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[2003] NSWCA 382
respondent. Application for leave to appeal dismissed with costs (Hodgson JA [19], [22]-[24]).
Willoughby Community Preschool sued its former employee, Ms Mearns, alleging detailed cheque transactions totalling $356,835.50 that were disguised and used for personal benefit. A default judgment was entered. Ms Mearns applied to set it aside, explaining delay and swearing an affidavit denying wrongdoing, but she did not file a draft or verified defence nor address the critical allegation that records were falsified to disguise payments. The District Court dismissed the application; the Court of Appeal refused leave to appeal. The Court emphasised that, where a liquidated claim is pleaded with specificity, a defendant seeking to set aside a default judgment must present factual material amounting to at least a prima facie defence — mere general denials or reliance on requests for particulars will not suffice.
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Willoughby Community Preschool brought a statement of liquidated claim against its former employee, Robyn Haydn Mearns, alleging that over a period it drew cheques totalling $356,835.50 and applied the money for personal use rather than for the preschool. The pleadings included detailed schedules itemising cheque numbers, amounts, dates, purported payees recorded on cheque butts, actual payees on the cheques, and ledger entries (see [2]-[3]). A core allegation was that payments were disguised by falsely recording fictitious payees and falsifying cheque butts and ledger entries to disguise cheque payments made in cash (see [4]).
Default judgment was ultimately obtained against Ms Mearns after correspondence about the timing for filing a defence and an intended date for entering judgment (see [5]-[6]). Ms Mearns applied to set aside the default judgment. At first instance Acting Judge Bowden accepted an explanation for the delay but required the defendant to show some defence on the merits; he adjourned to permit material to be filed (see [7]-[8]). The applicant filed an affidavit asserting generally that all expenditure had been appropriate for the preschool and addressing one particular (a life insurance policy) but did not address most of the specific items or the allegation of falsification and did not file a draft defence (see [9]-[11]). Acting Judge Bowden dismissed the application; Ms Mearns sought leave to appeal and the Court of Appeal (Hodgson JA and Ipp JA) dismissed the application for leave to appeal with costs ([1], [19], [22]-[24]).
Two linked propositions drove the decision.
First, the Court insisted that a defendant seeking to set aside a default judgment on a liquidated claim must demonstrate both an explanation for the delay and some prima facie defence on the merits. That is, it is not enough to show only that a defence might be prepared later; there must be material before the judge indicating a real defence (see [7], [10], [16]). The Court treated the falsification allegation as particularly potent and specific. Both Hodgson JA and Ipp JA stressed that such an allegation required factual explanation; a broad, general denial in affidavit form was insufficient (Hodgson JA [10], [16]-[18]; Ipp JA [23]).
Second, the Court concluded that the Statement of Claim was pleaded with adequate particularity and that the defendant could not defer pleading a defence on the basis that further particulars were awaited (Hodgson JA [15]-[16]). The failure to produce a draft or verified defence addressing the central allegations was a “significant deficiency” (Hodgson JA [16]). Given that deficiency, even if the lower judge had demanded a high standard, the result was not incorrect on the evidence before him (Hodgson JA [18]).
The Court did, however, observe that a conditional order setting aside judgment on the footing that a defence be filed within a short period might have been possible (Hodgson JA [16]); that point was obiter because no appropriate verified defence was presented.
Before this case, general principles concerning the setting aside of default judgments were long established: courts exercise discretion, typically weighing the explanation for default, the existence of a defence on the merits, and the promptness of application. The applicant relied on Evans v Bartlam (1937) AC 437 (see [13]) as authority on the standard for setting aside judgments. The Court of Appeal in Mearns v Willoughby Community Preschool confirms and applies those established principles in the specific context of a liquidated statement of claim pleaded with detailed particulars.
After this decision, the practical emphasis in New South Wales appellate understanding is clear: in cases where the plaintiff’s claim is particularised and includes specific, serious allegations (for example, deliberate falsification), a defendant seeking to set aside a default judgment must place factual material before the court amounting to at least a prima facie defence. Mere general denials and reliance on asserted need for particulars will not normally suffice. The Court also reinforced that courts retain a discretion to impose conditional relief (for example requiring a defence be filed within a short period), but absent any suitable material a refusal will be upheld.
