Gorczynski v Holden

CASES CITED : Grassby v R (1999) 168 CLR 1 at 636-7

PARTIES : Peter Francis Gorczynski - Plaintiff Michael Geoffrey Anthony Holden, Stephen Edward Martin, Ian John Benecke and Brenden John Miller trading as Garland Hawthorn Brahe - Defendants

COUNSEL : Ms N Obrart - Plaintiff Mr R Harper SC - Defendants

SOLICITORS : Kent Attorneys - Plaintiff Garland Hawthorn Brahe - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11838/2007 - Peter Francis GORCZYNSKI v Michael Geoffrey HOLDEN T/as GARLAND HAWTHORN BRAHE & Ors

JUDGMENT 1 HIS HONOUR: Nature of Proceedings The plaintiff appeals from a decision of his Honour Mr Lulham LCM given on 15 March 2007. The appeal is brought pursuant to s73(2) of the Local Courts Act 1982 , which refers to appeals from decisions in the Small Claims Division of the Local Court. Such appeals are limited to grounds of lack of jurisdiction or denial of natural justice. 2 In the Local Court his Honour had before him applications by the plaintiff to set aside two default judgments. His Honour ordered that the default judgments be set aside but did so on condition that certain moneys be paid into court by the plaintiff and ordered the plaintiff to pay costs. The plaintiff in these proceedings seeks to set aside those conditions and the orders for costs. The plaintiff says that in the Local Court proceedings he was denied natural justice and that his Honour lacked power to impose the conditions and make the orders which he did. The amount involved is $10,786.07.

Factual background 3 The defendants are a firm of solicitors trading as Garland Hawthorn Brahe. They acted on behalf of the plaintiff in litigation during 2002 and 2003. The defendants rendered various bills of costs to the plaintiff. The defendants say that parts of those bills of costs were not paid by him. As a result, the defendants brought two sets of proceedings in the Local Court:

(i) Proceedings No 6511 of 2005 claiming the amount of $1,284.80, plus interest and costs.

(ii) Proceedings No 6512 of 2005 claiming the amount of $6,667.30, plus interest and costs. 4 The defendants say that the statements of claim in relation to those matters were served on the plaintiff. No defence was filed in either matter and in due course the defendants entered default judgments against the plaintiff for the amounts claimed, plus interest and costs. Relying upon the judgments, the defendants commenced bankruptcy proceedings against the plaintiff and bankruptcy notices were issued against him. The issue of the bankruptcy notices appears to have been the catalyst which caused the plaintiff to do something about the default judgments. 5 The plaintiff filed motions in the Local Court seeking orders that the default judgments be set aside. By way of defence he asserted that the defendants were in breach of the provisions of the Legal Profession Act 1987 or the Legal Profession Act 2004 and the Legal Profession Regulations 2002 in that "bills of costs" in the form required by the Act and Regulations had not been delivered to him and that the defendants had charged for their services at a rate which was in excess of that which had been agreed. He asserted that because they were in breach of the Legal Profession Act the defendants were not entitled to the fees which they claimed. He also relied upon a cross-claim which asserted that the defendants had acted negligently and incompetently on his behalf as a result of which he suffered damage. The amount of the cross-claim exceeded that which was claimed by the defendants. 6 By way of explanation for the entry of default judgments, the plaintiff said that he had never been served with the statement of claim in either proceeding and that the proceedings were never brought to his attention until he received the bankruptcy notices. 7 His Honour heard the plaintiff's applications to set aside the default judgments on 15 March 2007. The plaintiff was cross-examined extensively as to whether the statements of claim had been brought to his attention. It is clear from the transcript that his Honour did not believe the plaintiff. Having read the transcript, one can see why. His Honour said: "It will be clear from the comments I have made that I have had great difficulty in accepting Mr Gorczynski's credibility in relation to the non receipt of the statement of claim. I have … … some way as to my concerns might be misplaced. I propose to set aside the judgments but on certain conditions. I will set out the proposed conditions. I will hear from the parties in relation to those proposed conditions". (T.30) 8 It was common ground before his Honour that in reliance upon the default judgments, the defendants had commenced bankruptcy proceedings and that they had incurred costs in doing so and were likely to incur costs when the bankruptcy notices were set aside. His Honour sought to impose a condition which would protect the defendants from that loss. Ultimately the defendants' solicitor suggested a figure of $750 as being sufficient to cover the defendants' costs relating to the bankruptcy notices. In that regard the following exchange is recorded on the transcript: "MILLER: Your Honour, I'll put $750. I am prepared for my costs to be $750 at the Federal Court proceedings. HIS HONOUR: What do you say in relation to that? You can't say that's not a reasonable sum can you? KENT: Well your Honour I still put the matters that I put to you before, with all due respect. The fight in the Bankruptcy Court is over different issues. HIS HONOUR: I make it a condition of the judgment being set aside that the defendant pay the plaintiff's costs of the bankruptcy proceedings assessed at $750 within 28 days". (T.32-33) 9 The orders made by his Honour were as follows: "(a) In proceedings 6511 of 2005 judgment was set aside on terms that: (i) The plaintiff pay the sum of $1,480.58 (the amount of the judgment) into court. (ii) The plaintiff pay the defendants' costs of the notice of motion to set aside the default judgment in the sum of $350.00. (b) In proceedings 6512 of 2005 judgment set aside on terms that: (i) The plaintiff pay the sum of $7,885.49 (the amount of the judgment) into court. (ii) The plaintiff pay the defendants' costs of the bankruptcy notices issued by the defendants in the sum of $750. (iii) The plaintiff pay the defendants' costs of the notice of motion to set aside the default judgment in the sum of $350.00."

