Solicitors:
Dentons Australia (Plaintiff)
Lexis Lawyers (Defendant)
File Number(s): 2019/00393388
[2]
EX TEMPORE JUDGMENT (revised)
By amended notice of motion filed on 18 March 2024, the defendant seeks, inter alia, to set aside the default judgment for the possession of land entered on 12 August 2022. Other relief is sought, including leave to file a cross-claim in relation to the plaintiff's claim for possession. I will refer to the plaintiff as "the Bank". These proceedings have a very long history in the Common Law Division and, to a lesser extent, in the Corporations List of the Equity Division.
The loan agreements and mortgage were entered into in March and April 2015, and the defendant's obligations under the loan agreements were secured by mortgages over her three properties. I will simply refer to these properties as Unit 4 Penelope Lucas Lane; Unit 12 Penelope Lucas Lane; and a freestanding property referred to as Kerrs Road. It is unnecessary for me to better describe these properties for present purposes.
Following entry of the default judgment, and on the Bank's application, writs of possession were issued on 23 August 2022. Without detailing each and every other development in the proceedings, on 14 October 2022 the defendant filed a motion seeking an urgent stay of the writs of possession. That date was very proximate to the date for execution of the writs by the Sheriff. Around this time the defendant also lodged a complaint to the Australian Financial Complaints Authority ("AFCA") in relation to the Bank's conduct. The Bank accordingly paused the evictions pending the outcome of the AFCA investigation.
On 9 February 2023, the AFCA concluded its investigation, and the Court dismissed the defendant's application for a stay. There were further delays when the defendant purported to have sold one or other of the properties. In the upshot, two of the properties have since been sold pursuant to the default judgment in exercise of the mortgagee's power of sale. The third property is the subject to a renewed application by the Bank for the issue of a writ of possession, the former writ having lapsed in respect of it.
There are two other significant developments for the purpose of this present judgment, which arose on 23 March 2023 when the defendant made a further application for, inter alia, setting aside the default judgment and a stay of the previous writ which was then was scheduled to be executed on 3 April 2023. It is important for me to record that that particular application for a stay was made on the sole ground of the assertion of an available defence and a desire to issue a cross-claim against the plaintiff. The defendant was not the only proposed claimant to the cross-claim. Other persons not presently party to the proceedings were named and there was a perceived need to have a deregistered company restored to the register of companies to assert the full range of relief sought. That cross-claim related to events which occurred subsequent to the entry of the mortgage. The application for re-registration of the company was referred by me to the Corporations List Judge.
On 12 September 2023, Black J dismissed the application to the extent it sought to reinstate the deregistered company, but his Honour reserved liberty to the defendant to bring an application in the Common Law Division to file a further amended cross-claim limited to the proposed cross-claimants' personal claims.
The matter came before me again on 13 September 2023 when I made directions, inter alia, for the filing of a proposed cross-claim for the consideration of the plaintiff by 3 October 2023. No proposed cross-claim was filed at that time in accordance with my directions, although a draft defence had apparently been forwarded to the plaintiff on 5 October 2023.
I return to the urgent stay application of 23 March 2023. On 31 March 2023 this application was referred to Elkaim AJ as duty judge given the urgency arising from the eviction scheduled for some 3 days later. It is notable that it was not said before Elkaim AJ that the statement of claim had not been served or that default judgment had not been otherwise regularly obtained. Rather, what was asserted was that there was an available defence, which the defendant wished to be permitted the opportunity to file and she sought the stay in support of that position. Elkaim AJ refused the application for the stay "primarily because, despite the passage of a great deal of time no draft defence has ever been prepared." (National Australia Bank Limited v Mary Rose Salubre [2023] NSWSC 319 ("Stay Judgment") at [23]).
His Honour also observed that although he was only required to decide whether there was an arguable defence without making any findings on its full merits in accordance with principles governing the setting aside of default judgments as discussed in Dai v Zhu [2013] NSWCA 412, the "ingredients of defence" that had been put to him did "not come close to an adequate description of [a] defence." (Stay Judgment at [23]-[24]). In dismissing the stay application, his Honour instead directed the defendant to file her notice of grounds of defence before 20 April 2023, and made other ancillary orders including that the further relief sought in the defendant's notice of motion be stood over to 20 April 2023 before the Registrar.
