Josa Constructions Pty Ltd v Amarino Pty Ltd

District Court of NSW|2016-08-06

Introduction

On 9 August 2016 the defendants moved on a notice of motion, stood over from 5 August 2016 part heard, when I made orders 1 and 2 ex parte in accordance with orders sought on the motion, granting a stay of the execution of the default judgment obtained in this matter by the plaintiff on 27 July 2016. Those orders were made in circumstances where earlier on 5 August 2016, the defendants' solicitor had written to the plaintiff's solicitor, Mr Dickran Yakenian, by email at 12.13pm on that day, informing him of the motion and seeking consent to the setting aside of the default judgment, returnable as a matter of urgency at 2pm on that day. No response was forthcoming from Mr Yakenian and no one appeared on behalf of the plaintiff before me on 5 August 2016. The stay of execution of the judgment is in place until further order of this court.
The matter was again heard on 9 August 2016, so that the plaintiff could appear and so that the defendants could move on the remainder of the motion, seeking orders setting aside the default judgment either pursuant to r. 36.16 or pursuant to r.36.15 UCPR and for leave to file their defences. On 9 August 2016, Mr Gruzman appeared for the plaintiff and there was no challenge at that time to the stay granted on 5 August 2016. However, the plaintiff objected to the default judgment being set aside.

