PJM LITIGATION & DEBT MANAGEMENT PTY. LTD. v Carmen Flowers & Ors.

District Court of NSW|2021-04-09|Before: Adam P

BACKGROUND

On 21 September 2018 default judgement in the sum of $169,521.00 (inclusive of costs) was entered against the defendants. There is no issue that the default judgement was entered pursuant to UCPR rule 16.6 on a purported claim by the plaintiff for a debt or liquidated claim and by reason of the defendants not having filed their defences to the first amended statement of claim. The default judgement was entered in the registry and not in open court.
By notice of motion filed 6 November 2020 the defendants now seek an order that the default judgement be set aside.
The matter was argued over two days on 31 March and 1 April 2021. The plaintiff was represented, with leave of the court, by Mr Miles - its sole director. The defendants were represented by Mr Allen of Counsel.
The defendants seek to set aside the default judgement on the basis that entry of the judgement was irregular (see UCPR 36.15). They submit that by reason of the manifest defects in the pleading, they are entitled to have the judgement set aside ex debito justitiae (as of right) pursuant to this rule and without regard to whether they have an arguable defence to the claim, or to issues of service.
The defendants also seek to set aside the default judgment on the basis that the plaintiff did not personally serve the defendants with the First Amended Statement of Claim. As such, they say, they have not had notice of the claim and the opportunity to meet it.

THE FIRST AMENDED STATEMENT OF CLAIM

The defendants' submission that the judgement was entered irregularly is founded upon an attack on the first amended statement of claim. The defendants submit that the first amended statement of claim does not disclose a cause of action at all and, particularly, one which would enable default judgement based upon the claim being a claim for a debt or liquidated sum. Because the defendants attack the pleading in this way, it is necessary to set out that document in some detail.
The "First Amended Statement of Claim" was filed on 9 August 2018. The "Relief Claimed" section of the document does not set out any prayers for relief or orders sought but simply reads as follows: Amount of claim $157,312 Interest $ 10,487 Filing fees $ 1,336 Service fees $ 360 Solicitors fees $ 1,650 TOTAL $171,145
Under the heading "PLEADINGS" the document reads as follows (with spelling and grammar as per the original): 1. "The plaintiff is the "assignee" and Mrs Erlinda Arocha is the "first assignor" of the "first debt". Mrs Anita Delos Angeles is the "second assignor" of the "second debt". The first and second debts were assigned to the plaintiff on 26 July 2018. The debts are all connected to the same transactions in the bank account number BSB 082-133 Account: 760369679 held with National Australia Bank "the bank account". In the name of Casa De Amor Community Incorporated "the Association". 1. A notice of assignment of the debts were served on the defendants on 26 July 2018. 2. The second and third defendants are husband and wife, and they were disqualified by ASIC and Fair Trading many years ago from operating a Travel Agency because they committed fraud and other dishonest activities. The third defendant was also sent to gaol for financial fraud and both he and his wife are constantly in hiding. 3. The fourth defendant is severally liable for the debt as that of the first, second and third defendants. On 9 June 2018, the fourth defendant used $55,000 to pay for her motor vehicle. On 9 April 2018, $34,750 was used to paid towards the fourth defendant's mortgage for her real property. The first debt 1. On 20 June 2017, all the defendants lured the first assignor at a meeting held at the second and third defendant's home, into joining the Association. 2. At the meeting referred to above in paragraph (2), a series of discussions were held, and an agreement reached for the assignor to deposit her hard earned money into the bank account for safe keeping. And that the defendants shall also deposit their own monies into the bank account. The defendants gave oral guarantees to the assignor that her money will be safe and the assignor's signature shall remain on the bank account permanently. 1. On 4 December 2017, the assignor deposited $70,000 into the bank account. 2. None of the defendants made any deposit into the bank account. 1. The assignor was then added to the bank account as a signatory too and all the signatories were: 1. Carmen Flowers [the first defendant]. 2. Suzanne Frugniet [the second defendant]. 3. Anita Delos Angeles [the second assignor]. 4. Erlinda Arocha [the first assignor]. 1. The assignor was tricked by the defendants to sign the following cheques upon which she signed. The plaintiff is also pursuing the checks as part of the debt owing by the defendants. 1. Cheque number: 000003 $200.00 [15/12/2017]. 2. Cheque number: 000003 $519.00 [15/12/2017]. 3. Cheque number: 000005 $200.00 [22/12/2017]. 4. Cheque number: 000006 $519.00 [22/12/2017]. 5. The total amount from sub- paragraph (1) through to sub- paragraph (4) here in paragraph (5) above is in the amount of $1,438.00. 1. Around March 2018, whilst the assignor was overseas visiting family, the first and second defendants attended the bank and deleted the assignor's as a signatory without the assignor's consent. 2. Thereafter, deleting the assignor as a signatory from the bank account, the defendants embarked on a spending spree with the assignor's money from the bank account for their own personal purposes without the assignor's consent. 3. The defendants then registered shelf companies inserted the assignor as shareholder and pretending that they were spending the assignor's money in the assignor's interest, when in fact, they were spending the money on themselves. 4. The defendants spent $68,562 of the assignor's money from the bank account without her consent "the debt". As a result of the defendants' action the defendants jointly and severally owes (sic) the debt plus interest and any incidental expenses to the assignor. The assignor's rights having been assigned to the plaintiff, the defendants owed the plaintiff all the assignor's entitlements. 5. The assignor made numerous requests for the defendants to pay the debt, but the defendants failed to pay. As a result of the defendants' failure to pay the debt, the defendants jointly and severely (sic) over the plaintiff the debt. The plaintiff also requested payment, but the defendants failed to pay."
The pleading in paragraphs 11-21 then sets out matters with respect to "the second debt". Those matters are in almost an identical form to the matters pleaded with respect to the "first debt" as set out above. There are differences with the reference to the identity of the second assignor and different amounts paid into and withdrawn from the bank account. The claim with respect to the "second debt" is otherwise as for the "first debt". Paragraph 17 of the pleading states that the defendants spent $88,750 of the second assignor's money without her consent, thus constituting the "second debt".
The total of the amounts of $68,562 (paragraph [9] of the pleading) and $88,750 (paragraph [17] of the pleading) makes up the $157,312 claimed.
The document then continues as follows: "PARTICULARS 22. The plaintiff also relies upon the; a. Witnesses evidence, b. the Signatory authority to the bank, c. The bank deposits receipts of the assignor's' deposits, d. The checks drawn by the defendants, e. All withdrawals from the account, f. the Constitution and other documents of the Casa De Amor Community Incorporated, g. the accounts statements, h. the oral guarantees, i. the promises, j. ASIC Records, k. the defendants' statements and representations, l. the emails, m. Text messages, n. the letters, o. and any other things but not limited to documents, p. the defendants' words, q. Any other evidence that will come to light, r. Subpoenas of documentation, s. Notices to produce by the defendants and more, 23. The defendants owe the debt and continue to be indebted to the plaintiff until the debt plus expenses and costs are paid in full."

