Plaintiff v Defendants

1 The first defendant applies by summons dated 21 March 2013 to set aside judgment entered in default of defence. Default judgment for a debt was entered in default of defence on 11 February 2013, and was done so on the basis of the affidavit of Mr Bill Velos, sworn that day.

2 It has not been suggested that the judgment entered was irregular. Thus, the tests to be applied for the setting aside of the judgment are:

(a) whether the first defendant has a defence on the merits;

(b) the reason for the default of the defendant in consequence of which the judgment was obtained, in this case the failure on the part of the first defendant to file a defence;

(c) whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the first defendant; and

(d) whether, if the judgment is set aside, the plaintiff would be prejudiced in any respect which could not be adequately compensated for by a suitable award of costs and the giving of security. See Rosing v Ben Shemesh,[1] and Kostokanellis v Allen.[2]

3 The facts in this case are set out in the statement of claim filed with the writ. The case against the first defendant, as distinct from the case against the first defendant and the second defendant, turns upon the entry into a loan agreement in September 2011. The loan agreement is in evidence, in an executed form, as an exhibit to the affidavit of Mr Bill Velos sworn 8 April 2013 (the "second loan").

4 The plaintiff claims that a payment received from the defendants of $119,281.59, paid in early July 2012, was used by the plaintiff to repay an earlier loan made to one Jill Duggan, the wife of the first defendant (the "first loan"), and partly in reduction of the second loan (which was made to a company called Equicorp Group Pty Ltd and guaranteed by the first defendant), but not entirely, leaving a balance owing of some $72,704.49. It is for that sum, together with interest and costs, that judgment was entered in default of defence.

5 The first defendant has filed three affidavits, two sworn by his solicitor, Christian DalyThomson, (sworn on 21 March and 9 April 2013), and an affidavit of the first defendant himself sworn on 8 April 2013.

6 As to the first requirement, namely, whether the first defendant has defence on merits, it seems to me that the first defendant has established by his affidavits that payment of $119,281.59 to which I referred earlier, was paid in reduction of the second loan (made in September 2011), which was evidenced in the loan agreement exhibited to Mr Velos' affidavit. It seems to me that on a prima facie basis, there is defence on the merits to that claim because in the emails attached to the affidavit of Christian DalyThomson sworn 9 April 2013, it emerges quite clearly that the sum of $119,281.59 was intended as, and allocated to, payment of that second loan.

7 I am fortified in that view by correspondence exhibited to the affidavit of Mr Velos sworn on 8 April 2013, and in particular, the correspondence to which he refers in paragraphs 5 and 6 of that affidavit. What had happened is that under the second loan agreement of September 2011 there was an agreement by the first defendant to charge land owned by him to support his guarantee. Pursuant to that agreement, the plaintiff had lodged a caveat on the title to the land, being 126 Baden Powell Drive, Mt Eliza in the State of Victoria. It emerges that the solicitors acting on behalf of the first defendant at that time, Morley Naughton Pearn & Cook, had certified pursuant to s 89A of the Transfer of Land Act 1958, resulting in notice being sent by Registrar of Titles pursuant to that section. That provoked Mr Velos to write on 12 September 2012 a letter, exhibit DV2 to his affidavit of 8 April 2012, noting that the certification by the first defendant's solicitors pursuant to s 89A that the caveator does not have an estate or interest as claimed, and asserting that that is completely at odds with a written agreement executed by Mr Duggan. He requested that Mr Duggan's solicitors review the position and withdraw the certification.

8 The response from Mr Duggan's solicitors, Morley Naughton Pearn & Cook, was by letter dated 13 September 2013, in which they advised that "Our client instructs us that the total debt and interest amounting to the sum of $119,281.59 has been paid to your client by his previous solicitors, Balfe & Webb, in July 2012 in full payment of the loan". That is a reference to the payment referred to in the affidavit of Mr Christian DalyThomson, in particular, in an email from Mr Coxon, the plaintiff, to one S.G. Duggan (which I infer to be Jill Duggan) and others, as relating to the second loan. In those circumstances, there is not much doubt that there is a prima facie defence, and a strong one, to the debt the subject of the default judgment.

9 As to second requirement, that is the reason for the default of the first defendant in consequence of which the judgment was obtained, the evidence of both the first defendant and his solicitor, leaves a good deal to be desired. In paragraphs 5 and 6 of the affidavit of the first defendant, Stephen Geoffrey Duggan, sworn 8 April 2013, Mr Duggan deposes that on 13 February 2013 he met with his solicitor, Christian DalyThomson and at that meeting said to him:

(a) I had been advised by my former solicitor, Morley Naughton Pearn & Cook that the most cost effective way to deal with the plaintiff's statement of claim was not to defend it;

(b) My former solicitors had ceased acting on my behalf and had advised the plaintiff that I did not intend to defend the plaintiff's statement of claim; and

(c) I believe that I had a valid defence to the statement of claim and wished to file and serve a defence.

