Before the Court is a summons by which the plaintiff seeks leave to appeal from a decision of the Local Court made by Ms Kennedy LCM on 31 July 2018. The application is brought pursuant to s 40(2)(a) of the Local Court Act 2007 (NSW). Leave is required because the decision appealed from is interlocutory.
The magistrate's decision was made on an application by Insurance Australia Limited to set aside a default judgment which had been entered against it for Ms Abboud. I will refer to the plaintiff in the proceedings before me as "IAG" and to the defendant as "Ms Abboud," to avoid confusion, as their roles as plaintiff and defendant respectively have reversed from the Local Court to this Court.
Although the learned magistrate set aside the default judgment against IAG on the ground that it had been irregularly entered, her Honour refused IAG's application for an order that there be returned to IAG $38,774.00 which had been garnisheed from IAG's bank, the National Australia Bank ("NAB"), by garnishee order made on the basis of the default judgment. IAG contends in this Court that the learned magistrate erred in failing to order that the garnisheed sum should be returned, and that her Honour should have stayed Ms Abboud's proceedings in the Local Court until that restitution is made.
On 26 October 2016, Ms Abboud obtained a policy of insurance issued by IAG in respect of an Audi motor vehicle of which she claimed to be owner. She alleges that this vehicle was damaged in an accident at Nabiac, near Forster, and was rendered a total loss. It is alleged this accident occurred on about 31 October 2016, five days after the policy had been taken out. Ms Abboud contends that on the day of the accident she made a claim pursuant to the policy. According to her allegations in the Local Court and her affidavits, an IAG representative interviewed Ms Abboud with respect to her claim. Following this, the company on 17 April 2017 requested extensive documentation and information. It is apparent from IAG's communications that it was investigating whether Ms Abboud's insurance claim may be fraudulent. The request for information by letter of 17 April 2017 was not satisfied and IAG made further requests in writing. Eventually Ms Abboud's claim was declined by IAG on about 30 June 2017.
Ms Abboud filed a statement of claim in the Local Court by email on 30 August 2017. The document filed was not in a form acceptable to the registry. After some exchanges back and forth with registry officers, Ms Abboud lodged a statement of claim in PDF format on 19 October 2017. On 24 October 2017 she received an email from the registry, advising "Your statement of claim has now been uploaded", and "Please serve your complete statement of claim to the defendant." In all of this, Ms Abboud acted in person without the involvement of a solicitor.
It appears that the statement of claim in the final form which was accepted by the registry was stamped as having been filed on 30 August 2017. The document was given a file number, 2017/263246, and the Court details on the title page of the document showed that it was listed in the General Division of the Local Court at Sydney. The document contained a detailed pleading in 19 paragraphs, which Ms Abboud apparently had drafted. It did not state an amount claimed. It did not claim, on its face, that whatever sum was claimed by Ms Abboud from IAG was in the nature of a liquidated claim. Whether or not the plaintiff downloaded this filed and sealed statement of claim from the registry, certainly she did not serve it. She did not serve a copy of it, sealed or unsealed, on the defendant. She did not serve anything resembling the filed statement of claim on the defendant.
Shortly before 2 February 2018 Ms Abboud sent by post to IAG a form of statement of claim naming herself as plaintiff and IAG as defendant, but containing no details of what Court the statement of claim related to, even as to it being in the Local Court as opposed to any other Court. It certainly did not specify a particular registry of the Local Court in which there might be a proceeding to which the document related. The document sent by post by Ms Abboud to IAG contained no paragraphs of pleading. It stated that $38,500 was claimed plus solicitor's fees of $14,000. Ms Abboud had not engaged a solicitor to this point. The document sent to IAG did not state what the amount of money was claimed for, apart from the solicitor's costs. The document which Ms Abboud sent was dated 19 October 2017. It was received by the defendant on 2 February 2018 but it was meaningless and legally ineffective. IAG personnel who received the document quite understandably did nothing about it.
On 17 April 2018, Ms Abboud filed in the Local Court a notice of motion for the entry of default judgment for a liquidated claim. She either swore or affirmed an affidavit on that date before a Justice of the Peace at Padstow. This was filed in support of the notice of motion for default judgment. It stated at par 3, "This statement of claim was served on the defendant by registered express post at the Green Valley post office on 30 January 2018. The source of my knowledge is the affidavit of service of Rookaya Abboud on 7 March 2018." There does not appear to be any affidavit of Rookaya Abboud of 7 March 2018 amongst the papers that have been tendered on the hearing of this summons.
The affidavit was patently false. The statement of claim in the proceedings had not been served. The reference in this affidavit to a statement of claim having been served could only have been to the statement of claim filed in the subject proceedings. The notice of motion and Ms Abboud's supporting affidavit were entitled with the file number 2017/263246. I do not accept that there could have been any innocent mistake about the completion of this affidavit, on the material that I have before me. It is not necessary that I make a finding concerning that but it is apparent from the other documents in the papers before me that Ms Abboud is literate and capable of expression both in writing and orally in the English language and she could hardly have been mistaken about what document she sent to IAG.