IRREGULARITY

As stated above, the defendants say that they are entitled to have the default judgement set aside as it was entered irregularly. The defendants rely on UCPR rule 36.15. That rule provides as follows: 36.15 (1) 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 judgement was given or entered, or the order was made, irregularly, illegally or against good faith.….
In Arnold v Forsythe [2012] NSWCA 18 the Court of Appeal considered the application of this rule. The primary question in that case was whether or not the statement of claim upon which the default judgement had been entered properly pleaded a claim for a debt or liquidated claim within the meaning of UCPR rule 16.6 (1).
Sackville AJA, with whom McColl JA and Young JA agreed, surveyed the authorities on what a "debt or liquidated claim" meant. His Honour noted at [45] that a claim is not necessarily one for a liquidated amount merely because it can be readily quantified: Alexander v Ajax Insurance Co Ltd [1956] VLR 436. His Honour considered that a proper construction of the statement of claim then before the court showed that it did not comply with the rules of pleading so as to amount to a claim for a debt or a liquidated claim.
The question then was whether the defect in the pleading in failing to plead a debt or liquidated claim meant that the default judgement entered on that pleading was irregular. His Honour said: "79 The appellant submitted that if a plaintiff obtains a default judgment on the basis of a statement of claim that omits any material facts necessary to support the pleaded cause of action, the judgment is given irregularly and is thus liable to be set aside under r 36.15. According to Mr Pritchard, this principle operates independently of any entitlement to set aside a default judgment arising from a failure to plead a liquidated claim. It follows, so he argued, that the respondents' failure to plead all material facts necessary to establish its entitlement to be paid $199,500 pursuant to the Separation Agreement constituted an irregularity. Accordingly, the default judgment was also liable to be set aside on this ground. 80 Because I have concluded that the respondents obtained the default judgment irregularly in any event, I need not decide whether this contention should be upheld. However, had it been necessary to do so, I would have concluded that the pleading defects constituted an irregularity and that the Court's power in r 36.15(1) to set aside the default judgment was attracted. 81 The appellant's contention receives support from Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; 78 NSWLR 20. In that case, the Chief Commissioner obtained a default judgment on a statement of claim seeking an order for unpaid land tax and interest. The statement of claim did not plead the fact of service of the notices of assessment, nor the due date for payment specified in the notices. 82 Gzell J, with whom Beazley and Macfarlan JJA agreed, held that: the service of the assessments and specification of the due date for payment were essential elements in the Chief Commissioner's action for money due pursuant to a statute (at 26 [39]); by failing to plead these matters, the statement of claim omitted essential elements in the cause of action (at 28 [61]-[63]); the pleading deficiencies constituted an irregularity in giving the judgment and attracted the Court's power under r 36.15(1) to set aside the judgment (at 30 [75]); and the defendant was entitled to have the material facts pleaded in order to know the case alleged against him and the Chief Commissioner's failure to do so justified setting aside the default judgment (at 30-31 [84]). Gzell J did not need to decide whether a failure to plead material facts entitles a defendant to have a default judgment based on that pleading set aside ex debito justitiae (at 29 [71]-[72]). 83 I do not read the decision in Fenato v Chief Commissioner as establishing that a failure to plead any material fact in a statement of claim will necessarily constitute an irregularity for the purposes of r 36.15. The significance of such a failure may depend on the nature of the material facts omitted and whether the pleading, despite the omission, sufficiently identifies the case pleaded against the defendant. If it were otherwise, challenges to default judgments could be made in cases where the pleading defects were of little practical importance and created no prejudice to the defendant. If a pleading defect entitles a defendant as of right to set aside a default judgment based on the pleading (a matter left open in Fenato v Chief Commissioner), applications to set aside judgments are likely to turn on fine pleading points in a context divorced from that in which the relevant principles were developed. 84 In the present case, however, the omissions in the statement of claim went to the very foundations of the respondents' cause of action against the appellant. By reason of the omissions, the case the appellant was required to meet was not clear. On the authority of Fenato v Chief Commissioner, this would have been a sufficient reason to conclude that the default judgment had been given irregularly. In a case where the appellant has an arguable defence, the appropriate order would have been to set aside the default judgment." (bold emphasis added)
Sackville AJA made reference to the decision of Fenato v Chief Commissioner of State Revenue [2010] 78 NSWLR 20. In that case, Gzell J (with whom Beazley and Macfarlan JJA agreed) stated as follows: "37 Counsel for the applicants argued that in order to establish his entitlement to the debt the Chief Commissioner had to establish and, consequently, had to plead as material facts the four matters submitted to Delaney DCJ and before this court. 38 The first submission upon which the Chief Commissioner relied was that there was no pleading error. It was submitted that the statement of claim clearly set out the nature of the tax the applicants owed. 39 In my view the making of an assessment is an essential element of the cause of action for money due under the Administration Act as it arises in this case. Section 14(1) of the Management Act required the Chief Commissioner to do so and land tax does not become due and payable until a notice of assessment is served and that requires the due making of an assessment. 40 Proof of service of the notice of assessment is an essential element because land tax is not due and payable until the date specified for payment in a notice of assessment which date must not be within 30 days after service in terms of s 39(3) of the Management Act. 41 The establishment of a due date on which land tax becomes due and payable is an essential element because land tax does not become due and payable before the date so specified in a notice of assessment under s 39(1) of the Management Act. 42 It is also an essential element in a claim for interest, which runs from the end of the last day for payment under s 21(1) of the Administration Act and that is the date specified in the notice of assessment under s 39(1) of the Management Act. 43 Failure to pay the tax on the due date is an essential element of the cause of action because under s 44 of the Administration Act the Chief Commissioner cannot recover unpaid tax unless there has been a failure to pay it as required. 44 The statement of claim failed to allege service of the notices of assessment or the due date for payment in those notices… 63 The service of the notices of assessment and the specification of the due date for payment in the notices of assessment were essential elements of the cause of action and were not pleaded in the statement of claim. That failure is not overcome by recourse to Pt 14 r 14.11 of the Rules. The Chief Commissioner's second submission fails… 78 Delaney DCJ exercised a procedural discretion in refusing to set aside the default judgment. As the High Court said in Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc. (1981) 148 CLR 170 at 177 appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure. 79 It was submitted that the applicants were served with a statement of claim that clearly set out the nature of the tax that they owed for some time. They chose not to respond to it within the prescribed period. The application to set aside the default judgment was only brought after a bankruptcy notice had been served. 80 Delaney DCJ took into account the absence of a draft defence and the lack of any evidence from the applicants. His Honour also took into account the fact that Mr Macri did not give any evidence that the applicants had a good defence on the merits. 