10 Then in paragraph 6 of Mr Duggan's affidavit he says:

On 13 February 2013, after the meeting, I had telephone conversation with Mr DalyThomson in which he informed me that he had spoken with Mr Bill Velos of Velos Lawyers and had been advised by Velos that plaintiff had already entered judgment in default against me. I was not aware that judgment in default had been entered against me until this conversation with DalyThomson.

11 He then deals in the affidavit with obtaining information and documents relevant to his defence of the proceeding.

12 The former solicitors, Morley Naughton Pearn & Cook, filed their Notice of Ceasing to Act as solicitor for the first defendant on 25 January 2013. It would seem therefore likely that the advice received by the first defendant that the most cost effective way to deal with plaintiff's statement of claim was not to defend it, was received at some time shortly prior to the filing of that Notice of Ceasing to Act. But it is not clear, and I make no express finding in that regard, but do observe that in relation to the explanation for the default, the explanation is incomplete.

13 It appears, therefore, that the failure to file a defence was a deliberate act on the part of the first defendant, on the advice of his solicitor, and that for some reason which is not explained, he had a change of view and sought further advice of Mr DalyThomson on 13 February 2013, over three weeks after the Notice of Ceasing to Act was filed.

14 The fact that at one point the first defendant was advised that the best way of dealing with the matter was not to defend it would seem, having regard to the letter of 13 September 2012 (referred to above in paragraph 8), where those same solicitors clearly advanced the proposition to Mr Velos that that debt had been repaid, that it must have arisen from a mistake.

15 It is clear that the third requirement has been satisfied, namely the application to set aside judgment was made promptly after the judgment came to the knowledge of the first defendant.

16 The final requirement concerns whether or not the prejudice suffered by the plaintiff, if the judgment were to be set aside, could be adequately compensated for and if so, in what way. Clearly, in the ordinary course in applications of this kind, it is appropriate, except in special circumstances, that the costs thrown away and costs of the application to set aside the judgment be paid by the defendant applying. Mr Tsalanidis of Counsel for the plaintiff submitted that this was a case where, if it was appropriate to make an order setting aside the judgment, the order should be conditional upon the giving of security for the amount in question, or the payment of that amount into Court. He referred me to cases referred to in Williams Supreme Court Practice, in particular at paragraph 21.07.60. But he did not put any of those cases to me in particular, save for referring to Kostokanellis v Allen.[3] In that case the Full Court observed:[4]

What emerges from these authorities is that under a rule such as O.5, r14, what the judge is required to do is to determine what, in his opinion, is the just way in which the court's discretion should be exercised. To do this must involve weighing up the extent to which the defendant is prejudiced by allowing the order and judgment to stand and the prejudice to the plaintiff in setting them aside. In many cases the situation will be that the plaintiff will not suffer any prejudice that cannot be remedied by an appropriate order as to costs. So far as the defendant is concerned, if he is unable to comply with r14(b)[the requirement to show defence on the merits], the order and judgment cannot be set aside and there would appear to be little purpose in doing so. On the other hand, if the defendant does show on affidavit a prima facie defence on the merits it would seem that usually he will be seriously prejudiced if he is debarred from being able to present his defence at a trial of the action. One cannot tell until this has been done whether or not the defendant will succeed in such a defence. While it is undoubtedly relevant to the judge to consider what explanation the defendant has for not appearing on the return of the summons of final judgment, the weight to be attached to his explanation will depend upon the circumstances. Thus, for example, where the explanation shows that his non-appearance was due to some mistake or to his being misled, this may well assist the court in deciding to exercise its discretion in his favour. Again, the explanation given may reflect on the question whether the defendant has made out a prima facie defence on the merits. However, it does not necessarily follow that if the explanation does not amount to something which can be categorized as a "sufficient reason" the defendant's application should fail. It must all depend on the circumstances. In this connexion, reference may be made to passages in the judgment of Smith, J, in Shepperdson v Lewis, [1966] VicRp 59; [1966] VR 418, at pp. 423-4, where, in dealing with the discretion to be exercised on an application to dismiss an action for want of prosecution, it was pointed out that the adoption of a formula created by erecting what are merely relevant factors into arbitrary principles so as to allow the automatic production of a solution in all but the exceptional case, is a quite fallacious approach to the exercise of a discretion.

