Racovalis & Ors v Rescom Mortgages Pty Ltd & Ors [2010] VSCA 55

1 This is an application on summons by the applicants pursuant to s 74(2D) of the County Court Act 1958 (Vic), seeking leave to appeal the decision of Judge Ginnane of 7 December 2009 in the County Court of Victoria. His Honour allowed a second application by the first respondent, Rescom Mortgages, to set aside a judgment in default of appearance entered against it by the applicants on 9 June 2009 ('the default judgment').

2 The application arises out of a proceeding commenced by the applicants on 21 May 2009 in the County Court of Victoria to recover loss and damage alleged to have been suffered as a result of the first respondent's negligent misstatement and misleading and deceptive conduct in breach of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1999 (Vic). The applicants allege that they suffered loss and damage as a result of providing second mortgage finance through the first respondent to two borrowers. They allege that they provided the finance in reliance on representations made by employees or representatives of the first respondent (the second and third respondents) about the security of the loans.

3 On 9 June 2009, the applicants regularly obtained a default judgment against the first respondent in default of appearance.

4 On 3 September 2009, the first respondent made an application before Judge Davis to set aside the default judgment, pursuant to r 21.07 of the County Court Civil Procedure Rules 2008.

5 In the application before Judge Davis, the first respondent relied on two affidavits. In an affidavit sworn on 2 September 2009, a director of the first respondent deposed that the first respondent was not the correct defendant in the proceeding and that when it received the writ, it passed the writ on to the correct defendant, Rescom Commercial Finance Pty Ltd, to be dealt with. In a second affidavit sworn on 2 September 2009, Erin Martin, the solicitor for the first respondent at that time, stated that she had been instructed that proceedings had been issued against the wrong entity and that the first respondent had ignored the writ and statement of claim because it understood that Rescom Commercial Finance Pty Ltd was handling the matter.

6 Judge Davis dismissed the application on the basis that the first respondent had not given an adequate explanation for its failure to file an appearance and she was not satisfied that there was an arguable defence that carried some degree of conviction ('the first order').

7 On 15 September 2009, the first respondent filed a second application to set aside the default judgment, supported by further affidavit material. The second application was heard by Judge Ginnane on 18 and 23 September 2009. His Honour handed down judgment on 7 December 2009 setting aside the default judgment.

8 Before his Honour, the applicants submitted that the second application to set aside the default judgment was incompetent and an abuse of process. The only option for the first respondent was to appeal against the dismissal of the first application to set aside the default judgment. The applicants submitted that the dismissal of the first application, though it was interlocutory in nature, constituted a final and conclusive decision for the purposes of s 73 of the County Court Act 1958.

9 Judge Ginnane rejected the submission that s 73 precludes the making of a second application to set aside a default judgment. He determined that the question should instead be resolved by applying the principles relating to abuse of process. His Honour then identified and weighed up the considerations relevant to the principles applicable to abuse of process. He concluded that the second application to have the default judgment set aside was not an abuse of process. It would be in the interests of justice to allow the second application to proceed and be determined, and it would not be in the interests of justice to dismiss it without hearing and determining it.

10 Judge Ginnane then turned his mind to the considerations for the exercise of the discretion to set aside a default judgment conferred by r 21.07. His Honour found (in summary) that:

(a) The first respondent had given reasons and an explanation for failure to file an appearance;

(b) The first respondent's delay in making the application was not of sufficient degree to justify a refusal to set aside the default judgment; and

(c) The defences sought to be raised by the first respondent were arguable defences.

11 Section 74(2D) of the County Court Act 1958 provides that an appeal does not lie to the Court of Appeal from a judgment or order of the County Court in an interlocutory application. In setting aside the default judgment, Judge Ginnane made an interlocutory order that does not as a matter of law finally dispose of the rights of the parties.[1]

12 The applicants therefore require leave to appeal. In order for leave to appeal to be granted, the applicants must establish that the decision of Judge Ginnane is attended with sufficient doubt to warrant it being reconsidered on appeal, and that substantial injustice will be caused to the applicants if the decision of Judge Ginnane setting aside the default judgment is allowed to stand.

Section 73 of the County Court Act

13 Section 73(1) of the County Court Act provides:

Every judgment and order made in any civil proceeding by the Court, except as in this Act provided, shall be final and conclusive between the parties.

14 The applicants contend that the effect of s 73 is that the first order was final and conclusive. Section 73 therefore represents a bar to any second or subsequent application to have the default judgment set aside.

