Medfin Australia Pty Limited v Ian Lester Rafter

LEGISLATION CITED: Civil Procedure Act 2005 (NSW), s 56 Uniform Civil Procedure Rules 2005 (NSW), rr 21.2 and 36.15

Anaconda Nickel Ltd v Edensor Nominees Pty Ltd & Anor (2004) 50 ACSR 679 Bailey v Marinoff (1971) 125 CLR 529 Commonwealth Bank of Australia v Quade (1991) 178 CLR 131 D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 Dickson v Telstra Corporation [2005] ACTCA 36 Gamer v Nominal Defendant (1977) 136 CLR 145 Harrison v Schipp (2002) 54 NSWLR 612 Hoskins v Van den-Braak & Ors (1998) NSWSC 80 Kendell v Carnegie [2006] NSWCA 302 CASES CITED: Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76 Lexcray Pty Ltd v Northern Territory [2003] NTCA 11 Londish v Gulf (1993) 117 ALR 361 Medfin Australia Pty Limited v Ian Lester Rafter (2007) 4 DCLR (NSW) 272; [2007] NSWDC 72 National Australia Bank v Landy Chen-Conway [2008] NSWSC 485 Pacer v Westpac (Supreme Court of New South Wales, Santow J, 2 August 1996) Shirriff v Nominal Defendant [1999] NSWCA 152 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 Taylor & Anor v Lawrence & Anor [2002] 2 All ER 353 Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 Yevad Products Pty Ltd v Brookfield [2005] FCAFC 177

TEXTS CITED: Ritchie's Uniform Civil Procedure NSW at [36.15.17] and [36.15.20]

PARTIES: Plaintiff: Medfin Australia Pty Limited First Defendant: Ian Lester Rafter

COUNSEL: Plaintiff: Mr B C Kasep First Defendant: Dr Rafter (in person)

SOLICITORS: Plaintiff: NV Legal Pty Limited

In May 2007 I handed down a judgment (Medfin Australia Pty Limited v Ian Lester Rafter (2007) 4 DCLR (NSW) 272; [2007] NSWDC 72) awarding damages of $362,459.05 to the plaintiff. That judgment was not appealed. The plaintiff commenced enforcement proceedings in the Bankruptcy Court. On 6 May 2008, almost a year after the judgment, Dr Rafter ("the first defendant"), filed a Notice of Motion in the District Court seeking orders setting aside the judgment. The basis for seeking such relief is asserted to be fraud, arising from the plaintiff's alleged failure to discover the six documents annexed to the first defendant's affidavit in support of the motion.

The first defendant's application to set aside judgment was sent to me as an urgent referral from the List Judge's list on Friday 7 June. The reason for the urgency is that proceedings for enforcement in the Bankruptcy Court have been adjourned for this application to be heard.

When the matter came before me on 7 June I raised with the first defendant whether bringing a Notice of Motion was the correct procedure: Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 697 and whether the District Court has the power to make the orders he seeks. Counsel for the plaintiff made the helpful concession that this point would not be taken, in the interest of saving costs and that the real issue, in accordance with s 56 Civil Procedure Act 2005 (NSW) is the just, cheap and quick resolution of the real issue in these proceedings, namely the allegation of fraud. On this basis, I have heard the motion today. I have received written submissions from both parties, sent pursuant to orders 1 made on 7 June, and heard oral argument this morning.

My reasons for dismissing the motion in this ex tempore judgment are brief. As I explained to the parties on 7 June, I am in the middle of hearing a lengthy trial. The parties have assisted me by agreeing to my hearing this application outside normal court hours this morning before this trial commenced. The need for a judgment to be handed down today means that this judgment may be informal in language and setting out, but I have endeavoured to deal with all of the issues raised by the parties nevertheless.