Submissions and consideration 10 The plaintiff submitted that his Honour's orders imposing conditions and for costs were flawed because he had been denied natural justice. The plaintiff relied upon the following extract from the transcript: "KENT: Well I seek to be heard on the other head as well your Honour. HIS HONOUR: I haven't asked you about that. KENT: I seek to be heard on it. HIS HONOUR: I haven't asked you about it. KENT: You don't wish to take submissions on that. HIS HONOUR: No. KENT: Your Honour with respect is in breach of the Act to maintain or continue these proceedings. I again wish to be heard on that point. HIS HONOUR: I have come to the view, which is not totally a permanent view, I'll come to that - it's the delay that worries me. What do you want to say Mr Miller?" (T.27) 11 This exchange occurred in the context of his Honour considering the two matters relevant to an application to set aside a default judgment, ie an explanation for why the default judgment was entered and delay in seeking to set it aside and the merits of any available defence. The reference by Mr Kent to "the other head" was a reference to the question of the plaintiff's defence on the merits. 12 His Honour made it clear in the exchanges with Mr Kent, the solicitor appearing for the plaintiff in the Local Court, that what troubled him was not whether the plaintiff had a defence on the merits, but the plaintiff's evidence that the statements of claim had not been brought to his attention and that is why judgment had been entered against him. In those circumstances there is no reason why his Honour needed to hear further submissions in relation to a defence on the merits. His Honour had already accepted that the plaintiff had such a defence. There was accordingly no denial of natural justice in his Honour refusing to hear further submissions in relation to an issue on which the plaintiff had already succeeded. 13 The plaintiff put another submission as to a denial of natural justice. The plaintiff submitted that if the plaintiff's defence on the merits, ie that the defendants' claims were not maintainable because of their failure to comply with the Legal Profession Act 1987 or the Legal Profession Act 2004, the court should of its own motion, have struck out the two statements of claim or alternatively, have stayed them. This was because the defendants had not complied with the mandatory provisions of the Act. The plaintiff submitted that s331(3) of the 2004 Act required a court to stay any proceedings brought in contravention of that section. His Honour's refusal to hear submissions on this point deprived the plaintiff of the opportunity of having the proceedings stayed or dismissed. 14 This submission is also misconceived. It is really the first submission put in a different way. 15 There was no application before his Honour to stay or strike out the statements of claim. The only applications before his Honour were to set aside the default judgments. His Honour was only obliged to take submissions on issues relevant to those applications. His refusal to consider matters irrelevant to those applications could not and did not constitute a denial of natural justice. 16 To engage in the process, which was being urged on behalf of the plaintiff, would have required his Honour to engage in a hearing of the merits of the case. It would have required him to examine all of the bills of costs, the accompanying correspondence and the relevant legislation and to then decide on the validity of the plaintiff's defences. Not only was there no requirement in law for his Honour to do so on these applications, it may well have involved unfairness to the defendants for him to have done so. 17 In any event, his Honour was well aware of the nature of the submissions which the plaintiff wished to raise since he had before him the proposed defences and since Mr Miller (who was a member of the defendants' firm) was extensively cross-examined in the Local Court proceedings on those matters. 18 The plaintiff's submissions as to a denial of natural justice by his Honour have not been made out. 19 The plaintiff submitted that his Honour did not have power to order the costs which he did. The argument was developed in this way. Under clause 14(2) of the Local Courts (Civil Procedure) Rules 2005 the only matters for which the Local Court in its Small Claims Division may award costs are those for which fixed costs are prescribed under Part 11 of the Legal Profession Act 1987. Similar provisions apply in relation to the Legal Profession Act 2004. Under rule 14(4)(c) of the Local Courts (Civil Procedure) Rules 2005 the maximum costs that may be awarded to a party if proceedings on a motion are heard by a court are the costs allowable on entry of default judgment. 20 Under Schedule 2 of the Legal Profession Regulations 2005 the maximum costs allowable on entry of default judgment are $759. Under Schedule 2 where a claim exceeds $5,000 but does not exceed $20,000 the maximum costs are 80% of that amount, ie $667.92. Where a claim exceeds $1,000 but does not exceed $5,000 the costs are 60% of the amount, ie $455.40. 21 Senior Counsel for the defendants did not dispute the plaintiff's analysis up that point. It was the balance of the plaintiff's submission which was in issue. 22 The plaintiff submitted that the two statements of claim should not be looked at separately but when assessing costs they should be treated as if one claim had been brought. This was because there was no need to issue two statements of claim. The causes of action could have been set out in a single statement of claim. 23 The defendants chose to issue two statements of claim. Their reason was that the two disputed bills of costs related to different proceedings, one in the Local Court and one in the Federal Court. They were entitled to do so. I can see no reason for treating their entitlement to costs in respect of each statement of claim as a single entitlement. Each statement of claim was a separate action which if successfully maintained would provide its own entitlement to costs. Similarly, if either failed there would be adverse costs consequences in respect of that statement of claim. In those circumstances the award of costs made by his Honour in each matter of $350 was well under the statutory maximum specified by the legislation to which I have referred. His Honour did not act beyond jurisdiction in making those awards of costs. 