15 Judge Ginnane rejected the applicants' submissions with regard to s 73 and both counsel referred to paragraph 27 of his Honour's judgment as encapsulating the rejection of the applicants' submission on this point. His Honour said:

In my opinion, a judgment or order of the Court, whether interlocutory or final, is final and conclusive, in that except as provided by the Act or the Rules of the Court, such a judgment and order cannot be varied, re-opened or set aside by the Court. A judgment of the Court, whether made as a result of a default or otherwise, is binding on the parties. That, however, is a separate issue from the question of whether the Court can exercise its jurisdiction on more than one occasion to entertain an application to set aside a default judgment.[2]

16 The applicants submit that his Honour erred, and that the right to make a fresh application depends upon the proposition that the first order was not a final order that was determinative of the rights between the parties.[3] The applicants say that on the ordinary meaning of the words in s 73, the first order concluded the rights of the parties inter se.[4] To rule that the dismissal of the first application to set aside the default judgment was not final and conclusive so as to bar a fresh application would render s 73 otiose.[5]

17 The applicants relied on the decision of the New South Wales Court of Appeal in Linprint v Hexham Textiles Pty Ltd[6] in which Kirby P said:

The mere fact that a judgment entered for default of appearance of a party may be set aside if that party moves the Court giving judgment to do so, is not a reason, in the meantime, for regarding the judgment so entered as anything but final for the purposes of the law of res judicata.

The fact that a judgment may be final for the purposes of the law of res judicata does not prevent an application being made to set it aside if the applicable Act and Rules permit such an application, or a second such application.[7]

19 His Honour also held that the decision in Aussie Vic Plant Hire Pty Ltd v County Court of Victoria,[8] in which Williams J applied Linprint to the dismissal of a proceeding on the basis of non-compliance with orders for discovery, was not determinative of the issue he had to decide.[9]

20 The decision of Judge Ginnane on this point is not attended by sufficient doubt for the grant of leave to appeal.

21 In Carr v Finance Corporation of Australia,[10] Gibbs CJ said that:

An order refusing to set aside a default judgment does not as a matter of law finally dispose of the rights of the parties, for it is open to the disappointed defendant to apply to have the judgment set aside.[11]

22 For his part, Mason J said that there was authority to support the principle that the refusal of an application to set aside a default judgment was not a bar to the making of a fresh application. His Honour then referred[12] to the dissenting judgment of Barwick CJ in Hall v Nominal Defendant[13] in which his Honour distinguished the case before him from one concerning the setting aside of a default judgment, saying:

The matter, it seems to me, is quite different from the case of successive applications for extensions of time for the taking of a step in an action or for setting aside a default judgment in an action. In these cases, the matter is under the control of and generally within the discretion of the court in which the action is brought.[14]

23 Mason J expressed the view that Barwick CJ was entirely correct when he said that the setting aside of a default judgment was a matter under the control of and generally within the discretion of the court in which the action is brought. He said that he could see no justification for arbitrarily imposing upon that discretion a rigid rule that the refusal of an application was a complete bar. The Court should preserve the generality of its discretion so as to protect its capacity to see that justice is done in a wide variety of cases.[15]

24 In Kinex Exploration Pty Ltd v Tasco Pty Ltd[16] Batt J considered whether an order dismissing an application for rehearing under s 110 of the Magistrates' Court Act rendered inapplicable the rationale of the High Court cases.[17] Section 110 of the Magistrates' Court Act did not expressly state that a second application for rehearing could not be made. His Honour reached the conclusion that it did not do so by implication either. In his Honour's view, although the Magistrates' Court of Victoria is a creature of statute, its jurisdiction to entertain an application to re-hear should be determined, in the absence of any necessary intendment of an implication to the contrary, by the same approach to its discretion as Mason J enunciated in relation to the discretion of the Supreme Court of New South Wales in Carr.

25 The same reasoning should be applied to the County Court Act and to s 73 in particular. Section 73 should be construed, in the absence of any necessary intendment of an implication to the contrary, to preserve the generality of the County Court's discretion in relation to applications to set aside default judgments, so as to protect its capacity to see that justice is done in a wide variety of cases.

26 We think that it is strongly arguable that s 73 of the County Court Act does no more than state the obvious, which is that all judgments and orders of any court are binding as between the parties unless and until properly discharged or overturned.

27 We express no final view on this point. However, we consider that the decision of Judge Ginnane on the effect of s 73 of the County Court Act on the first order is not attended with sufficient doubt to warrant the grant of leave to appeal.