The documents the plaintiff allegedly failed to discover

The first defendant asserts that the plaintiff had a duty to act honestly and to provide full discovery of all relevant documents. It is not in dispute that the plaintiff did not discover the guarantee; evidence was given during the hearing that this document was misplaced by the plaintiff's staff. The first defendant asserts that the plaintiff's failure to discover this is a relevant issue, but essentially the complaint is that six other documents were not discovered. These documents, which are annexed to the first defendant's affidavit, have been summarised by the plaintiff's counsel in his written submissions as follows: · Covering letter dated 9 April 2002 from plaintiff to first defendant enclosing Hire Purchase Agreement H200023121. · Hire Purchase Agreement H200023121 between plaintiff and second defendant in respect of one 20001 Chrysler Neon LE. The agreement is guaranteed by the first and third defendants. · Privacy Statement signed by the first and third defendants as guarantors under Hire Purchase Agreement H200023121. · Facsimile dated 30 August 2004 from plaintiff to first defendant enclosing schedule of facilities and arrears. · Statement of Account dated 21 December 2004 for Hire Purchase Agreement H200023121. · Statement of Account dated 11 October 2005 for Lease L200034443. The court's power to set aside judgments

The power the District Court has to set aside judgments is contained in Uniform Civil Procedure Rules 2005 (NSW) r 36.15 which provides: 36.15 General power to set aside judgment or order (cf DCR Part 13, rule 1, Part 31, rule 12A; LCR Part 11, rule 1, Part 26, rule 3)

(a) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith. (b) A judgment or order of the court in any proceedings may be set aside by order of the court if the parties to the proceedings consent.

Once judgment has been handed down and orders entered, proceedings are beyond recall by that court: Bailey v Marinoff (1971) 125 CLR 529 at 530 per Barwick CJ. However, a judgment apparently regularly obtained has long been able to be set aside upon the ground of fraud: Gamer v Nominal Defendant (1977) 136 CLR 145 at 154. It is against this background that UCPR r 36.15 was drafted to assist the court and "against good faith" needs to be read in light of this history, and in accordance with a number of appellate decisions considering applications to set aside judgments based on claims of failure to provide discovery in a civil case. (It may also be arguable that a court has inherent jurisdiction to prevent abuse of process, and that fraud is capable of amounting to abuse of process, but this submission has not been made to me. If it had, it would have met the same fate as the submission based on UCPR r 36.15 because the evidence is not capable of amounting to fraud.)

In considering this application, I must have regard to the principle of finality of judgments, which Gleeson CJ, Gummow, Hayne and Heydon JJ described in D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 at 17 [34] as a "central and pervading tenet of the judicial system". This principle is of long standing. In Taylor & Anor v Lawrence & Anor [2002] 2 All ER 353 R 359 Lord Woolf CJ noted that it was not uncommon for fresh evidence to come to light after a judgment has been perfected, but that the fundamental principle was that the outcome of litigation should be final.

The first defendant asserts that the conduct of the plaintiff is fraudulent. In Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538 - 9 Kirby P noted that the necessary elements of fraud include: (a) the fraud must be precisely particularised; (b) there must be a new discovery of something material that could not have been ascertained beforehand; (c) mere suspicion is insufficient; (d) there must be admissible evidence that the successful party was responsible for the fraud tainting the judgment; and (e) the burden lies on the party alleging the fraud to prove to the requisite standard. 10. The first defendant's allegations in his submissions as to the fraudulent conduct are: (a) The plaintiff is a large company and should have proper procedures for storing documents such as guarantees, but did not do so. It was unable to produce the vital document on discovery because it had been lost. (b) The plaintiff was obliged to discover not only the documents relating to this transaction but also "any important documents signed by me, especially where it showed a system or mechanism usual in its lending practice" (written submissions paragraph 5), but did not do so. (c) In an application to set aside judgment, the first defendant swore an affidavit making admissions about signing a guarantee. If the plaintiff had discovered the guarantee he signed for his car loan, the first defendant could have said that this was the guarantee he was thinking of when he made this admission, and would have been able to explain how he came to make this admission in his affidavit which, he asserts, is a central reason for his being unsuccessful in defending the claim.

The allegations made by the first defendant relate to a specific kind of misconduct which, regrettably, is becoming an increasingly common claim, namely that a party has withheld documents in breach of its discovery obligations, and obtained a judgment to which it was not entitled by reason of that conduct.

The first defendant asks the court to set aside or quash the judgment entirely on the basis that it is vitiated by fraud, rather than to grant a new trial. This misconceives both the nature of a complaint of failure to give full discovery and as to the relief available.