THE EVIDENCE

The defendants rely on the affidavit of the defendants' instructing solicitor Marty Perry dated 5 August 2016. Mr Gruzman, had a number of objections to the affidavit, which I ruled upon.
The defendants' evidence reveals the following circumstances:
On 21 June 2016 the defendants were served with the plaintiff's statement of claim. They instructed solicitors on 24 June 2016 to defend the claim.
The generality of the pleading required the defendants' solicitor to seek further and better particulars in order to know the case the defendants were required to meet as he had formed the view that that he could not prepare a defence without them.
On 30 June 2016, the defendants' solicitor wrote to Mr Yakenian informing him that the defendants intended to file a defence. The defendants' solicitor also made a request for further and better particulars in accordance with r15.1 UCPR. Rule 15.1 provides that the plaintiff must give all particulars as are necessary to enable the defendants to identify the case that the pleading requires them to meet. The defendants' solicitors concluded the letter with the following paragraph: "Lastly, we understand that your client will not press for default judgment with respect to the Proceedings until it has provided answers to the above requests or alternatively, provides 24 hours notice of its intention in doing so. If a contrary position exists, please as a matter of priority, inform us."
The defendants' solicitor filed a notice of appearance, which was provided to Mr Yakenian. The defendants' solicitor also on that day foreshadowed a possible application for security for costs and sought information from the plaintiff by 8 July 2016.
By 20 July 2016, the defendants had not received a response either to the request for particulars, nor in respect of the issue of security for costs. The defendants' solicitor again wrote to Mr Yakenian, seeking a response and indicating that if a response was not received by 22 July 2106, he would seek appropriate orders from the Court.
On 25 July 2016, after the appointed deadline set by the defendants, Mr Yakenian responded to the defendants' request for further and better particulars. Other than in respect of two matters, there was no suggestion by Mr Yakenian that the request for particulars was not an appropriate step to take in the litigation and was not in accordance with r15.1 UCPR. In respect of those two matters, Mr Yakenian objected to answering the requests as they were considered to be a request for evidence. However, particulars were provided in response to the remainder of the questions. A number of documents were also provided in response to the request. Mr Yakenian did not respond to the correspondence relating to security for costs.
Despite the foregoing correspondence, the following day, on 26 July 2016, Mr Yakenian, allowing no reasonable time for the defendants to file and serve the defence and without notice to the defendant's solicitor, approached this Court to obtain default judgment in the sum of $698,557.97 being the amount claimed in the statement of claim together with an additional $4166.98. This occurred on the strength of an undated affidavit sworn or affirmed by Mr Yakenian, which revealed only the service of the statement of claim and failure to pay by the defendants. Relevantly it did not reveal any of the aforementioned correspondence. Judgment was entered on 27 July 2016.
The plaintiff did not put any evidence before the Court in respect of any matter including any of the circumstances in which the default judgment was obtained. This was so despite me making it known to the parties during the course of argument that prima facie, I regarded the actions of Mr Yakenian, in the way he responded to the correspondence and in obtaining the default judgment against the defendants and a bankruptcy notice against the fifth defendant, as wholly inappropriate and that his affidavit directed to this Court to obtain default judgment and sworn in furtherance of that act was, in my view, misleading.
Other than to submit from the bar table through Mr Gruzman that the affidavit was a pro forma, Mr Yakenian offered no explanation for his conduct. I have come to the conclusion regarding Mr Yakenian's conduct despite the submission made by Mr Gruzman, and which I accept, that the affidavit is a pro forma document.
The reason why the proforma affidavit is in the terms that it is, is because it assumes that the parties are not in appropriate correspondence regarding particulars and the filing of defences, that a statement of claim has been served, that the appropriate monies have not been paid and that the defendant is truly in default. That is not this case.
Further, the pro-forma affidavit does allow for the insertion of evidence relevant to each particular case and I note that Mr Yakenian has inserted particular information relating to service of documents on each of the defendants in this case. I find that it was not only available to, but necessary in the particular circumstances of this case, for Mr Yakenian, if he sought default judgment, to include the nature of the correspondence that had transpired between the parties, to which I have referred, in order not to mislead the Court.
In my view, in the circumstances of this case, an affidavit of this kind, whether or not pro forma, should never have been sworn by Mr Yakenian, as it failed to set out the complete and relevant circumstances in which default judgment was being obtained. I find that the application for default judgment was itself inappropriate and premature. Had the Court known of the true circumstances, then I find it unlikely that the plaintiff would have been able to obtain default judgment from this Court. Indeed it is the very circumstances, where default judgment, ought not have been sought at all. I find the actions of Mr Yakenian to be wholly unreasonable in the course of modern litigation.
Mr Gruzman further submits that the omission by his instructing solicitor, if it be one, was done without any intention to mislead. I do not need to decide that issue at this time for the purposes of determining the motion (other than in respect of costs which I have not dealt with for the reasons, which follow), given what was said by the Court in Stollznow v. Calvert to which I will later come. However, I would not accept that submission without evidence from Mr Yakenian, given his awareness of and involvement in the correspondence between the parties and in light of his decision not to put before the Court on the motion the circumstances in which he sought default judgment.
I find that the default judgment was obtained without notice to the defendants. It is an action by Mr Yakenian that I find to be grossly unprofessional and in clear breach of not only his professional obligations to his opponent, to his client and to the Court, but also in breach of his obligations pursuant to s.56 of the Civil Procedure Act 2005. Further, the default judgment had not been served on the defendants' solicitors at any time prior to 4 August, 2016, when it came to the attention of the defendants' solicitor by other means.
On 29 July 2016, and without prior notice to the fifth defendant, Mr Yakenian had issued a bankruptcy notice against him in the same amount. Although not in evidence before me, Mr Gruzman says and I accept, that it was applied for on 28 July 2016. This too was a serious step taken by Mr Yakenian, as failure by a debtor to comply with a bankruptcy notice constitutes an act of bankruptcy.
On 29 July 2016, the defendants' solicitor, unaware of the actions of the Mr Yakenian, wrote to the Mr Yakenian notifying him that the defendants anticipated filing and serving their defences by no later than 8 August 2016. The following paragraphs were included in the letter: If you perceive any difficulty with this proposed course, please let us know. Lastly, we understand that your client will not press for default judgment with respect to the Proceedings until we have served our clients [sic] Defence. If a contrary position exists, please as a matter of priority, inform us. Should you have any queries to the above please do not hesitate to contact us.
As no difficulties, expression of a contrary view or queries were raised by Mr Yakenian, the defendants' solicitor, quite reasonably in my view, took the view that he had until 8 August 2016, to file any defences without fear that default judgment would be entered against the defendants.
Indeed the failure of Mr Yakenian to respond to this letter and inform the defendants' solicitor that default judgment had already been entered and that a bankruptcy notice had been obtained against the fifth defendant was grossly misleading in the circumstances and in my view in clear breach of his professional obligations.
The defendants' solicitor did not find out about the default judgment until late on 4 August 2016 and not from Mr Yakenian. The defendants' solicitor wrote to Mr Yakenian on 5 August 2016, and put the plaintiff on notice of the motion returnable at 2pm on that day.