When the matter came before the Registrar on 20 April 2023, the defendant was represented by Mr Damien Allen of counsel and Mr Ardino, solicitor, who was then the solicitor on record. The Registrar referred the matter including the application to set aside the default judgment to Sweeney J, who was the duty judge that day. Before the matter came before her Honour, there had been negotiations between the parties to resolve the outstanding procedural issues, including an exchange of emails as to the proposed form of consent orders. From the material annexed to the affidavit of Mr Justin Kang of 4 April 2024, solicitor for the plaintiff, parts of which I was taken to for present purposes, a form of consent order was propounded by Mr Ardino, including an order that the notice of motion of 23 March 2023 be dismissed, but granting leave to the defendant to file any cross-claim which she intended to propound by 18 May 2023.
The form of orders proposed included certain notations the Court would be asked to make. These included a recitation that the plaintiff holds the default judgment entered on 12 August 2022 for possession of the three properties the subject of the mortgage. It was also noted that the filing of any cross-claim by the defendant will not affect the plaintiff's rights under its registered mortgages over the properties, the default judgment, or under any writs for possession or writs for restitution issued by the Court. Those orders were duly pronounced by her Honour by consent and entered on JusticeLink as orders of the Court.
I should say at this point that, in the course of the argument this morning, and from my understanding of material that has been filed in relation to the amended notice of motion of 18 March 2024, the circumstances in which those orders were entered is disputed by the defendant and I will refer to the material that was relied upon in that regard later in these reasons.
It is necessary also to recount, from the long history of these proceedings, that the motion came before me on 8 April 2024, that is to say, the amended notice of motion came before me for hearing on 8 April 2024 and, prior to that hearing, counsel had filed written submissions and a body of evidence. Mr Rose of counsel appearing for the plaintiff, in his written submissions of 5 April 2024 took the point in relation to the hearing of the amended notice of motion that I should decline to entertain at least prayer 1 seeking to set aside the default judgment because it was a second interlocutory application in respect of the same relief and no proper ground for entertaining a second interlocutory application dealing with the same subject matter had been identified by the defendant.
Notwithstanding that point, when the matter came before me on 8 April, after much discussion about the late filing of evidence and the like, I commenced to hear the evidence in relation to the amended notice of motion, at least to the extent to which the defendant's affidavit of 28 March 2024 was read and rulings were made in respect of objections. I was dealing with a second affidavit in the defendant's case when objection was taken to the late service of evidence which the plaintiff had not had the opportunity to consider to determine whether it could meet the substance of the evidence in that affidavit of Mr Brian Frugtniet of 28 March 2024.
Having heard argument, I offered the defendant the option of either proceeding absent the late filed evidence or applying for an adjournment. Mr Archibald of counsel appearing for the defendant took the latter course which was not strenuously opposed and to which I acceded. Ultimately the matter was set down for further hearing as a part-heard matter before me today.
At the commencement of today's proceedings, Mr Rose drew my attention to his written submissions and took the preliminary point. He asked me to rule on that point in advance of considering further evidence in the case, more of which had been filed in the interim. I will not make any comment about compliance or non-compliance with my orders at this stage. Mr Archibald asked for a short adjournment, which I granted without opposition, in order to take instructions as to the defendant's attitude to the preliminary point and, having taken those instructions, he returned to court to inform me that the defendant wished to proceed with the motion.
I decided the appropriate way of dealing with the matter was to consider the preliminary point, notwithstanding the consideration that I was most anxious that this matter be resolved one way or another today. The consideration of the argument in relation to the preliminary point and the time necessary for my consideration of it has eaten up virtually the whole of this morning.
The principles concerning re-ventilation of an interlocutory matter which has been dealt with already by the Court are not unfamiliar. They were dealt with by the Court of Appeal in the matter of Liu v The Age Company Limited (2016) 92 NSWLR 679; [2016] NSWCA 115. The principles established by that case and other related cases were considered by McColl JA - who was a member of the court in Liu - in the matter of Young v Roads and Maritime Services (No 3) [2018] NSWCA 106, which Mr Rose drew to my attention in his written submissions. As I have said, having referred to relevant authorities, McColl JA, with the agreement of Barrett AJA, summarised the principles as follows at [73]-[74]:
"The overriding principle governing the approach of the court to a second interlocutory application concerning the same, or what is substantially the same, issue is that the court should do whatever the interests of justice require in the particular circumstances of the case.
