Smith v Budandan Enterprises

Court of Appeal (NSW)|2002-06-03|Before: Mason P, Beazley JA

CITATION : Smith v Budandan Enterprises [2002] NSWCA 322 FILE NUMBER(S) : CA 40821/01 HEARING DATE(S) : 3 June 2002 JUDGMENT DATE : 23 September 2002

Phillip Gordon Smith (Claimant/Appellant) PARTIES : Bundandan Enterprises Pty Ltd (Opponent/Respondent) Daniel Herchenroder (Opponent/Respondent) Dianne Herchendroder (Opponent/Respondent) JUDGMENT OF : Mason P at 1; Beazley JA at 2; Campbell AJA at 3

COUNSEL : D C Warren (Claimant/Appellant) J Priestley (Opponent/Respondent) SOLICITORS : Brian C M Bigelow (Claimant/Appellant) Hertzberg Heydon (Opponent/Respondent) CATCHWORDS : cessation of payments under consultancy agreement - statement of confession - whether judgment entered irregularly - judicial discretion LEGISLATION CITED : District Court Act 1973 (NSW), s 159 District Court Rules, Pt 14 r 2, Pt 31 r 16, Pt 31A r 2, Pt 31 r 12A, Pt 14 r 1 Johnson v Dukes (1983) NSWR 730 Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110 Armitage v Parsons [1908] 2 KB 410 W L McLean v Commonwealth of Australia (unreported, 22 August 1996) Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729 CASES CITED: Fox v Ashwin (1887) 4 WN (NSW) 78 Coles v Burke (1987) 10 NSWLR 429 Commonwealth v Verwayen (1990) 170 CLR 394 Rein v Stein (1892) 66 LT 469 The Assunta [1902] P 150 Fry v Moore (1889) 23 QBD 395 Gerlack v Clifton Bricks Pty Ltd [2002] HCA 22 DECISION : Leave to appeal granted; Appeal allowed

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40821/01

MASON P BEAZLEY JA CAMPBELL AJA

23 September 2002 PHILIP GORDON SMITH v BUNDANDAN ENTERPRISES and DANIEL AND DIANNE HERCHENRODER

The claimant brought proceedings against the opponents in the District Court by way of a statement of liquidated claim, claiming balance of monies owed by the first opponent under a consultancy agreement entered into between the claimant and the first opponent. The second opponents had guaranteed payments due under the agreement. Notwithstanding legal advice that they had a defence on the merits to the claim, the second opponents instructed their then solicitors to file a Statement of Confession because they did not have the financial resources to defend the action. The Statement of Confession was in terms: " The defendant confesses to the amount claimed by the plaintiff ".

Judgment was entered against all opponents. Although an application to pay the judgment debt by instalments was refused. The opponents made instalment payments over an 18 month period. The opponents then ceased payments. The claimant served a Bankruptcy Notice, founded on the judgment debt. The opponents then filed an application to set aside the judgment.

Sidis DCJ held that the judgment had been entered irregularly and in the exercise of her discretion set aside the judgment because the opponents had an arguable defence on the merits.

The claimant sought leave to appeal. That application and the appeal were heard together. HELD per Campbell AJA (Mason P and Beazley JA agreeing)

(i) The Statement of Confession did not comply with the Rules of the Court which required that it identify the defendant or defendants who confessed to the claim.

(ii) The judgment, having been entered against all defendants following the filing of the Statement of Confession which, on its face, referred to one defendant only, was entered irregularly.

(iii) It is not necessary for 'misconduct or dishonourable conduct' to have occurred in order that a judgment be set aside because of irregularity: Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110; Coles v Burke (1987) 10 NSWLR 429 (distinguished).

(iv) (Obiter) The Opponents, by making the application to pay by instalments had, most likely, waived the irregularity: Rein v Stein (1892) 66 LT 469, Fry v Moore (1889) 23 QBD 395. If that was correct, no question arose as to the exercise of the discretion to set aside the judgment.

(v) If an exercise of discretion was involved, the trial judge erred in the exercise of her discretion as she failed to take into account relevant considerations, including that the opponents had legal advice, prior to filing the Statement of Confession, that they had a defence on the merits.

(vii) Upon a reconsideration of the discretionary aspects of the application the judgment should not have been set aside.