81 While these matters were relevant to his Honour's exercise of discretion the failure to plead the cause of action for moneys due under a statute by reason of the omission of essential elements was a matter that his Honour failed adequately to take into account. 82 His Honour noted the submission of the applicants that it was not sufficient for the Chief Commissioner to have pleaded merely that notices of assessment in an aggregate amount were issued, that no payments had been received, and that the land tax had not been paid. His Honour also noted the submission of the applicants that because the due dates were not identified properly no basis existed to calculate any claim for interest. 83 His Honour said of these submissions: "I reject the argument by the applicants that the statement of claim did not contain sufficient information to enable either the plaintiff's claim and the question of interest to be determined". But his Honour failed to give any reasons for that rejection. 84 A party is entitled to have the material facts constituting a cause of action summarised in the pleading so that the party knows the case it is to answer. The statement of claim in this case failed that objective and that failure, in my view, constituted sufficient cause for the purpose of Pt 36, r 36.15(1) of the Rules and outweighed the matters on which his Honour based his exercise of the discretion. 85 The same reasoning applies to the discretion under Pt 36 r 36.16(2)(a) of the Rules if that was the appropriate basis for decision. 86 The Chief Commissioner's fourth submission fails. 87 In my view, Delaney DCJ's exercise of discretion was vitiated and it is for this Court to re-exercise it. For the reasons set out above I am of the view that this Court should exercise the discretion under Pt 36.16(2)(a) or, in the alternative, under Pt 36 r 36.15(1) and set aside the default judgment. (bold emphasis added)
These authorities were considered by this Court in Bendigo and Adelaide Bank Limited v Borg [2016] NSWDC 192. In that case Dicker SC DCJ reviewed the authorities on an application to set aside a default judgment which was said to have been entered irregularly by reason of a defect in the pleading and said: "20 On the basis of the reasoning in Arnold, the significance of a failure of a party to plead material facts depends on the nature of the material fact omitted and whether the pleading, despite the omission, sufficiently identifies the case pleaded against the defendant. A court should avoid applications to set aside judgments turning on fine pleading points. However the question in the end is whether by reason of the omissions in the pleading, the case the defendant was required to meet was not clear. In my view this must be judged at the time a Defence was required to be filed. 21 In Zakaria v Dr Noyce [2012] NSWSC 981, Davies J stated at [24] the following: "[24] Ordinarily irregularity is concerned with a failure to comply with the Rules of Court: Arnold v Forsythe [2012] NSWCA 18 at [88]. That will extend to the position where, for example, default judgment has been obtained on a Statement of Claim that does not properly plead a debt or liquidated sum: Arnold at [59]; or does not plead an essential element of the cause of action: Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; (2010) 78 NDWLR 20 at [39] and [63]. In addition, a judgment entered for more than is due will be irregular: Alexander v Ajax Insurance Co Ltd [1956] VLR 436; H R Turner & Son Pty Ltd v Rhodes [1970] 1 NSWR 305." 22 In Sargeant v HE & FG Campbell Agricultural Machinery Repairs [2016] NSWSC 544, Adamson J stated as following at [35]-[37]: [35] The statement of claim did not plead a cause of action. It did not comply with UCPR, r 14.7. Nor did the draftsperson seek to plead facts in short form, as provided for in UCPR, r 14.12. Ms Burnheim adequately raised those matters before the Magistrate. Her Honour did not address the argument in the reasons. [36] It was held in Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; 78 NSWLR 20 that deficiencies in a pleading could constitute an irregularity in giving the judgment and could thereby attract the Court's power in UCPR r 36.15 to set aside the judgment: at [75] per Gzell J (Beazley P and Macfarlan JJA agreeing). In Arnold v Forsythe [2012] NSWCA 18, the appellant argued that if a plaintiff obtains default judgment on the basis of a statement of claim that omits material facts necessary to support the pleaded cause of action, the judgment is given irregularly and is thus susceptible to being set aside pursuant to UCPR r 36.15. It was not necessary for the Court of Appeal to decide this point, but Sackville AJA (McColl and Young JJA agreeing) said, at [84]: In the present case, however, the omissions in the statement of claim went to the very foundations of the respondents' cause of action against the appellant. By reason of the omissions, the case the appellant was required to meet was not clear. On the authority of Fenato v Chief Commissioner, this would have been a sufficient reason to conclude that the default judgment had been given irregularly. In a case where the appellant has an arguable defence, the appropriate order would have been to set aside the default judgment. [37] Mr Reynolds' answer to the ground relating to the inadequacy of the statement of claim was that Mr Sargeant must have been able to discern the case he had to meet because he set out in his affidavit his defences to the claim. I do not regard the detail in Mr Sargeant's affidavit as pertinent to overcome the well-founded objections to the statement of claim. The statement of claim was embarrassing and inadequate. It failed to identify a cause of action; if the claim was for breach of contract, it failed to identify the parties to the contract, or the term breached. Its omissions were sufficient to empower the Magistrate to set aside default judgment pursuant to UCPR r 36.15." Consideration 23 In my view, in the present case, the Statement of Claim in question did not plead all the necessary material facts required in order to make clear to the defendants the case they were required to meet. 24 As well as the matters actually pleaded, the Statement of Claim should have also pleaded the following: (a) The applications for finance signed by Mr and Mrs Borg; (b) The provisions in those applications for finance permitting GSF or one of its directors or its secretary to sign the Deeds of Loan on behalf of Mr and Mrs Borg as their attorney; (c) The fact that the Deeds of Loan were signed in that manner; (d) The interest provisions under the Deeds of Loan including the rates of interest; (e) The relevant parts of Clause 4.1 of the Deed of Settlement approved in the Victorian Supreme Court including the amounts agreed to be waived falling within the term "Interest Relating to Overdue Amounts" within Clause 4.1.1; (f) That such amounts were indeed waived in the totals said to be owing by Mr and Mrs Borg; (g) The amounts said to be owing as capital and interest with a schedule or particulars setting out the calculation of the interest so that Mr and Mrs Borg could understand the amounts claimed against them and assess whether they were accurate or not. 25 The claims made were not run of the mill claims in debt but claims made in the context of complex transactions signed for Mr and Mrs Borg as their attorney and where there had been a settlement approved by the Victorian Supreme Court. In my view these matters needed to be set out in some detail in the Statement of Claim with a calculation of the amounts claimed so that Mr and Mrs Borg could understand the precise case made against them. In my opinion, within the principles in Arnold v Forsythe at [84], the omissions in pleading the material facts resulted in the case Mr and Mrs Borg were required to meet being not clear at the time a Defence was required to be filed. At that time there is no evidence that the defendants had copies of the executed Loan Deeds. 26 Further, the failure to plead the material facts constituted an irregularity within Part 36.15 (1) of the UCPR." (bold emphasis added)
From these authorities the position is, as I understand it, that if the defendants establish that there is a defect or defects in the first amended statement of claim at the time the defence was to be filed, for example the failure to plead material facts such that it discloses no cause of action or fails to properly plead a debt or liquidated claim then, subject to the exercise of the court's discretion, the default judgment is liable to be set aside as having been entered irregularly.
Matters relevant to the Court's discretion would include any delay in the bringing of the application and whether, in accordance with UCPR rule 36.15, any terms on the granting of such relief should be imposed.