The judgment therefore reinforces the settled triage: explanation for default, meritorious defence on the material, and the exercise of discretion.
Paragraph [10] (Hodgson JA quoting the primary judge): "the defendant is required to put some factual statements before the Court that would deal with what are very specific allegations and claims that have been made here. That has not been done."
Paragraph [16]: "the application ... should have been accompanied by a proposed defence, and the failure to have a proposed defence put to the Judge ... was a significant deficiency..."
Paragraph [15]: "the Statement of Claim was pleaded with adequate particularity and ... the request that was made for particulars was one to which the defendant was not entitled to have an answer before putting on a defence..."
Paragraph [18]: "It may be that ... there had been a verified defence available ... that might possibly have been a sufficient indication of a defence on the merits ... but ... I do not think it can be said that the result ... was an incorrect result..."
Paragraph [23] (Ipp JA): "The allegation of falsification of cheque butts and ledger books formed a very powerful part of the opponent's case. ... that allegation had to be dealt with in the claimant's affidavit."
This decision is directly engaged in cases where:
Under these circumstances the Court of Appeal indicates that the defendant must present specific, verified material amounting to a prima facie defence; otherwise the application is likely to fail.
This judgment itself does not contain material about subsequent judicial treatment. The decision stands as an application of established principles to a case where the statement of claim was particularised and the defendant failed to produce a proposed defence addressing central allegations. To understand how later courts have treated Mearns, one must search subsequent reported decisions citing [2003] NSWCA 382 to see whether courts have followed, distinguished, or narrowed its statements on the required content of material to set aside default judgments. The judgment indicates two points that lower courts and practitioners are likely to apply: (1) treat detailed pleadings seriously, respond with verified, item-specific material; (2) do not rely on mere requests for particulars to excuse failure to plead.
Because the Court acknowledged that a conditional order requiring a defence filed within a short timeframe could sometimes cure the defect (see [16]), later courts may distinguish Mearns where procedural fairness or other considerations make conditional relief appropriate.
This case is an instructive application of the long-standing triage in default-judgment relief: explanation for default, convincing material indicating a defence, and timely application. Where pleadings are detailed and allegations are specific and serious, a defendant must be prepared to put forward verified, item-specific material at the setting-aside hearing or risk refusal.
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CITATION : Mearns v. Willoughby Community Preschool Inc. [2003] NSWCA 382 HEARING DATE(S) : 17 December 2003 JUDGMENT DATE : 17 December 2003
JUDGMENT OF : Hodgson JA at 1; Ipp JA at 23 DECISION : Appeal dismissed with costs.
CATCHWORDS : PROCEDURE - APPEAL - Refusal to set aside default judgment - Requirement of defences on the merits. CASES CITED : Evans v. Bartlam (1937) AC 437 PARTIES : Robyn Haydn Mearns - claimant Willoughby Community Preschool Inc. - opponent FILE NUMBER(S) : CA 40921/03 COUNSEL : Mr. R. Killalea for claimant Mr. L.J. Aitken for opponent SOLICITORS : The claimant is acting on her own behalf Allens Arthur Robinson, Sydney for opponent
LOWER COURT District Court JURISDICTION : LOWER COURT DC2901/03 FILE NUMBER(S) : LOWER COURT Bowden ADCJ JUDICIAL OFFICER :
IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40921/03 DC 2901/03
HODGSON JA IPP JA
Wednesday 17 December 2003 MEARNS V. WILLOUGHBY COMMUNITY PRESCHOOL INC. Judgment
1 HODGSON JA: On 11 September 2003, Acting Judge Bowden dismissed an application by Robyn Haydn Mearns to set aside a default judgment obtained against her by Willoughby Community Preschool. Ms Mearns has applied for leave to appeal to this Court from that decision. 2 The claim of the preschool was made in a statement of liquidated claim filed on 27 June 2003. It alleged employment of Ms Mearns by the school between 1981 and 28 September 2001. It alleged that Ms Mearns had drawn cheques on school accounts and applied those cheques for her own benefit rather than the benefit of the school. 