In particular, she could hardly have been mistaken about the fact that what she sent to IAG was not the statement of claim which, after some exchanges back and forth with the registry, she had caused to be filed.
Upon Ms Abboud's application on 17 April 2018 a registrar entered judgment for her against IAG for $38,744, which was inclusive of Court costs. This judgment was irregular because the registrar or clerk who entered it acted on the basis of the false affidavit of 17 April 2018 concerning service. Although it is not determinative of the summons before me, I should note that the registry procedure in relation to this appears to have been exceedingly lax. A brief look at the statement of claim which had been filed would have indicated to the person who was processing the application for default judgment that it was not a claim for a liquidated amount. Indeed, it was not a claim for any amount at all. I have mentioned that no sum claimed was stated in the statement of claim. This should not have passed the registry officers. Even on the papers Ms Abboud filed, this default judgment should not have been entered.
On 9 May 2018 Ms Abboud filed in the Local Court registry a notice of motion for the issue of a garnishee order, supported by an affidavit of the same date sworn by herself. By this application a garnishee order was sought against the ANZ Bank in respect of funds of IAG which were held by that bank. It is not apparent whether any attempt was made to execute this garnishee order.
On 25 May 2018 Ms Abboud lodged a further notice of motion for a garnishee order, this time against the NAB in respect of funds held by that bank on account of IAG. A second garnishee order was issued on 28 May 2018 and was served on the NAB on 12 June 2018. The bank notified IAG of receipt of the garnishee order and informed the bank that it was obliged to comply. So far as the bank was concerned this was a binding order of the Local Court.
Accordingly the bank on 12 June 2018 paid Ms Abboud by bank cheque the sum of $38,744 and debited IAG's account accordingly. IAG promptly filed, on 15 June 2018, a notice of motion in the Local Court to set aside the default judgment as having been irregularly entered. It also sought ancillary orders, which I paraphrase as follows:
3. An order setting aside the garnishee orders issued on 9 May and 28 May 2014.
4. A stay of any further enforcement of the default judgment.
5. Expedited determination of the stay application.
6. An order that Ms Abboud pay IAG's costs of the application to set aside the judgment.
7. An order that Ms Abboud pay IAG the sums that had been garnisheed and paid from its account with NAB.
8. A stay of the proceedings on Ms Abboud's statement of claim in the Local Court until the amounts that had already been garnisheed should be repaid.
This application was supported by three affidavits which, taken together with the Court's own record, described what had occurred as I have summarised it in this judgment. The affidavits included prima facie evidence intended to show that IAG had a triable defence to Ms Abboud's claim under the insurance policy, which was her substantive claim in the statement of claim. This was not necessary as IAG was entitled to have the irregularly obtained judgment set aside as of right, irrespective of being able to demonstrate any explanation for having failed to file a defence or providing evidence of a triable issue.
One of the affidavits relied upon by IAG in support of its application for the orders referred to above was sworn by an employee of IAG on 11 July 2018 and had annexed to it documentary evidence to show that the amount of $38,744 had been garnisheed from IAG's account at the NAB.
IAG's notice of motion was heard by Ms Kennedy LCM on 31 July 2018. IAG provided detailed written submissions to her Honour which accurately stated the principles applicable to the situation. Her Honour set aside the default judgment but refused IAG's claim for an order that the garnisheed sum be repaid and refused to stay further proceedings in the Local Court pending such repayment. IAG's solicitor cited to her Honour the decision of Young J in Proprietors of Strata Plan 5399 v Feehan (Supreme Court (NSW), Young J, 8 February 1996, unreported); (1996) 8 BPR 16,211.
His Honour considered in that case a very similar situation and held as follows:
On 10 March 1995 the default judgment [on a cross-claim] was set aside. Shortly afterwards the plaintiff approached the Local Court to have restored to it the moneys which the defendant had obtained under garnishee.
The magistrate on 19 May 1995 refused to restore the moneys obtained under garnishee on the basis that what the plaintiff was seeking was an equitable remedy in restitution and that the Local Court had no equitable jurisdiction. ...
The basic law in this area is crystal clear. In Production Spray Painting and Panel Beating Pty Ltd v Newnham (No 2) (1992) 27 NSWLR 659 the Court of Appeal held that where a court quashes or reverses a judgment and moneys have been paid pursuant to that judgment the court must order restitution of the moneys. The Court of Appeal relied not only on High Court decisions, but also on the learned article by Mr D M Gordon QC in (1958) 74 LQR 517, which analyses the whole history of these sorts of claims.
Mr Gordon's article shows that under the old system of writs at Common Law there was a special writ of restitution which the court, that is a Court of Common Law, would itself issue when it saw that one of its judgments was reversed. Later on, by Statute, the Courts of Error were also given power to issue a writ of restitution. An example is R v Wilson (1835) 3 Ad and E 817; 11 ER 624.