We think the conduct of Mr.Powell [who was the solicitor for the appellant] is not beyond criticism, but we do not find it necessary to submit this to further analysis for it may be noted that as long ago as 1938 Martin, J, said in Collins Book Depot Pty. Ltd. v Bretherton, [1938] VicLawRp 11; [1938] VLR 40, at p. 44; [1938] VicLawRp 11; [1938] ALR 87, that: "In general, where default is due to the carelessness of a party's solicitor, the party is not penalised to the extent of being shut out from litigating his claim or defence." This statement was referred to with approval by Jordan, CJ, in Vacuum Oil Co. Pty. Ltd. v Stockdale, supra, at p. 243 and we ourselves think that it is correct.

We do not consider that this case requires any further examination of the question whether a party to an action should be held responsible for the conduct of his solicitor although it is a question which in other areas has on a number of occasions engaged the attention of the Court at first instance and before the Full Court...We consider that, in the present case, the solicitor's conduct was not such that even if one identified the appellant with his solicitor would be sufficient to persuade us that the Court's discretion should be exercised against the appellant. The solicitor's decision was a "deliberate" one, but at worst against him it was an error of judgment and there are no compelling reasons for depriving the appellant of his right to defence because of this. Mr. Smith, as we have already indicated, sought to turn the situation against the appellant by arguing that it was he who was responsible for putting Mr. Powell in a quandary on 20 February and that, therefore, he should be held personally responsible for the non-appearance. But we do not consider that the somewhat curious events of 19 and 20 February weigh much in the scale against the appellant personally.

Further, we note that in Rosing v Ben Shemesh, supra, at 177, the Full Court thought poorly of the reasons given by the defendant in that case for not being ready to proceed when the trial had been called on, but did not hesitate to set aside the judgment though they said the defendant should be put on strict terms.

18 Having regard to the evidence of the second loan being repaid (by the payment of $119,281.59), appearing to be reasonably strong and consistent with the position as adopted on behalf of the first defendant through his former solicitors in September 2012, I do not think that this is a case that warrants the imposition of a condition of payment into Court of the amount in question or the giving of security. As the Full Court in Kostokanellis v Allen[6] explained (at 605):

It does not necessarily follow that if the explanation does not amount to something which can be categorised as a sufficient reason the defendant's application should fail. It must all depend on the circumstances.

19 There is another aspect which is relied upon by Mr Tsalanidis on behalf of the plaintiff, and that is a claim for misleading or deceptive conduct, which is advanced in paragraphs 10 to 14 of the statement of claim. It turns on the proposition that the second defendant, David James Andrews, who is the brother of Jill Duggan, and therefore the brother-in-law of the first defendant, induced the plaintiff not to call up the first and second loan when due and payable, by making representations as set out in paragraph 10 of statement of claim. These representations are said to have been relied upon and to be false and to give rise to damages under the Australian Consumer Law[7] and the Fair Trading Act 1999.

20 Mr DalyThomson, who appeared on behalf of the first defendant, submitted the facts do not support the proposition that, in making these alleged representations, the second defendant was acting for the first defendant. He pointed to the emails that are said to comprise, in part at least, the written aspect of those representations, that they did not appear to involve the first defendant at all, either expressly or by being copied to him. Moreover, they disclose that at the time they were given, the first defendant and his wife, Jill Duggan, were estranged. It seems to me that there is a matter to be investigated in relation to that aspect of the matter, but that the existence of the claim is not a sound reason to require the judgment sum to be paid into Court as a condition of setting aside the judgment. I note, however, that it is common ground that any claim for damages based upon that misrepresentation case do not sustain the judgment that has been entered. Any judgment on the claim based on the representations, if it were entered, would have to be for damages to be assessed. The only basis for the claim giving rise to the default judgment is the claim for the debt of $72,704.49 plus interest.

21 In all the circumstances, it appears to me to be a case where the first defendant is entitled to have his day in Court. There was some suggestion that the first defendant is without means. I note in relation to that matter, that it is not a ground to require payment into Court that the defendant is impecunious. That is referred to in the notes to Williams, Supreme Court Practice, at paragraph 21.07.60 and where Conners v Acheron Pty Ltd (No 2)[8] is cited. The mere fact that it may be that the first defendant is impecunious is not, in my view, a sufficient reason to require the giving of security or the payment of the judgment sum into Court.

22 For the reasons I have expressed, I propose to set aside the judgment entered in default of defence and to do so on the usual basis that the second defendant pay the plaintiff's costs thrown away and the costs of and incidental to the application.

[1] [1960] VicRp 28; [1960] VR 173.

[2] [1974] VicRp 71; [1974] VR 596.

[3] [1974] VicRp 71; [1974] VR 596.

[5] Ibid 606-7. See also Xiao Hui Ying v Perpetual Trustees Victoria Ltd [2012] VSCA 316.

[6] [1974] VicRp 71; [1974] VR 596.

[7] Competition and Consumer Act 2010 (Cth), Sch 2.

[8] [1966] 1 Qd R 243.