The Defendants

Mr Allen, counsel for the defendants, submits that on the face of the pleading which is wholly defective, the default judgment has been entered irregularly. Mr Allen noted that the "relief claimed" part of the pleading does not indicate whether it is a claim in debt or damages, what is sued upon or what orders are sought. He notes that the pleading does not specifically set out that, in fact, what is sued upon are two separate causes of action based upon two separate assignments of alleged debts owed by the defendants to different people (the first assignor and second assignor) arising out of one agreement between all of the parties.
Mr Allen took the court through the first amended statement of claim and submitted that the claim does not properly plead a debt, or, indeed, any cause of action with respect to amounts which were deposited into the bank account. He noted the bank account was in the name of a third party Casa de Amor community incorporated, which is not a party to the proceedings.
Mr Allen noted that pleading, in so far as it attempts to set out the facts matters and circumstances giving rise to the first and second debt, does not properly plead the basis upon which it is said that a debt arises. The document seeks to plead some sort of agreement apparently reached between the all of defendants and each of the assignors, on the same date, with respect to the deposit of the money belonging to each of the assignors into the bank account. He submitted that the pleading does not properly identify the terms of any such agreement, how it is said that any such agreement was breached, whether the breach sounded in damages and, if so, how those damages are calculated.
Mr Allen submitted that having regard to the pleadings in paragraph 9 and 17 of the first amended statement of claim, which paragraphs deal with the definition of the "debt" the following matters are not clear: 1. why the money was paid to the Association; 2. the terms and conditions on which any money paid into the bank account was paid; 3. why the Association would not be liable for any withdrawal of the moneys from its account by its officers; 4. whether it is said that the Association is party to any contract? If so, why is it not a party to the proceedings? 5. whether what is pleaded is in fact some sort of trust whereby the Association is holding the respective assignors money on trust. Whether this is the case would depend upon the basis on which the Association received the money.
Mr Allen submitted that the pleading was so defective that it did not disclose a cause of action on its face and was liable to be struck out. Mr Allen submitted that it is not necessary, in these circumstances, for the defendants to have put before the court a draft defence, nor an affidavit by the defendants setting out the basis or bases on which such a defence would be maintained, because the pleading itself does not disclose any cause of action. He asks rhetorically in circumstances where no proper cause of action has been disclosed, how can the defendants who do not know the case they have to meet, plead a defence?
In terms of delay between the entry of the default judgment and the bringing of the motion, Mr Allen submits that on the evidence the Court would not be satisfied that any of the defendants were served with the first amended statement of claim, nor knew of it prior to the entry of the default judgment. In those circumstances he says that on ordinary principles the defendants have been denied the opportunity to consider the pleading and make any applications they would have sought to make. In circumstances where parties have not been served with a pleading, Mr Allen submits they would be entitled to have the judgment set aside where they had no opportunity to appear and deal with the claim: citing Hoskins v Van Den-Braak [1998] 43 NSWLR 290.
With respect to the evidence as to service of the first amened statement of claim Mr Allen submitted as follows: 1. as to the fourth defendant, there is no evidence of service upon her. He submitted that the plaintiff relied upon the events of the 7th August 2018 as for service but she was only joined as a party to the proceedings on the 9th August. In so far as the evidence of the 9th August is concerned, Mr Allen submitted that whilst there is some evidence that there was process left outside the unit complex at Rosehill where the fourth defendant lived, there is simply no evidence it came to her attention so as to constitute personal service within the rules. 2. With respect to the second defendant Mr Allen submitted that there is no evidence of her being served personally. He notes that the plaintiff relies upon the attempted service as depicted in the video of the events of the 7th August 2018 (Exhibit 6). Mr Allen referred to UCPR rule 10.20(2) which notes that originating process (including a statement of claim) must be served personally. In so far as the plaintiff relied upon UCPR Part 10 r 21(2) Mr Allen says that the video does not depict any violence, or threat of violence, such that the person attempting service in that video was prevented from approaching the other person (here the second defendant) for the purpose of delivering that document. Further, he submitted that there is no evidence that the second defendant was at the scene depicted in that video at the time it was taken. He says on a proper construction of this rule, it must be that the party intending to rely upon it shows that the person on whom service is attempted to have been made, but could not be by reason of violence or apprehended violence, must be at the scene. Mr Allen submitted that in so far as the affidavit of Mr Miles of the 10th August 2018 is relied upon to prove service, the second defendant in paragraph 5 of her affidavit of 12 October 2020 denies having received any service of papers with respect to the claim. 