director of all three defendant companies.

6 In an affidavit sworn on 3 February 2000, Mr Kadis says the defence was not filed within the period required by the Supreme Court Rules as a result of the heavy workload in his office, which was exacerbated by the Christmas holiday period. He relies on the fact that other solicitors were then on leave which increased his workload. His affidavit also exhibits correspondence between the solicitors for the parties. It is apparent from the correspondence that the second and third defendants do not dispute that they are liable for having breached their respective leases. The only issue between them and the plaintiff is the amount of damages payable to the plaintiff. The second and third defendants also assert the plaintiff has failed to mitigate its loss. In the second affidavit sworn on 16 March 2000, Mr Kadis exhibits a proposed defence.

7 In an affidavit sworn on 17 February 2000, Mr Callegher asserts that the plaintiff had ample notice of the intention of the second and third defendants not to occupy the premises. It contains grounds upon which the defendants assert that the plaintiff has not mitigated its loss. This affidavit contains paragraphs which are tantamount to an admission of liability on the part of the second and third defendants. The other affidavit, sworn by Mr Callegher on 10 April 2000, exhibits a bankruptcy notice served upon him in relation to the default judgment.

8 A party seeking to set aside a judgment must show that it has a defence which is fairly arguable in law and in fact. In other words, that party must not only state that it has a defence but say something about the merits of the defence. It is not sufficient simply to assert that the defence exists or to say that the defendant denies the claim made against it. As Bray CJ pointed out in Watson v Anderson (1976) 13 SASR 329 at 334 - 335, the defendant must show that it has a bona fide intention of defending and that there is a reasonably clear and bona fide case of legal merit. None of the affidavits filed in support of the application to set aside the judgment set out any defence on the part of the first defendant or give any hint of the grounds upon which the defence is to be advanced. In addition, the proposed defence does not set out any ground of the defence on the part of the first defendant. It simply puts in issue certain of the allegations made in the statement of claim as against the first defendant.

9 The position of the second and third defendants as set out in the affidavits is that they admit that they are in breach of the leases into which they each had entered with the plaintiff. However, they dispute the plaintiff's calculation of damage and assert that the plaintiff has failed to mitigate its loss.

10 The fourth defendant is alleged to have guaranteed the obligations to the second and third defendants. In the proposed defence, the fourth defendant admits that he guaranteed the obligations of the second defendant under its lease but denies that he guaranteed the obligations of the third defendant under its lease. He does not, however, set out any grounds for that defence. In neither of the two affidavits sworn by Mr Callegher in support of the application to set aside judgment does he depose to any fact relating to his personal defence, nor any fact relating to a defence on the part of the first defendant. As already mentioned, as far as the second and third defendants are concerned, there are paragraphs in his affidavit which are tantamount to an admission of liability.

11 In the light of the complete absence of any evidence as to the grounds of defence on the part of the defendants, it can be readily understood why Master Kelly set aside the judgment. Nothing has been put before me which justifies me in interfering with that aspect of the decision.

12 Although the defendant is not usually required to bear the consequences of default by a solicitor, if that solicitor has been properly instructed: see Hill v Parke Davis & Co Ltd (1986) 41 SASR 349 at 354; and Langanis v Roberts, (unreported, Mullighan J, 15 July 1993, Judgment No. S4043), there are, in this case, other factors which must be considered. The first is that there is a complete absence of evidence as to the grounds of defence or any bona fide intent on the part of the first and fourth defendants to prosecute the defence. Next, it is apparent that the central issue between the plaintiff and the second and third defendants is the assessment of damages and the alleged failure by the plaintiff to mitigate its loss.

13 Those defendants and the fourth defendant are able to litigate the question whether the plaintiff mitigated its loss on the hearing of the assessment of damages. There does not appear to be an intention on the part of the second and third defendants to dispute the question of liability. The plaintiff would be prejudiced if the judgment were to be set aside in that it would lose the present admission of liability. There is, therefore, no basis for setting aside the judgment against the second and third defendants.

14 There is no defence set out on the part of the first defendant or the fourth defendant in either the proposed defence or the affidavits filed in support of the application. The issues between the parties have been the subject of correspondence between their respective solicitors for almost 12 months. The defendants have delayed the plaintiff in recovering that which is due to it. I do not think that the defendants are entitled to delay the plaintiff further in recovering that which is properly due. Although these defendants would be barred from defending the action, their failure to adduce any ground of defence does not now justify an order which would prejudice the plaintiff.

15 There remains the question whether the judgment was irregularly obtained and, therefore, should be set aside ex debito justitiae. Where a judgment in default has been obtained irregularly, the defendant will normally be able to set it aside ex debito justitiae: Watson v Anderson (supra) at 333. A judgment will have been obtained irregularly if it is entered for a sum in excess of the amount actually due, or if judgment has been entered before the date by which a defence had to be filed, or if it has been entered where in truth the statement of claim had not been served.

16 The irregularity in this case is asserted to be the fact that the judgment was entered for specified amounts payable by each the first, second, third and fourth defendants. The claims against the first and fourth defendants were not for liquidated demands. There might even be a question as to whether the claims against the second and third defendants were for liquidated demands. It is unnecessary to stay with the question whether judgment was properly entered against the second and third defendants since, on any view of the matter, the claims against the first and fourth defendants were for unliquidated demands, that is to say, damages for the misrepresentations alleged against them.

17 I have not been able to ascertain any case in which it has been held that entry of judgment on the footing that the judgment is for a liquidated demand, where in truth it is an unliquidated demand, constitutes an irregularity of the kind which requires that the judgment be set aside. Nor have the researches of counsel disclosed such a decision. However, given that there is clear authority that a judgment entered for an amount in excess of the amount actually due is irregularly entered, there are strong reasons for concluding that the judgment in this case was also entered irregularly. For the purpose of this application, I am prepared to assume that it was. There remains the question whether the judgment should be set aside.

18 While it is well established that a defendant would normally be able to get a judgment irregularly entered set aside ex debito justitiae, that very proposition includes within it the notion that it is not an invariable rule that it would be set aside. If an application is made to amend the judgment before a defendant applies to set it aside, the court may be prepared to allow the amendment: see Building Guarantee and Discount Co Ltd v Dolejsi [1967] VicRp 94; [1967] VR 764. However, as that decision shows, there are decisions to the effect that the applications made after the application to set aside judgment, the court will not always allow the amendment but will set aside the judgment.

19 In this case, there is no evidence as to how the Master came to amend the judgment. It seems that there might have been an oral application after which amendment was made and that the master acceded to that application.

20 Although, as McInerney J noted in Building Guarantee and Discount Co Ltd v Dolejsi (supra), generally speaking, the application to amend must be made by a plaintiff before the defendant's application to set aside the judgment, it is apparent that that is not an invariable rule. In that particular case, His Honour refused to set aside the judgment, the application to amend having been made after the defendant's application to set aside the judgment, because in the exercise of discretion there was also substantial conflict of fact between the plaintiff and defendant as to whether judgment had been entered in breach of an understanding between the solicitors for the respective parties.

21 In my view, this is a particularly strong case. I have already mentioned that there is no affidavit which proves any grounds of the proposed defence and there is nothing in the proposed defence which sets out those grounds. The proposed defence simply puts in issue the allegations in the statement of claim. Significantly, the second and third defendants admit liability. Correspondence between the parties suggest that the real issue between them is the assessment of damages. Notwithstanding the irregularity, I am not prepared, therefore, to set aside the judgment.

22 For these reasons, the appeal will be dismissed.