SUBMISSIONS AND CONSIDERATIONS

Mr Gruzman contends that in the context of modern litigation, that particulars are not given in the ordinary course. He drew my attention to the decision of Verner v Giannaros [2016] NSWSC 242 in which White J decided in the context of a motion to strike out a statement of claim where a list of objections to it ran to some 40 pages, that in that case, where case management and pretrial directions were to be employed, that there was little opportunity for surprise and ambush at trial and that the Court ought be reluctant to allow the resources of the parties and the Court to be expended extensively debating the application of technical pleading rules, that had evolved in and derived from a very different case management environment. His Honour found in the circumstances of that case that the allegations in the pleading were clear enough for the defendant to know the case made against him and to be able to respond to it and that the time for complaint about a lack of particularly would be once the defence and any of the plaintiff's evidence had been served.
Whilst I agree with the general principles expounded in Verner, I find this case to be of little assistance to me in determining the matters that I am required to decide. The plaintiff made no complaint at the time the particulars were sought, the rules provide for them and indeed the plaintiff provided all but two of the particulars sought. The defendants then determined to file their defences. Furthermore, the kind of case management that his Honour had in mind in Verner is very often not undertaken in this Court, and the parties and the Court are often helpfully informed by a precise and fulsome pleading, including any particulars provided.
However, Mr Gruzman also contends that, despite evidence before the Court of the draft defence which the defendants propose to file (and which Mr Gruzman appropriately conceded was not a "sham defence" and did not contend that the defence on its face was unsustainable), that there are no facts sworn to in the motion before me that would afford the defendants a defence. He submits that the only evidence on this issue is that put forward by the defendants' solicitors and is, at best, scant evidence going to the merits of the case and is in hearsay form. He contends that in those circumstances the motion must fail.
In that context Mr Gruzman drew my attention to paragraphs [53] to [55] of the decision of Magnate Projects Pty Ltd v. Youma Constructions (No. 2) Pty Ltd [2005] NSWCA 331, where Hodgson JA, with whom Campbell AJA agreed, recorded that there was no evidence going to a defence on the merits and in that context a finding by the primary judge was in error. His Honour held at [52] indeed that circumstances may be such that they require "a reasonably clear case of merits to be shown", an expression drawn from Jordan CJ in Vacuum Oil Pty Co Limited v. Stockdale (1942) 42 SR(NSW) 239.
A review of Vacuum Oil at [48] of Magnate Projects however, reveals that the circumstances there referred to were ones in which it was not a case where judgment was signed through some procedural omission on the part of the defendant or his advisors, much less one where the defendants (as in this case) were not dilatory at all, but rather where no one appeared for the defendant when it came on for trial and the case proceeded in his absence.
Hodgson JA also referred at [51] of Magnate Projects to the decision of Allesch v. Maunz (2000) 203 CLR 172 in which Gaudron, McHugh, Gummow and Hayne JJ (at 182-3) held that "a court will, ordinarily, be satisfied that there has been a miscarriage of justice if a person has suffered an adverse order in circumstances where his or her failure to appear is adequately explained unless it also appears that no different result would be reached on a rehearing or that a rehearing would work an irremediable injustice to the other side". Despite the language in Allesch which tends to imply that the onus is on the plaintiff to establish that no different result would be reached on a rehearing, I appreciate that I am bound by the remarks that follow in Magnate Projects at [51] that there is a long-established requirement that a person applying to set aside an order, regularly made in his or her absence, ordinarily bears an onus of showing an arguable case on the merits.
However, both Magnate Projects, and Allesch, by use of words and phrases such as "ordinarily" and "circumstances may be such" make it clear that all cases will depend on their particular facts and that there is no invariable rule in respect to whether or not a party is required to show an arguable case on the merits. The UCPR certainly do not require it.
Mr Corbett also relies on r36.15 UCPR to set aside the default judgment on sufficient grounds where the judgment was entered into against good faith.
He referred me in that context to a decision of Roach v. B&W Steel Pty Limited (1991) 23 NSWLR 110 at 113 where the plaintiff proceeded to judgment without notice to the defendant and where the plaintiff ought to have known the matter was contested and the absence was due to some mistake or misunderstanding.
So far as Rule 36.16 is concerned, Mr Corbett contends that the Court can take into account the draft defence, which the defendants intend to file, should the default judgment be set aside and which includes a set off.
Mr Corbett contended that no such evidence of a defence on the merits is required and that the decision to set aside the default judgment is in the discretion of the Court. He referred me to the decision of Master Allen of the Supreme Court of NSW in IMG of America Pty Ltd v. Townsend, (unreported) 25 July 1983, in which circumstances similar to this one, in that the plaintiff's solicitor was well aware of the defendant's intention to defend the proceedings and where a request for particulars had been made, were described as remarkable. In that context, Master Allen remarked as follows: …there is no inflexible rule that a judgment obtained by default will not be set aside unless there has been filed and read what is called an affidavit of merits - that is an affidavit which shows that the defendant has some reasonable prospect of succeeding at the trial. The discretion of the court to set aside a default judgment is a general discretion and in relation to all general discretions what was said by Moffit P in Stollznow v. Calvert [1980] 2 NSWLR 749 at 751 must be remembered. The president said: "While useful guidance is provided by the manner of exercise of discretion in other cases, and by factors considered in those cases in favour of the exercise of the discretion in a particular way, each case must depend on its own facts. It would be contrary to what I understand is the accepted law in this country, to confine the exercise of judicial discretion by judge - made rigid formulae". … "it would be unjust for the plaintiff in the present case to obtain any advantage from the fact that the judgment was entered …The position is precisely as if the minute for judgment had not been lodge until the time for defence had gone by with the defendant's solicitor having been lulled into delaying filing his client's defence because of a bona fide belief, engendered by the conduct of the plaintiff's solicitor in not replying to his letter, that additional time would be allowed. The defendants were trapped by the conduct of the plaintiff's solicitor - albeit without intent by the plaintiff's solicitor to be unfair".
Mr Corbett further contended that the requirement for evidence going to the merits of the defence arose in circumstances where in the ordinary course where there has been default, it has been because of a defendant's failure to attend to the case, and because there had been some material neglect by the party against whom the judgment had been entered. There is no such neglect in this case and Mr Corbett submits the defendants' solicitors were lulled into thinking that judgment would not be entered by the actions of Mr Yakenian. I accept that submission.
In Grimshaw v. Dunbar [1953] 1 QB 408 at 416, Jenkins LJ said: "…if by some mischance or accident the party is shut out from [the right to have his case presented] and an order is made in his absence, then common justice demands, so far as it can be given effect to without injustice to the other parties, that that litigant who is accidentally absent should be allowed to come to the court and present his case"
The statement in Grimshaw was approved in Taylor v. Taylor (1979) 143 CLR 1, by Gibbs J., as the Chief Justice then was.
Mr Gruzman does not contend that any injustice will be occasioned if default judgment is set aside, given that no rights have been given up by the plaintiff in seeking to obtain the default judgment.

