McDonagh v Huxley

Principles

1. In order to set aside a default judgment, the judgment debtor is required to: 1. Demonstrate an arguable defence to the claim; 2. Provide an explanation for the default; 3. Provide an explanation for any delay in applying to set aside the judgment; 4. Satisfy the Court that the Court's discretion should be exercised in favour of setting aside the judgment.
2. The relevant power to entertain the application to set aside is contained in r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). That rule provides: …. (2) The court may set aside or vary a judgment or order after it has been entered if - (a) it is a default judgment (other than a default judgment given in open court), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or ….
3. It is common ground that Mr McDonnell has never filed a defence in the proceedings, nor has any appearance been entered on his behalf. Default is clear and there was nothing irregular in the Registrar exercising the power under r 16.3 of the UCPR to enter judgment against him.
4. In making any decision or exercising any power under the Civil Procedure Act 2005 (NSW) ("the Act") or UCPR, I must have regard to the overriding purpose of the Act and the UCPR. I must also have regard to the objects of case management as set out in s 57 of the Act. Consideration of the dictates of justice as required by s 58 of the Act is also a significant matter, particularly because the orders sought by Mr McDonnell include a stay of proceedings and leave to file a defence and cross-claim, four years after the proceedings were first commenced and five months after judgment was reserved.
5. Section 56 of the Act provides that the overriding purpose of the Act and UCPR in their application to civil proceedings is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Section 56 also requires the parties to civil proceedings to participate in the processes of the Court and to comply with directions and orders of the Court.
6. Section 57 of the Act emphasises the role of case management in furtherance of the overriding purpose. Just determination of the proceedings, efficient disposal of the business of the Court, efficient use of available judicial and administrative resources, and the timely disposal of the proceedings at a cost affordable by the respective parties, is mandated.
7. Section 58 adds that when considering the dictates of justice in the context of considering, amongst other things a stay of proceedings, in addition to ss 56 and 57 of the Act, I must have regard to the following matters: the degree of difficulty or complexity to which the issues in the proceedings give rise, the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, the degree to which they have fulfilled their duties under s 56(3), the use any party has made of other opportunities under the Court Rules or the practice of the Court to give directions, and the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction.

Evidence tendered on the application

1. Mr McDonnell relied upon two affidavits sworn by him on 26 November 2018 and 13 December 2018.
2. Without becoming distracted by the large tracts of irrelevant and hearsay material contained in the affidavits, it seems that Mr McDonnell became aware on 4 April 2018 (if not earlier) that judgment had been entered against him in a sum over $1 million. Mr McDonnell stated that he instructed a solicitor on 27 April 2018.
3. No explanation is provided as to why it took him three weeks to instruct the solicitor.
4. No explanation is provided as to why it then took two further months before the first notice of motion to set aside the default judgment was filed in circumstances where he knew that the matter was proceeding before the Court in March and April 2018.
5. Under the heading "Defence with Merit and Cross-Claim", Mr McDonnell provides an entirely self-serving narrative of his involvement with Ms McDonagh. He does not explain why he took no steps in the proceedings in the years between acknowledged service of the statement of claim in November 2014, and the motion filed in June 2018, other than a vaguely expressed impression he claims he had that Mr Orlizki solicitor was "looking after him".
6. Mr McDonnell's affidavits do not explain the delay between the rejection of his application to set aside the default judgment heard and determined on 20 August 2018 and the filing of this further application three months later.