3. As to the third defendant, Mr Brian Frugtniet, Mr Allen refers to his evidence where denied that he was the person shown in the video. Mr Allen says that the Court is in as good a position to decide whether or not the person depicted in the video is Mr Frugtniet as any of the other witnesses relied upon by the plaintiff. That is because the court saw the video and then saw Mr Frugtniet in the witness box in cross-examination. He further submitted that, in any event, the video quality was poor, it was dark and blurry and a proper identification could not be made on that basis. Mr Allen also referred to the evidence of Mr Frugtniet who said that he had left for the airport at 5:00 pm on the 7th August for an 8 or 8:30 plane departure to the Philippines. Mr Allen referred to the material tendered in the defendants' court book which showed that the third defendant entered the Philippines on the 8th August and was there for some time. Mr Allen submitted that if the Court otherwise was against him on these matters and found that the fourth defendant was depicted in the video that service had been effected on him and him alone. 4. With respect to the first defendant, Carmen Flowers, Mr Allen submitted that the evidence showed that she had not been personally served with the first amended statement of claim. The extent of the evidence was that this document had been left with her daughter. He says this is not personal l service as you cannot serve upon an agent and unless it is proved that the document came to her attention there is no service upon her. He says, in the alternative, if the court finds that there was service on the first defendant then because of the nature of the defects in the statement of claim this is irrelevant as she could not have filed a defence to such a defective document which is liable to be struck out.

The Plaintiff

Mr Miles submitted that there was no substance to the submissions made by the defendants that the first amended statement of claim was improperly pleaded. In relation to the attack on the first amended statement of claim made by the defendant's, Mr Miles handed to the Court a document headed "Principles of Pleading". I accept that that document sets out relevant principles of pleading, however, those principles of themselves do not specifically address the matters raised by the defendants.
In oral submissions, Mr Miles said that the first amended statement of claim properly pleads an agreement between all of the defendants and the two assignors. That agreement was that the assignors' money would be placed into the third party Associations bank account to "keep safe" and that there was an "oral guarantee" given by each of the defendants that the money would be kept safe.
Mr Miles submitted that, properly understood, the pleading discloses that if one party withdrew money from the account then that became a debt owed by all of the defendants to the assignor. I assume by this that Mr Miles meant that each time a defendant withdrew money from the Association's bank account without the consent of the assignors, that amount became a debt owed by each of the defendants.
Mr Miles submitted that the statement of claim clearly, with precision and succinctly set out the agreement such that the defendants understood the case that they had to meet. He submitted that the court should take the statement of claim at its highest when considering whether or not it properly discloses a cause of action.
With respect to service of the first amended statement of claim on the defendants, Mr Miles submitted that the second and third defendants were personally served on the 7th August 2018 in the incident depicted in the video (being Exhibit 6). Mr Miles conceded that service was not effected on that night on the 4th defendant but that she was served on the 9th August.
With respect to the events of the 7th August 2018 as disclosed by the video, Mr Miles submitted that it was clear that the person on the video was Mr Brian Frugtniet. He submitted that the court should not accept Mr Frugtniet's evidence that he was not in Australia at that time and that the court should not accept the authenticity of the stamp in the in the copy of Mr Frugtniet's passport which showed that he was in the Philippines on the 8th August. Mr Miles says that there was no evidence on which the court can rely to find that Mr Brian Frugtniet had left Australia on the 7th August and that there was no boarding pass of the flight or a bank statement showing payment of the airfare which would support such an argument.
Mr Miles says that the Court can be comfortable in finding that the person depicted on the video of 7th August is Mr Brian Frugniet by reference to the evidence of Ms Arocha and Ms Angeles. Those persons, being the assignors, had signed affidavits saying that they knew Mr Frugtniet, had watched the video and that the person on the video was Mr Brian Frugtniet.
Mr Miles further submitted that the video showed that Brian Frugtniet was a "violent person" and that he had acted in the manner to prevent service upon him and others on that night. Mr Miles said that this engages the operation of UCPR rule 10.21(2).
Mr Miles submitted that, contrary to Mr Frugtniet's evidence, the person depicted in the video cannot be Mr Frugtniet's brother Rudy. Mr Miles relies upon photographs which apparently depict Mr Frugtniet's brother Rudy (see for example Exhibit 5) and that the court can clearly see that the two brothers are not "lookalikes" as Mr Brian Frugtniet suggested. Mr Miles also submitted that the failure to call Mr Rudy Frugtniet enables an inference to be drawn that nothing that he could have said would have assisted the defendant's in respect to the events on the evening of 7th August: see Jones v Dunkel (1959) 101 CLR 298.
As to personal service generally, Mr Miles relied upon the decision of Elcham v Darling Island Sydney [2005] NSWSC 448 and Ainsworth and others v Redd (1990) 19 NSWLR 78. He says that every effort was made to bring the further amended statement of claim to the attention of each of the defendants. It was pointed out to Mr Miles, however, that these decisions related to the old Supreme Court rule Part 9 r 11. That rule has an equivalent in the UCPR at rule 10.14(3), however, no application was made by Mr Miles to seek to rely upon this rule for an order that service was taken to have been effected on a particular date.
Finally, with respect to service of the first defendant, Mr Miles relies upon the affidavit of the first defendant sworn 10 December 2020 (Exhibit A). Mr Miles submits that this shows that the first amended statement of claim had come to Ms Flower's attention. However, I note that that paragraph 3 (g) and (h) indicate that she did not become aware of the first amended statement of claim on her return from overseas on or about 9 August 2018, even though her daughter had told her that legal documents had been served.