3 The Statement of Claim included detailed schedules identifying all the cheques in question, giving in each case a cheque number, amount of cheque, date cheque presented, purported payee noted on the cheque butt, actual payee recorded on the cheque and the purpose of payment as noted on the cheque butt or allocation sheet and, in some cases, purpose of payment as noted in the relevant ledger. In many cases the payee recorded on the cheque was "cash", with the purported payee recorded on the cheque butt being various suppliers of goods that may have been appropriate for acquisition for the school. The total amount of the cheques was $356,835.50. 4 As well as alleging that the payments made pursuant to the cheques were used to acquire goods and services not necessary or used in the running of the preschool and that they were used for the personal use of Ms Mearns, the statement of claim specifically alleged that the payments were disguised by falsely recording fictitious payees and by falsely completing cheque butts and other entries to disguise cash cheques as being cheques made out to legitimate payees. 5 The solicitors acting for Ms Mearns wrote to the solicitor acting for the plaintiff on 28 July 2003, advising that counsel had been briefed to draw a defence and asserting that due to the complex and extensive nature of the allegations, they would require an additional fourteen days to respond; and also stating that they assumed the plaintiff's solicitors would not enter a judgment without reasonable notice to their client. The plaintiff's solicitor responded on 30 July 2003 asserting that the defendant had adequate time to prepare a defence, and advising that the plaintiff's solicitor intended to enter judgment on 13 August 2003 without further notice if a defence was not filed prior to that date. 6 On 5 August 2003 a letter seeking better particulars of the statement of claim was prepared by the defendant's solicitors, but it appears that it may not have been sent to the plaintiff's solicitor at that time due to a misunderstanding. A copy of it was forwarded on 21 August 2003. However, the plaintiff's solicitors responded by advising that they had attempted to obtain default judgment on 14 August, and although judgment had not been entered at that time because of some procedural difficulty, they were proceeding to obtain default judgment. 7 An application to set aside that default judgment came before Acting Judge Bowden on 5 September 2003. He was satisfied on that day that an explanation had been given in relation to the delay. However, he noted a requirement that the defendant also show some defence on the merits. He noted that at that stage there was no proposed defence, and only an affidavit from the solicitor asserting instructions that the defendant had not obtained funds for herself from the preschool, and referring to criminal charges that had been brought against the defendant. 8 His Honour asked the question whether he should dismiss the notice of motion or give the defendant an opportunity to bring forward material to support a defence, and he adjourned the notice of motion to 11 September to give that opportunity to the defendant. 9 On that day the defendant relied on an affidavit she had sworn on 9 September, which in substance asserted that all expenditure was appropriate and necessary for the running of the preschool. The affidavit dealt with certain particular allegations concerning a life insurance policy in her name, but otherwise did not deal with any specific item in the statement of claim. It made no answer to the allegations concerning the disguising of the payments by falsely recording fictitious payees and falsely completing records to disguise the nature of the payments. No draft defence was submitted. 10 On that day Acting Judge Bowden delivered a judgment referring to the defendant's affidavit, and indicating that in his view the defence was precisely the sort of defence that the Rules say shall not be pleaded to a matter commenced by way of liquidated statement of claim. He went on to say that what the defendant had to do was a matter of showing the prima facie defence on the merits, but that in doing so: the defendant is required to put some factual statements before the Court that would deal with what are very specific allegations and claims that have been made here. That has not been done. 11 On that basis his Honour dismissed the notice of motion with costs. 12 The applicant seeks leave to appeal on the following grounds: 1. His Honour erred in determining an application to set aside a default judgment on the basis that: "the applicant is required to .... establish that there is a bona fide defence on the merits" and " .. it is a matter of showing a prima facie defence on the merits"
Last Modified: 12/18/2003 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.
Application for leave to appeal dismissed with costs (Hodgson JA [19], [22]-[24]).