R36.15

In Coles v Burke (1987) 10 NSWLR 429, Kirby P (with whom Samuels and McHugh JJA agreed) said (at 437): The genus which is involved in the phrase "irregularly, illegally or against good faith" appears to me to be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermines the authority of that judgment warranting the exceptional course.
In that case, the court declined to find the judgment had been obtained against good faith where the judgment was obtained in accordance with the authority of the order earlier consented to and after a warning had been given by the letter. However, the following was noted by the Court: It is perhaps undesirable, in the modern practice of the legal profession (where much give and take is required) that judgment should be signed in this way without a final telephone call or other warning. However, the failure to give such a final and further warning could not, on any view, amount to a lack of good faith.
In Kendell v Carnegie [2006] NSWCA 302; (2006) 68 NSWLR 193 where Bryson JA (with whom Hodgson and McColl JJA agreed), stated (at [60]): There is not and could not, I would think, ever be an exhaustive judicial definition of what is against good faith; only very broad limits are set by proceeding by analogy from circumstances in which judicial remedies are based on good faith, unconscionability, or other concepts closely related to good faith. I would include the passage cited from Taylor v Johnson among the many conceivably available sources from which to proceed by analogy. "Against good faith" is an expression which requires the impeachment of the intention or behaviour of the person whose good faith is impugned.
Relevantly, in Commonwealth Bank of Australia v Wales [2012] NSWSC 407 McCallum J considered the Court's power under both r 36.15(1) and r 36.16(2) UCPR where the affidavit in support of the motion for default judgment was inaccurate, where the motion for default judgment was filed without notice to the defendant, and in circumstances where there had been negotiation and agreement to resolve the complaint between the parties.
McCallum J. held that the requirements of an affidavit sworn in support of an application for default judgment (as set out in r 16.16 UCPR) did not mandate the inclusion of reference to the negotiations or discussions between the parties particularly where the amount sought was correct. However, her Honour found in the circumstances of that case, that the absence of notice to the defendant of an intention to seek default judgment potentially provided grounds for the judgment being entered against good faith as provided for by Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110.
In Industry Funds Management (Nominees 2) Pty Limited v James Nicholas Panagopoulos and Anor [2013] NSWSC 868 Sackar J, in the context of a judgment entered by consent, observed that it is irrelevant that the legal practitioner who acted to obtain the judgment or order was not aware at the time that his or her conduct was contrary to an earlier promise or representation made by or on behalf of the client. It would still be contrary to good faith for a client to attempt to retain the benefit of an order even if it had been innocently obtained by his legal practitioner if it had been obtained contrary to a promise or representation binding on the client.
There is no such issue here. The evidence before me makes it clear that Mr Yakenian received and responded to the correspondence regarding notice and also obtained the default judgment.
As Sackar J. noted in Industry Funds: "Clearly if a person is deliberately tricked into signing or entering a consent judgment, that would be something which, in accordance with r 36.15, would be against good faith. But if one party who consents to the judgment makes a mistake and the other side simply behaves innocently then there is no occasion to set aside a judgment in those circumstances on the basis of an absence of good faith (Kendall v Carnegie at [53]).
I find that Mr Yakenian must have known that the defendants intended to file a defence at the time he moved the court for default judgment as he had received and sent the correspondence. I also find that Mr Yakenian by failing to respond to the correspondence regarding notice, had lulled the defendants' solicitor, either deliberately or otherwise, into a false sense of security that they had until 8 August 2016 to file such a defence. Not only was there no warning, but I find a representation by omission was made by Mr Yakenian that judgment would not be entered without such a warning. In those circumstances I am prepared to find that the judgment was entered against good faith.
For the reasons I have dealt with above, I further find that the affidavit in support of the default judgment contained a non-disclosure of a material fact where disclosure was required, thus also invoking the powers under r36.15. Had the Court known the true circumstances, I am persuaded that default judgment would not have been entered.
I find that the default judgment had been entered without proper notice to the defendants' solicitor, contrary to an earlier representation made by omission in correspondence on behalf of the plaintiff, that unless they put the defendants on notice, they would not enter judgment
Accordingly there are grounds to set aside the default judgment under r36.15.