The Pleading

In my opinion, the first amended statement of claim on its face does not disclose a proper cause of action, is embarrassing and does not comply with the pleading requirements of UCPR (for example see UCPR Part 14 r 7). In so far as it purports to rely on some "agreement" between the assignors and the defendants, the pleading does not properly plead the terms of any such agreement. For example, it does not plead the terms upon which it was agreed that any money would be paid into the third party Association's bank account, the purpose of the payment of such money, the terms on which any of that money could be withdrawn and whether or not if one party withdrew the money why that would constitute a debt owed by all of the defendants to the assignors. The assertion that the money was to be deposited for "safe keeping" raises more questions than it answers.
Further, the terms and conditions of any oral "guarantee" are not specified in the pleading. In any event, in so far as any money of each of the assignors was paid into the Association's bank account by reason of such an agreement, it seems to me that what is alleged is that the defendants breached that agreement by withdrawal of some or all of those moneys without the consent of the respective assignors. If that is right, then each breach (assuming that a breach would occur on each occasion that money was withdrawn without the respective assignor's consent) may give rise to a claim damages by the relevant assignor for such a breach. That the damages may be able to be quantified does not necessarily make the claim a claim for a debt or a liquidated claim: see authorities at [16] above.
The pleading does not deal with the question of whether, when money was withdrawn from the bank account at various times, supposedly without the consent of either of the assignors, that money belonged to the first or second assignor. Apparently, after the agreement reached on 20 June 2017 between all the parties, the first assignor deposited money into the Association's account on 4 December 2017. The second assignor deposited money into the account on 4 occasions between 4 December 2017 and 5 January 2018. It was the Association that held, in its account all of the money. There were no sub-accounts. According to the pleading, withdrawals were then made from the account by cheques (presumably drawn on the account) totalling $1,438.00 signed by the first assignor in December 2017 and by cheques totalling $11,250.00 signed the second assignor also in 2017. The balance of the "debt" claimed was for money withdrawn on the "spending spree(s)" embarked upon by the defendants (which defendant not being specified) pleaded in [7] and [15] of the document. There is then the bald allegation in [9] and [17]) that as a result …" of the defendants' action the defendants jointly and severally owes the debt plus interest and incidental expenses to the assignor".
The pleading does not properly set out the relevant material facts necessary to establish that any use by each (or all) of the defendants of the money held in the Association's account could constitute a debt owed by each of the defendants jointly and severally to the respective assignors so as to constitute the "first debt" or the "second debt" as pleaded.
In my opinion, at the time any defence was due to be filed to the first amended statement of claim (assuming it had been personally served on each of the defendants) no reasonable defendant could have ascertained from that document whether the amounts claimed were justified, or what cause of action was relied upon so as to enable them to understand the claim that they were to meet. These are not merely technical pleading points but, rather, matters of substance going to the heart of the pleading itself. In my opinion, therefore, the failure to plead these material facts and the defects in the pleading as identified constitutes an irregularity within the meaning of Part 36 r 15 of the UCPR.
The question then becomes whether or not the court should exercise its discretion to set aside the default judgment. UCPR rule 36.15 on its terms requires "sufficient cause" to be shown to set aside a judgment that was entered irregularly. As Sackville AJA observed in paragraph [82] of Arnold v Forsythe, ibid, Gzell J in the decision of Fenato v Chief Commissioner of State Revenue, ibid, did not need to decide whether a failure to plead material facts entitled a defendant to have a default judgment based on that pleading set aside ex debito justitiae. In [83] - [84] of Arnold, Sackville AJA said: [83] I do not read the decision in Fenato v Chief Commissioner as establishing that a failure to plead any material fact in a statement of claim will necessarily constitute an irregularity for the purposes of r 36.15. The significance of such a failure may depend on the nature of the material facts omitted and whether the pleading, despite the omission, sufficiently identifies the case pleaded against the defendant. If it were otherwise, challenges to default judgments could be made in cases where the pleading defects were of little practical importance and created no prejudice to the defendant. If a pleading defect entitles a defendant as of right to set aside a default judgment based on the pleading (a matter left open in Fenato v Chief Commissioner), applications to set aside judgments are likely to turn on fine pleading points in a context divorced from that in which the relevant principles were developed. [84] In the present case, however, the omissions in the statement of claim went to the very foundations of the respondents' cause of action against the appellant. By reason of the omissions, the case the appellant was required to meet was not clear. On the authority of Fenato v Chief Commissioner, this would have been a sufficient reason to conclude that the default judgment had been given irregularly. In a case where the appellant has an arguable defence, the appropriate order would have been to set aside the default judgment."
The last sentence of the passage in [84] from Sackville AJA's reasons referred to above, raises the question as to whether, in order to have the default judgment set aside as having been irregularly entered, the defendants need to show that they had an arguable defence. This appears to have been one of the issues left open by Gzell J in Fenato.
In my opinion, at least in the circumstances of this case, the defendants are not required to demonstrate an arguable defence. Indeed, having regard to my conclusions as to the defects in the pleading, how could they?
In this case, it seems to me, the nature of the material facts omitted in the pleading and my conclusion that the pleading as drafted does not sufficiently identify a proper cause of action pleaded against the defendants, must have the consequence that the default judgment based upon that pleading should be set aside ex debito justitiae. This is not a case of a pleading defect or defect of little practical importance which created no prejudice to the defendant. Further, it is not a case where the application to set aside the judgement is based upon a fine pleading point. Rather, here, the pleading is so defective that the defendants, at the time that they were to have filed their defence, could not properly have understood the cause of action they were to meet and could not thereby have properly been able to file a defence to that document. At best they would have been able to file a document which simply did not admit the allegations in the defective pleading.
In my opinion, however, that they could have filed such a defence to a completely defective pleading (which really does nothing to illuminate the real issues in dispute) is not sufficient to conclude that the default judgment should not be set aside. To hold otherwise, it seems to me, would be inimical to the proper consideration of sections 56-58 of the Civil Procedure Act 2005 (NSW) which require the court to ensure the just, quick and cheap resolution of the proceedings and to follow the dictates of justice in making any order with respect to the management of proceedings before it.