(viii) Further, the failure to specify the defendant or defendants confessing to the claim attracted the operation of s159 of the District Court Act and was to be treated as an irregularity: s159(1). As the opponents had taken fresh steps in the proceedings after becoming aware of the irregularity, the Court had no discretion to set aside the judgment: s159(2). The delay in bringing the application to set aside the judgment also attracted the operation of s159(2). (ix) Leave to appeal should be granted notwithstanding that the trial judge's orders were interlocutory only: Gerlack v Clifton Bricks Pty Ltd (2002) HCA 22, per Gaudron, McHugh and Hayne JJ at 4.

(iii) that the order of Judge Sidis setting aside the judgment against the Opponents be set aside;

(iv) that the stay sought by the Opponents be refused;

(v) that the Opponents pay the Claimant's costs of the motion in the District Court;

(vi) that the Opponents pay the Claimant's cost of the appeal.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40821/01

MASON P BEAZLEY JA CAMPBELL AJA

23 September 2002 PHILLIP GORDON SMITH v BUDANDAN ENTERPRISES & DANIEL and DIANNE HERCHENRODER JUDGMENT 1 MASON P: I agree with Campbell AJA. 2 BEAZLEY JA: I agree with Campbell AJA. 3 CAMPBELL AJA: This is an application for leave to appeal and an appeal against a decision of Her Honour Judge Sidis of the District Court setting aside a judgment entered against the opponents on 7 August 1998. The application for leave to appeal and the appeal were heard concurrently.

Facts 4 Mr and Mrs Herchenroder and a company Budandan Enterprises Pty Ltd, of which company the Herchenroders were directors, entered into negotiations in 1996 to purchase a roofing business called Roofshield at Ballina from a company Smith Estimations Pty Ltd. Smith Estimations Pty Ltd operated the business as a franchisee of Roofshield (Australia) Pty Ltd. 5 The first mentioned two companies entered into an agreement of sale in respect of the business on 11 September 1996.

On completion, the purchaser shall: "(a) be entitled to retain the profits of the business accrued since 26 April 1996;

(b) enter into the franchise agreement with Roofshield (Australia) Pty Ltd. (a copy annexed) as franchisee and cause Daniel Herchenroder and Dianne Herchenroder to sign the said franchise agreement as guarantors. This agreement is collateral with and interdependent upon the execution by the parties thereto of a Consultancy Agreement made the date of this agreement between the purchaser and Phillip Gordon Smith." 7 The Consultancy Agreement provides, amongst other things: "The Consultant shall be engaged by the Principal as a consultant to the business for a period of 175 weeks commencing on 26 April 1996. The Principal will pay to the Consultant a total consultancy fee of $265,602.49, payable as to $31,602.49 upon signing of this Agreement and the balance of $234,000.00 by instalments, by direct debit on the Principal's bank to the account of P.G. Smith, Commonwealth Bank, Ballina Branch, Account No.062502 1002 8548 of a weekly sum of one thousand five hundred dollars ($1,500.00) for a period of 156 weeks the first of such payment to be made on 13 September 1996. This agreement shall terminate in the event of: (a) the Principal being in default of weekly payments for a period of 12 weeks; (b) the Principal disposing of the business by any means or abandoning the business; (c) The Principal giving written notice to the Consultant of its intention to terminate this agreement; WHEREUPON the Principal shall immediately pay to the Consultant the unpaid balance of the sum of $234,000.00. In the event: (a) the Principal does not complete the purchase of the business in accordance with the terms of the Agreement for Sale of Business of even date; or (b) Roofshield (Aust.) Pty Limited or its assigns, being the Franchisor of the business, being placed into liquidation or for any other reason not being able to honour its terms and obligations under its franchise agreement with the Principal; this agreement shall terminate and the Principal and the Guarantors shall be excused from payment of the balance of the sum of $234,000.00." 8 The Herchenroders also signed the agreement as joint and several guarantors. 9 The Herchenroders, although it would seem not Budandan, signed a franchise agreement with Roofshield (Australia) Pty Ltd, however, that company had been placed into provisional liquidation and the agreement was not executed by or on behalf of the Company. 10 It would seem because of the provisional liquidation the Herchenroders had little contact with the franchisor and received no assistance from the franchisor other than the provision of a manual. Despite this, franchise fees were paid for a period that is not clear. 11 Payments being made to Mr Smith under the Consultancy Agreement ceased and he filed and served upon all the opponents a statement of liquidated claim alleging that $105,000 had been paid by Budandan but that payments had ceased and claiming a balance of $129,000 against that company and the Herchenroders as guarantors. 12 The Herchenroders consulted the solicitor who had acted for them on the purchase. In his affidavit Mr Herchenroder said: "Our solicitor advised us that pursuant to the agreement there were no further monies owing by the company or us as co-guarantors to the agreement. As I understand it this was because the franchisor had gone into provisional liquidation." 13 Mrs Herchenroder's affidavit contained a similar statement. 14 The Herchenroders deposed that they were having financial difficulties, did not have the means for legal representation to defend the proceedings and under the stress of maintaining their business, had separated although continuing to run the business. They also deposed that they had lost confidence in their solicitor and were not confident that "despite their solicitor's advice" they would be successful. The reference to "liquidation" in the agreement and the fact of provisional liquidation confused at least Mrs Herchenroder. 15 They consulted other solicitors and were told that the matter would be expensive and drawn out and could take up to two years to resolve. 16 A decision was made which is expressed by Mr Herchenroder in the following terms: "My wife and I decided to continue meeting our obligations under the Consultancy Agreement to avoid the expense of litigation."