While it may be an abuse of process warranting dismissal of the application, for a party who has been unsuccessful in obtaining interlocutory relief to seek to relitigate the very same question, a second application may be permitted where there has been a change of circumstances or where evidence has become available that was not available at the time of the original hearing."
I should say that her Honour also referred, in passing, to an earlier decision of the Court of Appeal in Nominal Defendant v Manning (2000) 50 NSWLR 139; 2000 NSWCA 80 (at [10]) where Mason P observed that the principles controlling the right of a litigant who is dissatisfied with an interlocutory order to reapply did not amount to the position where, no matter what the circumstances, the litigant was entitled to a "second contested run at the target". I observe that Mason P was in dissent in that particular decision but his Honour's observation, with respect, is entirely consistent with the principles as restated by McColl JA quoted above.
The amended notice of motion does not, in terms, seek to set aside the orders of 20 April 2023. It merely purports to make an application to set aside, as I have said, the default judgment and it seems to me that it is necessary for the defendant to come to grips with the existence of the orders entered by Sweeney J.
While it may be said that the important principles concerning res judicata and the related principle of issue estoppel do not, in strict terms, apply to interlocutory judgments, the policies which underpin them are relevant to the question about whether the Court should consider a second interlocutory application seeking the same relief. This is especially so, having regard to the overriding principle governing the administration of civil justice, as expressed in s 56 of the Civil Procedure Act 2005 (NSW) and the related, efficiency provisions.
In contending that I should allow this second application to set aside the default judgment to proceed, Mr Archibald drew my attention to a number of factors to argue that the interests of justice require consideration of the second application. He pointed to the defendant's affidavit of 31 October 2023 - which was filed in support of the original motion of 2 November 2023 that the current form of motion amends - at paragraphs [8]-[10] where the defendant said that between February 2022 and August 2022 she had been in contact with the Bank and its solicitors and she was unaware of the ex parte application made by the bank for default judgment. Moreover, in her affidavit of 9 February 2023 she said that in October 2022 she was notified by the Sheriff to vacate all three of her properties before 18 and 19 October 2022, and it was this notification that prompted her to make an application for the stay of the writ of possession, as well as lodging a complaint to the AFCA. Perhaps somewhat inconsistently, it is further said that she found out about the default judgment in or around November 2022 when there was a search of the court records for the purpose of a complaint to the AFCA.
From JusticeLink, in her affidavit of 12 October 2022, which I assume was read in support of the first stay application, the defendant said that she had no recollection of being served with a statement of claim. At paragraph [18], she said:
"For the record, I have absolutely no recollection of being served with a Statement of Claim as suggested and further due to the disruption caused with Covid 19 vaccine mandate I was prevented from attending the court. I was not notified."
The phrase "I was not notified" I take to be a reference to the default judgment.
So far as the entry of the orders on 20 April 2023 is concerned, in her affidavit of 28 March 2024 the defendant gives evidence to support an inference, if it were accepted, that not only did she not give instructions to Mr Ardino to agree to those consent orders, but she left the court that day holding the belief that the plaintiff had agreed to her being permitted to file a defence and cross-claim (at paragraphs [56]-[57]):
"…I saw [Mr Ardino] give "the thumbs up sign" by holding up both of his thumbs. Mr Ardino said words to the effect of "Good news, there is no objection. We can file the Amended Defence and Cross Claim. The plaintiff won't oppose or object.
… I did not give instructions for my Notice of Motion seeking to set aside the default judgment to be dismissed. As I left the Court I held the opinion, that my Notice of Motion and not been dismissed it would be open to me to file a cross-claim and an amended defence in these proceedings".