Service

If I am wrong in my conclusion that as the pleading does not disclose a cause of action against the defendants the default judgement (in this case) has been entered irregularly and is thereby liable to be set aside, then the question of whether or not the first amended statement of claim was personally served on each of the defendants comes squarely into play. If the defendants satisfy me that personal service had not been effected, this ought to constitute sufficient cause within UCPR rule 36.15 as to why default judgment entered upon the defective pleading should be set aside.
Alternatively, the failure to personally serve the first amended statement of claim would of itself be a sufficient reason to set aside the default judgement as the defendants had been denied natural justice and an opportunity to meet the claims made.
The evidence with respect to service of the first amended statement of claim is, on the whole, unsatisfactory. The court is faced with affidavits of service which did not properly prove service of the document on the defendants. Those affidavits were, in part, ruled inadmissible because they did not set out the basis on which the person who was said to have effected service knew that the persons allegedly served with the process were the defendants. Such defective affidavits should not be put before the court registry in support of applications for default judgment.
In order to try to cure these defects, the plaintiff deployed the video of the incident on 7th August 2018 (Exhibit 6) in an attempt to prove service of the first amended statement of claim on Mr Brian Frugtniet and Ms Suzanne Frugtniet. The plaintiff, with leave, also cross examined Mr Frugtniet.
At the outset, I observe that the quality of the video itself was poor. I accept the defendants' submission that the lighting was poor and the video was shaky.
Mr Brian Frugtniet, when cross examined, gave direct evidence that the person in the video was not him but was his brother Rudy. He said that Rudy was often described as his "lookalike" brother. Mr Frugtniet said that he left the home unit complex where the video was taken at about 5 or 5:30 that afternoon well before the time that the video was taken. He said that he had an 8 or 8:30 flight to the Philippines and arrived in the Philippines the next day, 8 August 2018. There is evidence by way of a copy of his passport containing entry stamps to the Philippines which corroborate this fact. I reject the plaintiff's submission that the court should find that the Philippines entry stamp in the copy of Mr Frugtniet's passport was a fake. There is no basis to make such a finding and this was not put to Mr Furgtniet in cross-examination.
In support of its submission that the person in the video is, in fact, Mr Brian Frugtniet, the plaintiff relies on the affidavits of Ms Erlinda Arocha and Ms Anita Delos Angeles both made 8 January 2021. They are the "assignors". They each deposed to having known Mr Frugtniet. They each depose to having watched the video and state that the person in the video is Mr Brian Frugtniet. It seems to me, however, that I am in as good a position having seen Mr Frugtniet in the witness box and observed the video to determine for myself whether or not the person in the video was indeed Mr Frugtniet. As such, whilst that evidence is relevant, I do not place significant weight upon their evidence.
In order to positively find that the person in the video was Mr Frugtniet, I would not only need to be satisfied that the person I saw in the witness box was the same person in the video, but I would also need to find that Mr Frugtniet gave deliberately false evidence to the court that he was not the person in the video. I would need to find that he gave deliberately false evidence to the court in saying that he had left the site at 5 or 5:30 that afternoon in order to travel to the Philippines.
I carefully observed Mr Frugtniet's demeanour in the witness box and although he was obviously agitated by the suggestion that he was lying, and was animated in his evidence, I did not form the view that he entered the witness box and gave deliberately and brazenly false evidence with respect to these matters. Whilst I accept there is a similarity between his appearance and the appearance of the person in the video, and that it is unclear from the photographic evidence that he looks exactly like his brother, there is evidence that he did leave Australia on the 7th August and arrived in the Philippines on the 8th August. I am not prepared in these circumstances to make a finding that he deliberately lied to the court when he denied being the person in the video. In these circumstances, I am not satisfied by reason of the events depicted in the video that the plaintiff had personally served the amended statement of claim on Mr Frugtniet on 7th August 2018 in accordance with the UCPR.
Even if I am wring in that conclusion, and it is Mr Frugtniet in the video, whilst I would then accept that he was personally served with the first amended statement of claim at the time of the events in the video are depicted by leaving a copy of the document in his presence (see UCPR Part 10 r 21) I do not accept that personal service was effected on Suzanne Frugtniet (or any of the other defendants) at this time.
First, I do not accept that the video depicts violence or a threat of violence such that the person attempting service of the document at that time was prevented from approaching any of the other defendants for the purpose of delivering the document to those defendants within the meaning of UCPR Part 10 r 22(2). Second, and in any event, there is no evidence that Suzanne Frugtniet or any of the other defendants were at the site at that time such that, even if I was satisfied that there was violence or an apprehension of violence, that the person attempting service was prevented from serving them personally.
I also do not accept that, on the evidence before me, the first amended statement of claim was personally served on the other defendants. In so far as reliance is placed by the plaintiff on the affidavit of Mr Miles of 10 August 2018, all that affidavit proves is that on the 9th August 2018 he attended the premises at 57-61 Penelope Lucas Lane Rosehill, NSW and left three copies of the first amended statement of claim there. The affidavit only proves that Mr Miles left the documents at the front door "of the residence" - being four units consisting of unit 1 through unit 4 and that some unidentified person said that they would not open the door. I am not satisfied that this would constitute person service on Mr Brian Frugtniet or Suzanne Frugtniet or Mary Rose Salubre being the second, third and fourth defendants.
Further, with respect to the purported service on the first defendant, I am not satisfied that the matters deposed to by Mr Miles in paragraph 5 -7 of his affidavit of 10 August 2018 prove personal service on the first defendant. As I have observed above, the first defendant denies being aware of the statement of claim or reading it at or about that time or, indeed, until she attended her solicitor's office in 2020, she was not cross-examined on this evidence and I accept it.
In those circumstances, in so far as the question of personal service on the defendant is relevant to whether or not sufficient cause to set aside the default judgment by reason of its irregularity is established, I am satisfied that the evidence does not establish that the document was personally served on any or all of the defendants within the meaning of the rules either on 7 August or 9 August 2018. As such, in regard to my conclusions on the defects in the pleading which constitute an irregularity within the meaning of the rules, I conclude that should it be necessary, sufficient cause has been shown to set aside the default judgment. Further the failure to personally serve the first amended statement of claim on the defendants would, of itself lead me to set aside the default judgment.