7. None of the factual matters Mr McDonnell states explain what he claims to be his defence to the case made against him.
8. No draft defence is included, nor does he state that he seeks to rely upon the draft defence provided as part of his application filed on 20 June 2018.
9. Mr McDonnell's affidavit of 13 December 2018 repeats a number of the matters set out in the November 2018 affidavit but in slightly more detail. Obviously this is untested material and I give it little weight. In any event, the text of the affidavit and the many unexplained documents attached to it do not provide any explanation for the default, do not demonstrate an arguable defence, and do not provide any explanation for the delay in making the application.
10. The plaintiffs tendered an affidavit of Jessica Pinkus sworn 6 December 2018 which annexed letters from the Court file that indicated that Mr McDonnell had been sent a Notice of Listing by the Court on 23 November 2014 advising that the matter was listed in Court on 3 February 2015. Ms Pinkus states that on 25 November 2014 Mr McDonnell was served with a sealed Amended Statement of Claim which included a notification of the requirement to file a defence within 28 days or the Court may enter judgment against him without further notice. Ms Pinkus also annexed a Notice of Listing dated 8 April 2015 sent by the Court to Mr McDonnell advising him that the matter was listed on 16 April 2015. This Notice also advised that if he did not appear, the matter would be dealt with in his absence.
11. Ms Pinkus deposed to the fact that in August 2018 an application was made by the plaintiffs to amend the sum entered in the default judgment. This was heard by Registrar Bradford on 31 August 2018. The plaintiffs sought to remove the sum of $250,000 under r 37.17 of the UCPR (the "slip rule") as it reflected a sum for exemplary damages that ought not to have been included. For reasons that are unexplained, a solicitor, Ms Phair, appeared for Mr McDonnell and opposed the application. The judgment sum was reduced by $250,000 and default judgment now stands against Mr McDonnell (and the second defendant, Vanessa Huxley) in the sum of $848,183.60.
12. Mr Orlizki, solicitor for the seventh and tenth defendants, deposed to having met Mr McDonnell in the context of other proceedings in which Mr McDonnell provided an affidavit. Mr McDonnell was not his client in those proceedings. When these proceedings were commenced by Ms McDonagh, Mr Orlizki was still dealing with the other proceedings. He stated that he informed the individuals who were then current clients of his practice, Mr Gregory Huxley and Mr Dawson, that he would first consider conflicts, or potential conflicts of interest in acting for multiple defendants in those proceedings before he would confirm for whom he could act.
13. Mr Orlizki stated, and I accept, that he saw a conflict in acting for Mr McDonnell at the same time as acting for Gregory Huxley and Mr Dawson and their respective corporate entities, because with proportionate liability in play and Mr Huxley and Mr Dawson as persons with lesser involvement and possibly lesser culpability, Mr Orlizki could foresee Mr Huxley and Mr Dawson filing proportionate liability defences, and directing those defences to Mr McDonnell's conduct. In those circumstances he could not act for all three (as it turns out, by the time of the trial, Mr Orlizki no longer acted for Mr Gregory Huxley or any of the Huxley parties).
14. Mr Orlizki deposed to a conversation on 18 or 19 December 2014 with Mr McDonnell and Mr Huxley during a morning tea adjournment of the hearing in the other proceedings. Mr Orlizki says that he gave them both a hard copy of the Amended Statement of Claim and said to them words to the effect: "I can't act for both of you because of a conflict. I can probably act for you Greg, and Jeff Dawson". He said to Mr McDonnell: "You are alleged to be the prime mover and Greg and Jeff would want to point all the blame to you rightly or wrongly. I can't blame you on the one hand, and defend you on the other".
15. Mr Orlizki stated that Mr McDonnell said words to the effect of "I understand". Mr McDonnell did not at any time seek to retain his firm to act for him in the proceedings. He did not send a costs disclosure or costs agreement to Mr McDonnell, because he was never retained.