I note the plaintiff's submissions that failure in discovery obligations is not a species of fraud but is akin to "miscarriage of a trial through malpractice or surprise": Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76 at [108] per Giles JA; Commonwealth Bank of Australia v Quade (1991) 178 CLR 131 at 141. However, this statement needs to be read in the context of the facts of the case. It is not unarguable that a failure to discover may amount to conduct falling within the parameters of UCPR r 36.15 or that it may amount to fraud.

If the conduct in question is "against good faith", then the judgment may be set aside under UCPR r 36.15. The phrase "against good faith" is not susceptible of exhaustive definition, but would include fraud; the relevant cases are collected at [36.15.20] of Ritchie's Uniform Civil Procedure NSW. Orders setting aside judgments in circumstances where there has been failure to comply with discovery obligations have been made by appellate or other courts, in reliance upon rules similar in nature to UCPR r 36.15, on appeal or in fresh proceedings.

At [36.15.17] Ritchie sets out a number of examples of conduct falling short of fraud where a claim has been made that the conduct is against good faith. These relate generally to the circumstances in which the judgment was given: Kendell v Carnegie [2006] NSWCA 302. An allegation that a party withheld material obtained on subpoena was held not to amount to conduct against good faith: Shirriff v Nominal Defendant [1999] NSWCA 152. It is necessary to consider whether a failure to comply with discovery obligations is conduct which is against good faith.

Is failure to discover documents conduct warranting the setting aside of a judgment?

The first defendant in written submissions refers me to Hoskins v Van den-Braak & Ors (1998) NSWSC 80. This case, however, related to wrongful joinder and is not of assistance when considering allegations of this nature.

The plaintiff in his helpful written submissions refers me to Commonwealth Bank of Australia v Quade & Ors (1993) 178 CLR 134 where the High Court considered an application to set aside judgment on the basis that relevant documents remained undiscovered until after judgment. The Court (at 142) considered it was neither practicable nor desirable to enunciate a general rule which can be mechanically applied to determine whether a new trial should be ordered where misconduct by a party meant that relevant evidence remained undisclosed; the question is "what will best serve the interests of justice".

A number of applications to set aside judgments on the basis of failure to discover have come before the courts. In some cases (examples being Yevad Products Pty Ltd v Brookfield [2005] FCAFC 177; Dickson v Telstra Corporation [2005] ACTCA 36; Londish v Gulf (1993) 117 ALR 361) appellate and first instance courts of record have been satisfied that the failure to discover requires there to be a new trial. In other cases (examples being Anaconda Nickel Ltd v Edensor Nominees Pty Ltd & Anor (2004) 50 ACSR 679; Lexcray Pty Ltd v Northern Territory [2003] NTCA 11; Pacer v Westpac (Supreme Court of New South Wales, Santow J, 2 August 1996) the courts have not considered the failure to discover, even if established, would lead to a real possibility that the result of the trial would have been different if the document had been discovered. These cases generally turn on their own facts. However, it is a common thread in all these decisions that the obligation to give discovery of documents is an obligation which must be taken seriously. The destruction or deliberate withholding of documents on discovery that could alter the result of a case is conduct that must be, and is, viewed with the strongest disapprobation by the courts.

When considering the obligation to discover documents in trials in the District Court, it is important to bear in mind that the obligation is governed by UCPR r 21.2 which requires discovery of documents within a class or classes specified in the order.

The first problem is that there is no evidence that the first defendant ever required discovery of documents of this kind, whether formally or informally, pursuant to UCPR r 21.2. There was no request for a category of documents which included all prior transactions. The majority of the documents do not relate to any issue in the case apart from being evidence of prior transactions and to the manner in which the plaintiff and first defendant did business.

Secondly, these documents were documents signed by the first defendant and presumably copies were kept by him. If he thought they were relevant, he could have produced his own copies. It was common ground during the trial that the first defendant had had a number of transactions over the years with the plaintiff, because of the plaintiff's expertise in lending money to medical practitioners.