I merely note in passing that that is contrary to the contents of an affidavit that had been filed from Mr Ardino sworn 28 March 2024. Mr Ardino agrees that at the time the consent orders were entered, the defendant was not at court because she had left court to pick up her children from school, but he had nevertheless spoken with Mr Allen of counsel who happened to be at court on that occasion. On Mr Ardino's evidence, Mr Allen expressed the view that the defendant should agree to what became the consent orders and, having received that advice, albeit informally, from counsel, he had conveyed that to Mr Brian Frugtniet, who was present at court and who was one of the proposed cross-claimants. Mr Ardino said that Mr Frugtniet gave him instructions to accept Mr Allen's advice on behalf of the defendant.
I should also say that the main argument in favour of setting aside the default judgment is the positive statement that the statement of claim was not served in the manner deposed to by the plaintiff's process server, Mr Joseph Khoury. The defendant maintains that she had never been served with a statement of claim at all. A much stronger statement than that advanced in her affidavit of 12 October 2022.
Mr Archibald also, in answer to my question in relation to whether what is asserted to be the cross-claim was sufficient to impeach the plaintiff's title to possession as mortgagee when the mortgagor was in default, said that the defendant may be entitled to raise an equitable cross-claim. He referred to the decision of the Court of Appeal in Mao v Bao [2023] NSWCA 278.
I repeat, it is quite apparent that the primary ground upon which the defendant seeks to re-ventilate her application to set aside the default judgment is that she was not served with initiating process. A person who is not served with initiating process and, for that reason, fails to become aware of the proceedings before judgment is entered against him or her, is said to be entitled to have the judgment set aside ex debito justitiae, that is to say, as a matter of right: Cameron Bankrupt v Cole Petitioning Creditor (1944) 68 CLR 571; [1944] HCA 5. Obviously in that situation the proceedings have miscarried in a fundamental way because the defendant has not been accorded natural justice and even the order of a superior court of record, such as this Court, will be set aside on that ground.
This case is not so straightforward, inasmuch as even if I proceed on the assumption that the defendant was not served with the initiating process, as she now says in her current affidavits filed in support of the amended notice of motion, it is very obvious that for a considerable period of time, at the very latest since October 2022, she has been aware of not only the proceedings but also the default judgment. I also acknowledge that there is a large body of evidence filed on behalf of the plaintiff which does suggest, were it accepted in preference to the evidence of the defendant, about which I make no finding at this stage, that the defendant was aware of the proceedings and sought to forestall them by seeking further forbearance from suit by the plaintiff while she attempted to make arrangements to regularise her position in relation to the mortgage. For instance, when the plaintiff's solicitors wrote to the defendant by email or letter on 8 April 2022 in response to her request for forbearance from taking further steps, the solicitor said:
"[i]n the event the that conditions 1-3 of [the bank's] forbearance...are not complied with and in particular condition 3 which required unconditional contracts for sale to be entered by 23 May 2022, [the bank] instruct us to apply for default judgment without further notice to you."
And again, in its letter of 29 June 2022 the solicitor said:
"[a]s foreshadowed in our April Letter and June Letter, given the conditions of [the bank's] forbearance set out in our April Letter were not complied with, [the bank] has applied for default judgment for possession of the Properties."
I repeat, that in this preliminary ruling I am not resolving those disputed questions of fact, but it is worth noting that even in a case where personal service has not been effected, other means of the proceedings coming to the attention of the defendant may be effective to overcome the deficit that non-service would otherwise represents. In Clack v Murray [2017] WASCA 88, Mitchell JA of the Western Australian Court of Appeal said at [10]:
"The purpose of requiring personal service of originating court process is to give notice of the proceedings to the relevant party. That is so that he or she may have an opportunity to resist the relief claimed in the proceedings. The ordinary meaning of the phrase 'personal service' is that the document in question must come to the notice of the person for whom it is intended. The means by which the person served obtains the document are usually immaterial. Where a notice of appeal is in fact received by a respondent, the document will have been 'left with' that respondent even if it is not handed to the respondent by a representative of the appellant seeking to effect personal service. Once the respondent receives the notice of appeal, the object of the requirement for personal service has been achieved. A person who the evidence establishes has actually received the document cannot validly complain that he or she has not been personally served" (footnote omitted).