Submissions

1. Mr McDonnell provided written submissions. After referring, apparently without irony, to ss 57 and 58 of the Act (although not s 56), Mr McDonnell optimistically referred to Byron v Southern Star Group (1995) 123 FLR 352 ("Byron") at 364 where it was observed by Priestley JA, in the context of dealing with a decision by the trial judge and excluded late filed evidence: "Frequently, persons have been let in to defend who have had little or no explanation for their delay but who have shown reasonable grounds of defence; in some cases such persons are put on severe terms concerning provision of security or payment into court or the like, but the court sees to it that subject to compliance with such terms, a person who has an arguable defence and wishes to have it determined on the merits, will be heard by the court before judgment".
2. The quote from Byron was followed by a section headed "Key points of defence". These are stated to be in summary, "limited directorship" and "limited specific involvement". Mr McDonnell submits that whilst he was a mortgage broker, he "assisted" the parties in this transaction in the role of "consultant". In that capacity he did not give advice about investments as the "traditional broker role" did not apply, other than for one minor part of the transaction because he was only asked to "facilitate the process" by Gregory Huxley. All he did was to introduce Ms McDonagh to an accountant to set up a self-managed superannuation fund and to provide her with an ABN, to facilitate settlement of the loans that were arranged by Gregory Huxley and to be present while Ms McDonagh executed four folders of documents that had been provided to him by Gregory Huxley. Mr McDonnell makes a number of unsworn assertions as to what was said and done and his understanding of the arrangements. I will not refer to this material further as it is not sworn and I give it no weight.
3. Mr McDonnell submitted that his defence, "given his limited role", will minimise the hearing time and that there are sufficient merits for his "defence" not to be "dismissed out of hand". He submitted that it would be unjust if he remains liable for the default judgment sum, when he is "not truly liable".
4. In other unsworn material Mr McDonnell claims that Mr Orlizki told him that his interest would be covered by Mr Orlizki and so he did not defend the action sooner as he believed it was being taken care of. He claims that this position was "corroborated by Mr Dawson" in an email in 2017. He also claims that Mr Huxley told him that he, Mr McDonnell, was "out of it now".
5. By way of attempted explanation for the delay as I apprehend it, Mr McDonnell claims that he was "hampered" by placing confidence in Mr Foley, solicitor (although I note this would only cover the period June to July 2018, which was the period within which it appears that Mr Foley was on the record for Mr McDonnell). Mr McDonnell submitted that he was then hindered by a two week bout of the flu and that there was difficulty getting material to counsel who was assisting him.
6. There is no explanation, even in the submissions, as to the three month delay between 20 August 2018 when that application was dismissed, and the filing of this second application on 27 November 2018.
7. Mr McDonnell submitted that he was prepared to make any relief granted conditional upon a costs order being made for the costs thrown away and that those costs that "should be fixed in the amount of $25,000". He said that he could pay those costs into Court within 28 days, and that he was prepared to offer in addition, security for costs against the risk of him breaching any future directions or orders in the sum of $15,000.
8. The plaintiffs submitted that the application is too late. Legal costs have already been incurred in the sum of $400,000. The default judgment was obtained in a regular fashion. Mr McDonnell continues to make late, inadequate, repetitive applications. He knew the proceedings were commenced in late 2014 and he knew in late March or early April 2018 that the hearing was proceeding before the Court. It is clear that the orders sought would cause huge prejudice to the plaintiffs. Mr McDonnell had ample notice of the proceedings, but chose not to make proper or adequate enquiries. His attempt to blame Mr Orlizki is unfair and he does not challenge Mr Orlizki's sworn denials.
9. The seventh and tenth defendants ("the Dawson Parties") submitted that the material does not articulate an arguable defence or explain the delay. There is no evidence which enlivens the Court's power to set aside the judgment. Even if it did, discretionary considerations are overwhelmingly against granting the orders sought, particularly given what would be required to afford procedural fairness to the parties should Mr McDonnell be allowed to set the judgment aside and become involved in the proceedings. Steps required would include delays and costs involved in the filing of a defence, requests for particulars of the defence, discovery from the plaintiffs and the other active defendants, discovery from Mr McDonnell, further affidavits in support of claims against Mr McDonnell, affidavits from Mr McDonnell in response, the plaintiffs and perhaps other active defendants serving further affidavits, a further hearing during which Mr McDonnell would be entitled to cross-examine witnesses and other parties would be entitled to cross-examine him, written submissions and further written submissions on behalf of all the other active parties, and then further closing oral submissions.
10. Another factor telling against exercise of the discretion is the possibility that parties may be prejudiced by having run their case in a particular way given Mr McDonnell's absence as an active defendant. That prejudice may not be able to be remedied. This potential prejudice cannot be fleshed out further because Mr McDonnell still had not provided a draft defence that could be assessed as to its implications.
11. The Huxley parties submitted that the application was contrary to the overriding purpose and would cause incurable prejudice to them because of delay it would cause in the finalisation of proceedings. It would lead to the incurring of further significant costs. Mr McDonnell's affidavit points out that he cannot pay for his own legal representation so it seems most unlikely that even if there were orders for costs thrown away to be paid or for security for costs, Mr McDonnell has not provided any evidence to indicate that he could pay such costs. The evidence suggests otherwise.

Decision

1. The notice of motion must be dismissed. It is a badly executed repetition of the application heard and dismissed in August 2018. The material filed and relied upon to support it is patently inadequate.
2. The timing, nature and content of the application provides a stark illustration of abject failure to demonstrate even the most rudimentary compliance with the requirements of ss 56 and 57 of the Act.
3. There is nothing just, quick or cheap about what is proposed by Mr McDonnell. He has continued to fail to act with any regard for the Court's procedures. He does not provide proper explanations for his delays, he seeks to blame others and he offers no proper grounds for the defence he says he wishes to rely upon and has provided no draft defence articulating those grounds.
4. Deploying the language of s 57 of the Act, there is nothing "just" about allowing this application. It would derail completed proceedings in circumstances where Mr McDonnell knew that they were being heard, but chose to do nothing until they were over.
5. I appreciate that in considering the dictates of justice, I must take into account that refusing this application shuts out Mr McDonnell from defending the proceedings. That is the consequence of acting late and with inadequate attention to what needs to be provided by way of evidence of a potential defence. Nothing raised justifies the draconian penalty he seeks to visit on all the other parties who have acted properly in pursuing their cases and defences.
6. It is evident from the matters set out in [37] of this judgment that Mr McDonnell has a startlingly unrealistic perception of the huge costs incurred in the proceedings to date and the huge costs that would now be thrown away and further incurred by allowing him now to take part in the proceedings.
7. There is also evidence that suggests that the prospects of any such costs being paid by him are slim.
8. In all the circumstances I conclude that it is contrary to the interest of justice to grant any of the orders sought. I dismiss the notice of motion and order that Mr McDonnell pay the costs of the respondents.

Orders

1. I make the following orders: 1. The notice of motion filed on 26 November 2018 is dismissed. 2. The applicant, Rory McDonnell, is to pay the costs of the notice of motion.

Amendments 12 February 2021 - "and a default of the sixth defendant" corrected to "and the second defendant" in paragraph [26]. 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: 12 February 2021