Thirdly, in relation to the documents for hire purchase agreement H200023121, there is a timing problem in the first defendant's argument. The documents for this other transaction would, the first defendant submits, have prevented him from making an admission he would never have made if full disclosure and honest conduct had occurred. However, the obligation of the plaintiff to give discovery only occurred after the judgment was set aside. The best that can be said on the first defendant's behalf would be that he could have explained his concessions that he signed a guarantee on a mistaken document. In other words, there would be conflicting evidence on this issue. However, in my judgment I referred to this evidence as "additional" evidence because it merely confirmed the other evidence before me. This evidence would have made no difference to my findings of fact.

There are two documents about which complaint is made which do in fact relate to the issues in the proceedings.

The first of these is the facsimile of 30 August 2004. This is no more than a statement of arrears in relation to the facilities extended to the defendants. Again, it is a document sent by the plaintiff to the first defendant in the course of business, not a document that was hidden from the first defendant. It contains no information that would have had any impact on the issues in the proceedings.

The second of these is the Statement of Account dated 11 October 2005 for Lease L200034443, the plaintiff's counsel in written submissions points out (at paragraphs 4 - 5) that far from being withheld, this document was not only discovered but tendered, and appears at pages 24 - 25 of Exhibit JD 1 referred to in the affidavit of John Dyer sworn 5 December 2006. It is something old, not something new.

The first defendant's application to set aside the judgment is hopeless. He knew (or should have known) about all of the documents. The documents relating to the other guarantee had no relevance to these proceedings beyond a credit issue relating to the circumstances in which the plaintiff admitted in an affidavit to signing the guarantee. The only document of any relevance to the proceedings was in fact tendered as part of Mr Dyer's affidavit.

I am satisfied that the plaintiff withheld no documentation from the defendants. The allegations of fraud cannot be made out.

This brings me to the question of whether this application should be viewed as an application to lead fresh evidence. I note the plaintiff in written submissions submits that the District Court's power to set aside a judgment under UCPR r 36.15 does not extend to setting aside a judgment so that fresh evidence can be led: Harrison v Schipp (2002) 54 NSWLR 612. I agree with this submission and I agree that the first defendant's remedy lay in an appeal seeking leave to adduce fresh evidence on appeal or an order for a new trial.

I have set out these findings of fact on the basis that the plaintiff has made concessions about the power of this court to entertain this application, because the proceedings in the Bankruptcy Court have been adjourned pending the hearing of the first defendant's notice of motion, and because the plaintiff does not wish to have the further expense and delay caused by requiring the first defendant to bring this application in proper form. This is a matter which is relevant to costs, to which I now turn.

The plaintiff seeks an order for costs on an indemnity basis, for the following reasons: (a) the plaintiff relies upon the contractual provisions contained in the documents which formed the subject matter of the proceedings, which entitled the plaintiff to indemnity costs. I made such an order on that basis. (b) Other recent decisions have made similar orders in relation to contractual entitlement to indemnity costs: National Australia Bank v Landy Chen-Conway [2008] NSWSC 485. (c) This is a hopeless application, brought in the wrong court, in circumstances where the defendants never appealed, seeking relief to which the first defendant would not be entitled. (d) Allegations of fraud are serious matters and an allegation which is brought and then fails should result in indemnity costs.

Having made an order for indemnity costs in my judgment, that reason alone is sufficient for me to make an order for indemnity costs in relation to this notice of motion, which clearly arises from the contractual provisions.

While the first defendant may have taken the wrong procedural steps, there is much to be said for an application of this kind being made to the trial judge who heard the matter. Although the appropriate procedure is to commence fresh proceedings or appeal (see the cases collected in Ritchie [36.15.20]) it is probably easier and quicker for the trial judge to say whether the information would have affected the judgment; that was no doubt why the matter was referred to me by the List Judge. The purpose of the Civil Procedure Act 2005 (NSW) is that the administration of justice be "just, quick and cheap". Accordingly, I have not taken into account, when determining the issue of indemnity costs, the fact that the first defendant has sought this relief by way of notice of motion in these proceedings.

(1) First defendant's Notice of Motion dismissed. (2) First defendant pay plaintiff's costs on an indemnity basis.

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.