While that matter refers to an appeal, the same principle informs proceedings at first instance: see for example Smith v Shilkin (No 2) [2019] NSWSC 969 (per Hallen J).
I had, in the course of my discussion with Mr Archibald, suggested that the cross-claim could be propounded without the plaintiff being allowed to defend the substantive proceedings and, as I have said, that in any event the cross-claim did not impeach the title of the bank to possession. Mr Archibald took issue with the second part of question.
The nature of the claim that the plaintiff wishes to advance is that she had the funds to make good her default but she was persuaded not to apply them to the mortgage by the person she identifies at paragraph [29] of the 28 March 2024 affidavit as a senior business banking manager at the Marrickville branch of the bank, a Mr Zia Shamsuddin. This was the sum of $90,000 and the context is that she with the other proposed cross-claimants were negotiating for a very large loan to enable them to purchase and operate a nursing home, which was regarded as a desirable business opportunity that had come up. The $90,000 which she had in her account, and which could have been applied to the mortgage was, she said, paid in accordance with the direction of Mr Shamsuddin, who gave her a BSB and account number to pay the money into. As things happened, she says that Mr Shamsuddin had committed a fraud on her, and the money was lost. It was not applied to either the mortgage or the business venture in respect of which she and others were negotiating a new loan.
In Mao v Bao, Ward ACJ, White and Mitchelmore JJA described an equitable set-off as arising when there is such a connection between the respective or competing claims that one impeaches the other, such that "it would be unconscionable to allow one to be enforced without accommodating the other" (at [58], per Ward ACJ), and that "[intuitive] unfairness does not suffice to establish the necessary connection between the respective claims" (at [184] per Ward ACJ). Although the relationship between the parties did involve a bank loan secured by mortgage over real property which one held on trust for the other, the case was not concerned with the exercise by a bank of its power of sale. In that regard, as Davies J fully discussed in the matter of the Commonwealth Bank of Australia v MLD Financial Services & Management Pty Ltd [2015] NSWSC 1476 (at [30 ff), the principle is established by the single-justice decision of Walsh J of the High Court of Australia in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 165-167. It is not necessary for me to go through the whole of his Honour's reasoning. However, his Honour stated the general rule in the following terms at 164:
"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court."
Walsh J also observed that the benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee was allowed to prevent any enforcement of the security until after the litigation of those claims had been completed. There are many cases which explain that the rule is otherwise in respect of a mortgagee's claim against the mortgagor for the balance of the debt outstanding after sale that I need not go into for present purposes.
That the principle applies to the power of sale is well illustrated, in my opinion, by the decision in Westpac Banking Corporation v Corry [2011] NSWSC 1014, a case which has many factual similarities to the present. There, the mortgagor attempted to resist summary judgment for possession by asserting that they had relied upon a bank manager's advice not to sell some properties at a price which would have substantially reduced their indebtedness to the bank. They contended that the reduction of the level of indebtedness at that stage would have enabled them to continue to meet other loan repayments, which would have put them in a better position to refinance and protect the property of which possession was sought by the bank. Johnson J said (at [33]-[34]):
"I have expressed in relatively brief terms the basis upon which the Defendants assert that there is an arguable defence to the Plaintiff's claim for possession of land. A fundamental problem with the Defendants' argument is that they seek to attack or impugn the mortgage entered into and registered in 2003 by reliance upon representations said to have been made in and after 2006. The Defendants do not contend that the alleged representations were made in circumstances surrounding the entry into the mortgage. In my view, this is a fundamental problem for the Defendants on the present application.
To the extent that the Defendants seek to rely upon a form of set-off by way of defence or cross-claim, I note that a cross-claim or set-off is not a defence to a claim for possession of land" (citations omitted).
His Honour referred, inter alia, to the decision of Wash J in Inglis.
As I have said, the decision in Corry has strong factual analogies to the present case and it seems to me that the alleged fraudulent misrepresentation by Mr Shamsuddin relied on by the defendant (and the other proposed cross-claimants) is remote from and separate to anything to do with the creation of the mortgage or the mortgage debt and the principle discussed in Inglis holds sway in the present case. It seems to me that that is not inconsistent, in any event, with Mao v Bao, were I wrong in my understanding of the principle there cited by Ward ACJ.