Accordingly, the Local Court magistrate should have made an order in May under the undoubted Common Law powers he had to restore the moneys to the plaintiff, or at the very least had them paid back into court, so they would be kept safe.
His finding that the only claim that the plaintiff had was an equitable claim is, with great respect to him, clearly wrong. Not only do the authorities referred to in Mr Gordon's article make that abundantly clear, but it is also abundantly clear from leading cases in the High Court of Australia, such as Mason v New South Wales (1959) 102 CLR 108.
The claim is a simple claim for money had and received; Lee v Mallam (1910) 10 SR (NSW) 876. True it is that in connection with claims for money had and received the words "equity and good conscience" are often uttered, but as Gummow J says in his article in Finn's Essays on Restitution at 67, it must be appreciated that the word "equity" is often used in different senses and does not necessarily mean that the matter lies in the equitable jurisdiction of the Supreme Court.
Young J's decision has been treated as authoritative in subsequent cases where the same issue has arisen: Coshott v The Owners SP48892 [2008] NSWSC 854 is one example and Go Electrical Pty Ltd v Class Electrical Services Pty Ltd [2013] NSWSC 517 is another. Her Honour ought to have followed the decision of Young J in Proprietors of Strata Plan 5399 v Feehan because she was bound by it. However, her Honour cited Woolworths Limited v Strong (No 2) [2011] NSWCA 72 and construed that decision as:
authority for the fact that...the appropriate way to obtain restitution of moneys paid in this way would be to seek that restitution in the form of a claim. Whether that be by way of cross claim or otherwise, there would need to be evidence that case, in my view, is authority for the fact that there must be evidence before the Court in relation to what has been paid.
Her Honour's reasoning as to how that interpretation of Woolworths Limited v Strong (No 2) impacted on the making of an order for restitution in the current case is not apparent. There was clear unchallenged evidence before the Court that $38,744 had been paid under the garnishee order pursuant to the judgment which had been irregularly entered. Nothing her Honour said by reference to the Court of Appeal decision provided any justification for declining to make an order for restitution.
In a case such as this it is extremely important to the integrity of Court processes that restitution be ordered forthwith. As can be seen from these facts, where a judgment of the Court is obtained and a garnishee order issues under it, law-abiding corporations and other businesspeople will obey what appears to be a solemn order of the Court. If the order has been irregularly and wrongly obtained, if the judgment and order should never have been entered, then when that judgment is set aside money that has been paid pursuant to it by persons obeying the Court's order should be immediately returned. The position should be restored without delay to what it was before an irregular judgment was entered. If public confidence in the courts is to be maintained, irregularities and misuses of process must be rectified promptly and fully after they are discovered.
There was no material before her Honour in the present case which warranted any exception being made to the requirement of immediate restitution. Because her Honour did not order restitution it did not arise for her to consider whether a stay of the proceedings ought to be granted until restitution has been effected. In my view, the ordering of a stay is a necessary accompaniment to the order for restitution. It would be quite wrong for Ms Abboud to be able to continue to invoke the jurisdiction of the Local Court, to have her dispute with IAG litigated, whilst she holds funds which were obtained by her wrongly through the abuse of the Court's processes described in this judgment. I consider that Ms Abboud should be required to repay both the garnisheed money and the costs of IAG of these proceedings. It should be a condition of any further proceedings in the Local Court that Ms Abboud reinstate IAG with the money that she has wrongfully obtained and with the costs that IAG has had to incur in order to rectify the position. I will assess IAG's costs of the summons in a gross sum under s 98(4)(c) of the Civil Procedure Act 2005 (NSW) in order to enable an appropriate condition of the stay to be specified.
I make the following orders:
1. Leave to appeal granted in respect of the decision of the Local Court made on 31 July 2018 refusing to set aside garnishee orders and refusing to order garnisheed amounts and a stay of proceedings in the Local Court.
2. Appeal allowed.
3. Orders made in the proceedings below on 31 July 2018 are varied to the following effect:
1. The garnishee orders issued on 9 and 28 May 2018 are set aside.
2. The proceedings in the Local Court are stayed until Ms Abboud, pursuant to order 4, has repaid to Insurance Australia Limited the garnisheed sum of $38,744 together with the costs which Ms Abboud is, by order 5, to pay in respect of the proceedings in this Court.
1. The defendant, Ms Abboud, is to pay to the plaintiff, Insurance Australia Limited, the sum of $38,744.
2. The defendant, Ms Abboud, is to pay to the plaintiff, Insurance Australia Limited, its costs of the summons, as assessed pursuant to s 98(4)(c) of the Civil Procedure Act in the total sum of $22,000 including disbursements.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 10 October 2018
Parties
Applicant/Plaintiff:
Insurance Australia Limited trading as NRMA Insurance