24 The plaintiff submitted that the Local Court was an inferior court of record and that it did not have any inherent power. It followed that the Local Court only had power to make orders and awards when a specific source of power could be identified in legislation. No express power to order payment into court was given in the Local Court Act or any other act. In accordance with that reasoning, the plaintiff submitted that the Local Court had no power to order as a condition of setting aside a default judgment, that monies be paid into court. 25 In support of that submission the court was referred to the fact that under rule 1.5 of Part 1 of the Uniform Civil Procedure Rules 2005 (UCPR), Part 41 of the UCPR was specifically excluded from the Small Claims Division of the Local Court. Part 41 deals with the payment of moneys into court. The submission concluded that since his Honour had no power to order that moneys be paid into court, in doing so he acted beyond jurisdiction. 26 The defendants relied on s86 of the Civil Procedure Act 2005 and the incidental power which the Local Court possessed. In that regard the defendants referred to the statement by Dawson J in Grassby v R (1999) 168 CLR 1 at 636-7 that the Local Court did possess "jurisdiction arising by implication upon the principle that a grant of power carries with it everything necessary for its exercise. … Those implied powers may in many instances serve a function similar to that served by the inherent powers exercised by a superior court but they are derived from a different source and are limited in their extent. …" 27 Section 86 provides: "86. (1) The power of the court to make orders in relation to proceedings, whether under this or any other Act or otherwise, includes the power: (a) to make orders by way of leave or direction, and (b) to make all or any orders on terms. (2) The power of the court to make orders on terms is taken to be a power to make orders on such terms and conditions as the court thinks fit. …" 28 There was no issue that s86 applies to the Small Claims Division of the Local Court. 29 Section 86 makes clear that the Local Court can make any order on such terms and conditions as it thinks fit irrespective of whether or not any particular power conferred by the Civil Procedure Act or the Uniform Civil Procedure Rules expressly confers a power to make orders "on terms". The setting aside of a default judgment on terms involves a conventional exercise of such power. The fact that Part 41 of the Uniform Civil Procedure Rules does not apply to the Small Claims Division of the Local Court does not derogate from that power. 30 When one examines the terms of Part 41, it is clear why it was thought to be inappropriate for the Small Claims Division of the Local Court. It deals with such matters as the method of keeping account of moneys paid into court, the method of depositing such moneys and the method of crediting interest in respect of such moneys. It sets out a scheme for the administration of the moneys whilst they are under the control of the court. These are provisions which as a matter of common sense would be inappropriate for a small claims jurisdiction where to the extent that funds are likely to be paid into court, the amounts involved would be modest. There is no requirement for the complex investment and interest provisions such as are set out in Part 41. 31 It is clear from the transcript that his Honour had real doubts as to the plaintiff's credibility. As a result, he ordered that as a condition of setting aside the default judgments, the plaintiff was to pay into court the amounts for which judgment had been entered. Not only did his Honour have power to make those orders, his Honour identified an appropriate basis for them and nothing has been put to the court to indicate that his Honour's exercise of discretion in this regard miscarried. 32 The last matter to be considered is the order by his Honour in respect of the costs of the bankruptcy proceedings. 33 The plaintiff challenged this order on three bases. The first was that the amount of $750 was in excess of his Honour's power to award costs in a Small Claims Division matter. Secondly, it was submitted that the $750 did not come within the definition of "costs" in s 3(1) of the Civil Procedure Act 2005. This was because the $750 did not represent costs incurred in the Local Court proceedings, which were the only proceedings before his Honour. Lastly, it was submitted that in making the order which he did his Honour was pre-empting the discretion of the Federal Court which would ultimately determine whether costs should be paid by the defendants in relation to the bankruptcy proceedings. 34 These submissions misunderstand what his Honour was doing. The $750 did not represent an award of costs. It represented an amount of money which his Honour required to be paid to the defendants as a condition of setting aside the default judgments. That amount of money was calculated by reference to an amount of costs which the defendants were likely to pay in the Federal Court, but cannot be correctly characterised as an award of costs. 35 His Honour was aware from the material before him that, through no fault of their own in reliance on the default judgments, the defendants had taken proceedings in the Bankruptcy Division of the Federal Court. As a result of the setting aside of the default judgments it was inevitable that the bankruptcy notices would have to be set aside. It was also inevitable that the costs of commencing those proceedings and of issuing those bankruptcy notices would be lost. So that the defendants would not be out of pocket through events that were not their fault, his Honour ordered that the amount of $750 be paid to them by the plaintiff. 36 The figure of $750 was at best an estimation of costs but its reasonableness was not challenged in the Local Court proceedings on that basis. It seemed to be implicitly accepted by the parties that it was a reasonable assessment, if somewhat generous towards the plaintiff. I am of the opinion that the imposition of a condition that the plaintiff pay the amount of $750 was an appropriate exercise of discretion by his Honour and nothing which has been put before the court has established that his Honour's exercise of discretion miscarried. 37 This challenge by the plaintiff also fails.