28 The applicants submit that Judge Ginnane erred in holding that the second application to set aside the default judgment was not an abuse of process having regard to the principles enunciated in DA Christie Pty Ltd v Baker.[18]

29 In DA Christie, the majority of the Court of Appeal determined that the principles of abuse of process were applicable to prevent a second application for an extension of time in which to commence proceedings under s 23A of the Limitation of Acts Act 1958 (Vic) where the applicant for interlocutory orders had sought to rely on additional relevant facts not amounting to fresh evidence. Brooking and Hayne JJA referred to the fact that the applicant had not been fully prepared at the first application, had not sought an adjournment, and provided no explanation of the failure to put forward the material that was later provided.[19]

30 In this case, Judge Ginnane correctly identified that DA Christie does not impose a general rule applicable to all interlocutory applications. His Honour decided that he should follow the approach of Hargrave J in Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd[20] and determine the abuse of process question according to whether it was in the interests of justice to permit the first respondent to make a second application to set aside the default judgment.[21] Considerations relevant to whether a second application to set aside a default judgment is an abuse of process will vary from case to case. They will usually include the effect on a party who, having been successful in opposing an application, is faced with a second application; the effect of any delay in making a second application; whether there was an explanation for the new material not being provided to the Court on the earlier application; the nature of that material; and whether a fair trial can be held. The evils of permitting a second application include the risk of conflicting decisions; the unnecessary vexing of respondents; judge shopping; the diminution of certainty in the conduct by litigants of their affairs; and adverse consequences to the administration of justice.[22]

31 Judge Ginnane observed that he was not asked, in effect, to sit in review of the first application to Judge Davis and that he would not have had the power to do so in any event. The substance of the first respondent's argument before him was largely based on new affidavits, although some reliance was still placed on aspects of the earlier affidavits. He held that there was no great risk of conflicting decisions and that there was no suggestion of judge shopping.[23]

32 In the application to set aside the default judgment before Judge Ginnane, the first respondent relied on affidavits of the second and third defendants, who swore that they did not make the representations that were alleged. That defence would in the ordinary course lead to a trial of the issue of whether representations were in fact made, and if so, whether they were made on behalf of the first respondent. The dismissal of the second application would mean that this defence would never be considered. That consideration had to be taken into account in determining how the interests of justice were best served in this case.[24]

33 His Honour took into account that there was no explanation of why the new material was not filed in support of the first application and that the applicants would be deprived not just of the default judgment, but of the fruits of successfully defending the first application.[25] Nonetheless, he concluded that the second application to set aside the default judgment was not an abuse of process.

34 The manner in which his Honour identified the relevant principles in relation to abuse of process, and the way in which he applied them to the facts of this case, is not attended by sufficient doubt to warrant reconsideration of this point on appeal.

35 To satisfy this limb, the applicants must establish more than a mere error of law, as an error of law in itself does not constitute substantial injustice.

36 In this case, the decision of Judge Ginnane means that the proceeding brought by them remains on foot, and the respondents will be able to defend the claim. They will not be locked out of defending the claim against them because a notice of appearance was not filed within the period required.

37 In our view, there is no question of substantial injustice occurring if the order of Judge Ginnane is allowed to stand and, as a result, the matter proceeds to trial. For this reason alone, the application should be refused.

38 The judgement of the Court is that leave to appeal is refused.

2. The applicants pay the costs of the first respondent.

[1] Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423, 439.

[3] Applicants' outline of submissions, [4].

[4] Applicants' outline of submissions, [5].

[5] Applicants' outline of submissions, [21].

[6] (1991) 23 NSWLR 508 ('Linprint').

[8] [2008] VSC 245.

[10] [1981] HCA 20; (1981) 147 CLR 246 ('Carr').

[13] [1966] HCA 36; (1966) 117 CLR 423.

[15] Carr v Finance Corporation of Australia (1981) 147 CLR 256.

[16] [1995] VicRp 58; [1995] 2 VR 318.

[17] In this context, his Honour said that it was clear law that an order of the Supreme Court or the County Court refusing to set aside a judgment obtained upon default of the defendant in filing an appearance or delivering a defence was not a final order for the purposes of sections such as the former s 35 of the Judiciary Act 1903 (Cth) and s 13(4)(b) of the Supreme Court Act 1986 (Vic).

[18] [1996] VicRp 89; [1996] 2 VR 582 ('DA Christie').

[19] Charles JA dissented, concluding that: 'Some other factor must, in my view, be present before an abuse of process is established'. (at 611).

[20] [2006] VSC 170.

[21] Judgment of Judge Ginnane, [41].

[22] Judgment of Judge Ginnane, [42].

[23] Judgment of Judge Ginnane, [48].

[24] Judgment of Judge Ginnane, [52].

[25] Judgment of Judge Ginnane, [64].