Delay

In so far as the question of delay is concerned, it cannot be overlooked that it has been more than 2 ½ years since the default judgment was entered and the defendants' application was only filed in November 2020. Having regard to my conclusions on the defects in the pleading and the failure of the plaintiff to establish proper personal service, the question of delay becomes less relevant (if relevant at all). I note, however, that the evidence of two defendants is that they only became aware of the statement of claim when in late 2020 (see for example the affidavits of Carmen Flowers sworn 12 October 2020 and 15 October 2020; affidavits of Suzanne Frugtniet sworn 12 October 2020 and 15 October 2020). I do not think that there is any sufficient delay from the time those two defendants they became aware of the proceedings until they filed their motion seeking to have the default judgment set aside.
The evidence does not establish when the other defendants became aware of the proceedings, however, having regard to my conclusions on service I do not think this is material. I do note that Mr Miles referred to several garnishee orders which had been made against some of the defendants and as a result of which amounts had been garnisheed from bank accounts in the names of those defendants. Mr Miles said this must have caused those defendants to ask questions as to why those amounts were deducted. The evidence is, however, silent on those matters and I do not think that this is enough on the state of the rest of the evidence, to otherwise affect the exercise of my discretion to set the default judgment aside.
In any event, I observe the comments of Dixon CJ in RT Company Pty Ltd & Ors v Minister of State for the Interior (1957) 98 CLR 168 where at 170, the Chief Justice said in respect to the issue of a delay of less than a year between the entry of a an irregular default judgment and an application to set it aside: "I have had some doubt as to the course I should take having regard to the delay and to the attempted use made of the existence of the judgment in the proceedings before Fullagar J. But I think that I ought not to allow the delay or the course taken by the defendants before Fullagar J. to operate to keep on foot against the defendants an irregular judgment imposing on them a liability jointly to which the claim did not extend. It is an irregular judgment and ought not to be on the records of the Court notwithstanding that I can see that the imposition of a joint liability is probably a matter which has no great practical importance. But I think that so far as the delay affected the course afterwards taken by the plaintiff I may take it into account in imposing terms and that I will proceed to do"
In this case, any delay would not be such that the courts discretion to set aside what is otherwise an irregular judgment should be refused. The judgment is based upon a pleading which I have found to be manifestly hopeless. It has therefore been entered irregularly and should not be permitted to remain on the court file or be executed.
I should also note that by reason of the garnishee orders previously mentioned, the default judgment has, in part, been executed. A default judgment may be set aside even if it has been substantially but not irreversibly executed: Goater v Commonwealth Bank of Australia (2014) 88 NSLWR 362; [2014] NSWCA 382. There is no application before the court to recover or otherwise to deal with the amounts which have been garnisheed from some of the defendants' bank accounts. That will be a matter for the defendants to take up if they wish.
Having regard to my conclusions with respect to the pleading, I also considered whether the court should of its own motion strike out the pleading pursuant to UCPR rule 14.28. I do not propose to make such an order. Whilst the defendants submitted that the pleading was liable to be struck out, there is no formal prayer for relief in the motion seeking that relief. The plaintiff will, no doubt, be cognisant of my observations with respect to the form and content of the pleading and make its own decision as to whether or not it seeks leave to further amend that document. Likewise, the defendants may if they so choose bring whatever application they are so advised with respect to the form of the current pleading if the plaintiff does not chooses to seek to amend it.

ORDERS

For the above reasons, the court makes the following orders: 1. Make order 1 in the Notice of Motion filed by the Defendants on 6 November 2020 such that the default judgment entered on 21 September 2018 is set aside. 2. The costs of the motion be the defendants' costs in the cause. 3. The defendants' motion filed 6 November 2020 is otherwise dismissed. 4. Any party wishing to vary order (2) above has leave to apply on 3 days' notice by arrangement with my Associate.

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: 14 April 2021

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (10 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (11)

Cited By (1)