Conclusion and costs 38 It follows from the above analysis that the plaintiff's summons fails and should be dismissed. This will have costs consequences. 39 Too much money has already been spent in bringing this matter to the Supreme Court. I do not wish to see further money wasted in a contest between the parties as to the assessment of costs and matters of that kind. Accordingly, I took submissions as to costs and advised the parties that I would not only order costs but would fix the amount. 40 As indicated, the plaintiff's appeal to this court was misconceived. That being so I do not see why costs should not follow the event. Moreover, if as was vehemently asserted in this court, the plaintiff has a strong defence entitling him to strike out or stay both sets of proceedings, it is difficult to see why such an application has not yet been brought in the Local Court. 41 This matter was originally fixed for hearing on 17 March 2008. That hearing date was allocated in a telephone directions hearing which took place on 12 December 2007. At that directions hearing, the plaintiff was directed to provide any additional documents to be relied on by him by 31 January 2008 and to serve written submissions by 3 March 2008. Those orders were not complied with. The plaintiff's written submissions were not received until the evening of 6 March and affidavits from Mr Kent and from the plaintiff dated 12 March 2008 were served. The defendants sought an adjournment from Associate Justice Harrison on 17 March on the basis that they were not able to meet this late served material. The adjournment was granted and costs were reserved. 42 It will be apparent from my analysis of the proceedings in the Local Court and before me, that any affidavits from Mr Kent and the plaintiff were irrelevant to the matter. The late service of written submissions was unfortunate but could have been easily overcome given that they were received at a least a week before the specified hearing date. On the other hand, the late service of the written submissions and affidavits without explanation or warning was in clear contravention of the orders of the court made on 12 December 2007. 43 It seems to me that the failure of the matter to proceed on 17 March 2008 was due to the conduct of both sides and I do not propose to make an order for costs in favour of either the plaintiff or the defendants. Accordingly, in relation to the reserved costs of the hearing of 17 March 2008, I propose to order that each party pay his or their own costs. 44 In respect of the summons generally and the hearing before me, I am of the opinion that the assessment of costs made by the defendants of $9,325 is a reasonable one and I propose to make an order for costs in that amount in their favour. 45 The orders which I make are as follows:

1. The summons is dismissed. 2. The plaintiff is to pay the defendants' costs assessed at $9,325. 3. In respect of the adjourned hearing date of 17 March 2008 each party is to pay his or its own costs. **********

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