Now I reiterate that I am not deciding these matters finally, but I am referring to the arguments that were advanced to me for the purpose of exercising my discretion to decide whether to rehear a second application to set aside the default judgment in this case. While the argument that the defendant had not been served with the originating process may be something different from what was put before Elkaim AJ and was not the basis of the continuation of the application that would have been heard by Sweeney J had it not been resolved, it could hardly be said to be a consideration that was not known to the defendant at the time those applications were brought forward. Indeed, as I have said on one view of it, she had a question in her mind about service as long ago as 12 October 2022 and notwithstanding that question, that was not propounded as a ground for setting aside the judgment in March and April of 2023. Rather she relied on the fraudulent misrepresentation as providing both defence and basis for cross-claim.
First, as I have said, there is a strong body of evidence that even if the defendant is correct about the absence of personal service, she was aware of the proceedings from the course of correspondence in the early part of 2022 before the default judgment was entered, and certainly by the time she received the Sherriff's notice of eviction. Secondly, it is also the case, in my judgment, in any event, that the matter upon which the defendant seeks to rely in defence, and for the purpose of the cross-claim, has insufficient prospects of success to justify entertaining a second run over the same target.
Thirdly, for the reasons I have rehearsed, refusing to allow a second application to be brought to set aside the judgment does not stop either a cross-claim or fresh proceedings being brought against the plaintiff in respect of the transactions or dealings with Mr Shamsuddin as the defendant seeks to do.
Fourthly, there is the terms in which the order of 20 April 2023 was made. I accept there is a difference between what the defendant says she was told, and what is expressed and implicit in Mr Ardino's affidavit. Even so, and Mr Archibald clarified this, there is no suggestion of any sharp practice, as it were, on the part of the Bank. Quite the contrary, it is accepted by Mr Archibald, for the purpose of this application, that the Bank entered into the consent orders after a period of negotiation with Mr Ardino on 20 April 2023. It was entitled to accept, at face value, what the solicitor on record with at least ostensible authority to bind the defendant told them, to negotiate with him in respect to the form of orders, as they did, and to accept his authority to consent to the orders made by the Court.
It is quite clear to me, from the form of the orders which I have set out in part that, particularly from the notations which serve to record matters of common ground between the parties, that those orders were made, including the dismissal of the application for default judgment, in a mature and considered manner. Indeed, those orders were made on the basis, and in acknowledgement, of the plaintiff's judgment for possession and its right to exercise that judgment. They were of benefit to the defendant as well because they preserved her entitlement, procedurally speaking, to bring a cross-claim. Although no concession was made in relation to the form of the cross-claim, or its conformity with the rules, it should not have been beyond the wit of competent practitioners to fashion a pleading compliant, and in conformity, with the requirements of the rules.
Finally, on this score, it appears that the orders were entered into after consultation with counsel. Now, it seems that Mr Ardino emphasises that Mr Allen happened to be at court and gave advice on an ad hoc basis on that occasion. However, it does appear from Mr Kang's affidavit, which is not disputed, that he did appear before the Registrar and that he obviously had familiarity with the issues in the case sufficient for him to advise. Elkaim AJ's judgment does not record who appeared for the defendant on 31 March 2023 and I am unaware of whether it was Mr Allen or not; however, that does not make any difference to my appreciation of the circumstances of what happened on 20 April 2023.
I am not persuaded that the interests of justice, in all of the circumstances of this case to which I have referred, require the court to consider a second interlocutory application to set aside the default judgment. In these circumstances I dismiss prayer 1 in the defendant's amended notice of motion of 18 March 2024.
[Notation: After discussions with counsel, I made the following further orders:
1. Dismiss prayer 3 of the defendant's amended notice of motion of 18 March 2024.
2. Dismiss the defendant's notice of motion of 2 November 2023 and the balance of the amended notice of motion of 18 March 2024.
3. Dismiss the defendant's notice of motion of 21 May 2024.
4. Remit the plaintiff's notice of motion for writ for possession of land of 22 February 2022 to the Registrar for consideration and determination in the usual way.]
[3]
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Decision last updated: 30 May 2024