R36.16

The only matter of substance put before me in defence of the motion on behalf of the plaintiff, is the absence of evidence on the merits of the defence. I note that a draft defence has been prepared, and which was before me on the motion, which the defendants intend to file should the motion be granted. I find that the contents of the defence disclose an arguable case and I do not understand Mr Gruzman to have argued otherwise.
As was acknowledged in Commonwealth Bank of Australia v Wales, and in argument before me, whilst ordinarily, it will be necessary for a defendant to demonstrate a defence on the merits before default judgment will be set aside, the existence of a defence is not an express requirement for the exercise of the power. In terms, it is enough to enliven the power that the judgment was entered upon default (other than default judgment given in open court). The power is directed to affording fairness in the processes of the court. The critical consideration in Commonwealth Bank of Australia v Wales was the fact that the defendant endeavoured in good faith to engage with the plaintiff and was defeated by their "passive resistance" to those processes, coupled with its decision to move the court for judgment without notice to the plaintiff. McCallum J. concluded that it may well be open to conclude that the judgment was obtained against good faith on that basis, and was sufficient to exercise the discretion under r 36.16(2), even where there was no defence proper to the plaintiff's action. Her Honour found that the plaintiff's attitude to the defendant, combined with the absence of notice to her of the motion seeking default judgment provided sufficient cause to set aside the default judgment under r36.16(2).
I conclude that the default judgment should be set aside under r 36.16 for the following reasons: 1. There was an absence of notice of the plaintiff's intention to enter judgment: Pope v Aberdeen Transport Co Pty Ltd. 2. The defendants have shown a satisfactory explanation for their delay in filing their defence. I find that the defendants acted without delay in seeking the particulars most of which were ultimately provided and signaled their intention to file their defence well within a reasonable time. Indeed much of the delay was at the hands of the plaintiff in the late provision of particulars, which I find were properly sought. 3. The proposed defence is asserted bona fide and presents arguable or triable issues. 4. There is no prejudice occasioned to the plaintiff should the judgment be set aside and that it would not be necessarily futile to do so: see Hislop J in Hamafam Pty Ltd v Saadullah [2007] NSWSC 818 at [7].

COSTS

Given the issues that I have raised regarding the conduct of Mr Yakenian, I do not propose at this time to order costs.

ORDERS

I propose the following orders: ORDER: 1. Pursuant to Part 36.15 UCPR, default judgment be set aside. 2. Alternatively, pursuant to part 36.16 UCPR, default judgment be set aside. 3. Pursuant to R1.12, the defendants file a defence to the statement of claim on or before 17 October 2016. 4. That Mr Yakenian be given until 4pm on 14 September 2016 to show cause why the Court would not make the following orders: 1. That Mr Yakenian pay the costs of the motion personally on an indemnity basis, payable forthwith; 2. That Mr Yakenian not seek to recover those costs from the plaintiff; 1. That Mr Yakenian be given until 4pm on 14 September 2016 to show cause why the Court would not make the following order: 1. That the papers be referred to the Legal services Commissioner for investigation. 1. If such show cause is filed, further argument regarding costs and referral will be heard and issues determined during the sittings at Parramatta District Court commencing 17 October 2016. 2. Stood over for mention on 17 October 2016 at Parramatta District Court.

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: 16 November 2016

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