Gittany v Gittany

Judgment 1HER HONOUR: Joe Gittany and Charles Gittany are brothers. Both are builders. In November 2002, Joe Gittany mortgaged three properties owned by him in order to borrow over $1 million for him to on-lend to a building development project to be undertaken by Charles Gittany. On 1 November 2012, Joe Gittany commenced proceedings to recover amounts allegedly remaining unpaid under that agreement. Charles Gittany failed to file a defence to the claim and, on 25 February 2013, Joe Gittany obtained judgment by default in the sum of $1,057,350.82. 2On 17 May 2013, after being served with a bankruptcy notice based on the default judgment, Charles Gittany filed a notice of motion seeking to have the default judgment set aside (for reasons not explained in the material before me, the motion was not listed for hearing until almost a year later, on 7 May 2014). This judgment determines that application.

Nature of the power to set aside a judgment entered by default 3The application invokes rule 36.16 of the Uniform Civil Procedure Rules 2005, which provides that the court may set aside or vary a judgment or order after it has been entered if it is a default judgment (other than a default judgment given in open court). 4Many of the authorities as to the proper exercise of the power to set aside a judgment entered by default were decided before the introduction of the Civil Procedure Act 2005. That is not to say that those authorities no longer apply but only to note that, since the introduction of that Act, the Court is under a statutory duty to seek to give effect to the overriding purpose of facilitating the resolution of the real issues in the proceedings in a manner that is quick and cheap as well as just. Cost and delay cannot be excused as the necessary price of justice but are seen as aspects of its dictates. 5One of the decisions frequently cited as to the relevant principles is the decision of the Court of Appeal in 1986 in Adams v Kennick Trading (Int'l) Ltd (1986) 4 NSWLR 503. The power under consideration in that case required the applicant to show "sufficient cause" to set aside a default judgment (cf rule 36.15). The decision was nonetheless cited by the applicant in the present case, correctly in my view, as being applicable to the exercise of the power under r 36.16. 6In Adams v Kennick, Hope JA noted (at 506E) that the Court must look at the whole of the relevant circumstances. His Honour stated that "the most relevant matters to consider" are the existence of a bona fide ground of defence and an adequate explanation for the failure to defend and any delay, but that there may be other matters. 7Hope JA referred to the decision of the Court of Appeal in Simpson v Alexander (1926) 26 SR (NSW) 296 at 301 where Street CJ, with whom Gordon and Campbell JJ agreed, said: All that is required on an application of this kind is that the defendant should swear to facts which, if established at the trial, will afford a defence; and should establish his bona fides in setting up that defence. Although, however, issues of fact cannot ordinarily be gone into on an application of this kind, and although it is not usual to go beyond the evidence put forward by the defendant for the purpose of disclosing a defence on the merits, there is, so far as I know, no inflexible rule of law or of practice preventing affidavits in answer from being received. 8Hope JA made the following remarks in respect of that statement (at 507C): Whatever else this statement means, in my opinion it means that evidence can be received, by cross-examination or otherwise, as to the bona fides of the applicant in seeking to rely upon the defence, even though the evidence adduced relates to the issues which would be determined if the matter went to trial. However the question to which this evidence is directed is not simply whether the applicant has shown a defence on the merits; it goes rather to the composite question whether the applicant has shown a bona fide defence on the merits. If the judge hearing the application concludes that the applicant has deliberately lied about the alleged defence and is thus dishonest in raising it, the applicant would fail to establish that he had a bona fide defence on the merits. But if in such a case the judge merely concluded that he preferred the evidence of the respondent to that of the applicant, or anything as to credit short of a disbelief by the applicant in the facts he relied on to found the defence, he would not on that account alone be entitled to find that the applicant had failed to establish that he had shown a bona fide defence on the merits. If he did so, he would be trying the issue to be determined at the trial, and this would be an error of law. 9As to the requirement that there be an adequate explanation for the failure to defend or for any delay, the applicant relied upon the decision of the Court of Appeal in Cohen v McWilliam (1995) 38 NSWLR 476. That is an example of a decision to which, in my respectful opinion, the introduction of the Civil Procedure Act may invite reconsideration (not as to the outcome in that particular case but as to the principle for which it stands). 10In the judgment at first instance, Bryson J had refused an application by Mrs Cohen to amend her defence at the hearing of the proceedings. His Honour expressed the view that the matter put forward by Mrs Cohen in her affidavit could not be regarded as a strong case for reliance on the statutory defence in question. In determining her appeal against that decision, Sheller JA held that Bryson J had proceeded on an erroneous basis in regarding the need for the Court efficiently to dispose of its business as determinative. 11Cole JA disagreed. His Honour was of the opinion that it is not an error of the type referred to in House v The King (1936) 55 CLR 499 for the views of an appellate court to differ from those of a primary judge as to the strength of the defence (at 494A). 12Priestley JA agreed with Sheller JA and said that, had Cole JA not agreed with Bryson J, he would have thought Sheller JA's conclusion "almost beyond argument". His Honour noted that the contrary views of Cole JA and Bryson J seemed to flow from their taking "the modern approach to the conduct of litigation and concepts of judicial administration" to a length Priestley JA regarded as unacceptable (at 478A). 13The applicant in the present case placed emphasis on a passage cited by Priestley JA in Cohen v McWilliam (at 481) taken from the decision of the Federal Court in Davies v Paget (1986) 10 FCA 226, as follows: The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct, in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation. The problem of delays in the courts, egregious as it is, must be dealt with in other ways: for example, by disciplinary actions against offending practitioners and by a comprehensive system of directions hearings or other pre trial procedures which enable the court to supervise progress - and, more pertinently, non progress - in all actions. 14It is that particular statement of principle, cited with approval by the majority in Cohen v McWilliam, which may require reconsideration following the introduction of the Civil Procedure Act. The overriding purpose stated in s 56 of the Act is expressly sustained by the duty of the Court in s 56(2) and the duty of a party in s 56(3). The relevance of those considerations in the present case is considered below.