Mrs Herchenroder deposed: "With no financial resources or the personal energy to engage in complicated litigation my husband and I decided to try and continue meeting our obligation under the Consultation Agreement." 17 The Herchenroders instructed their then solicitors, Messrs Attwood Marshal, to file a Statement of Confession pursuant to Part 14 r 2 of the District Court Rules. It would seem similar instructions were given by Budandan as appears from a letter of those solicitors of 5 August 1998. 18 Before setting out the letter I should note that an issue arose as to whether it and certain other material should be before the Court. Since the Court deferred its decision on that question and Counsel addressed on that basis it is convenient to defer dealing with that issue until later in my judgment. 19 That letter to the Registrar of the District Court at Lismore reads: "Re: District Court Proceedings - Smith No. 60 of 1998 We act for the First and Second Defendants and now enclose:- 1. Statement of Confession (1x2) Please return sealed copies for service." 20 The Statement of Confession, dated 4 August 1998, was headed with reference to the First Defendant and Second Defendants, however, reads: "the defendant confesses to the amount claimed by the plaintiff". The First defendant in the proceedings was Budandan Enterprises Pty Ltd. The Second defendants jointly were the Herchenroders. 21 It is signed over the words 'Defendant's Solicitor'. It is not contested that the signature is that of the solicitor who acted for all three defendants. 22 The Registrar then sent a pro forma Registrar's Notice of Confession dated 7 August 1998 to the plaintiff's solicitors which provided, amongst other things: "The defendant has this day filed a statement confessing to the amount claimed by you …….. I will this day enter up judgment in your favour for the amount confessed." 23 The papers included a document which appeared to be a form of judgment. It was filed by the claimant's solicitors and provides: "That the plaintiff recover against the first and second defendants $129,000 on his claim and his costs of the action as agreed or taxed." 24 Also amongst the papers was a further copy of the judgment with endorsed upon it (as initially engrossed) the words: "I certify the foregoing to be a true copy of a judgment recovered in this action on 7 August 1998." 25 The second document is clearly enough a certificate of judgment provided pursuant to a request by the claimant's solicitor (Part 31 r 16), however, the nature of the earlier document is not clear. Mr Priestley of Counsel, who appeared for the opponents, suggested that the practice of the Court required that such a document be filed. 26 However, Part 14 r 2 (3) provides that "the registrar shall forthwith after giving or sending the notice under subrule (2) enter up judgment for the plaintiff". The Registrar had sent his notice, as referred to above, on 7 August 1998 saying that he would enter up judgment that day. It should be accepted that judgment was entered accordingly. For reasons which will appear later I should indicate that I would accept that judgment was entered in accordance with the Rules even if the Registrar's notice was not before the Court. 27 On 30 September 1998 an application for leave to pay judgment debt by instalments was filed by the solicitor for the opponents. The application was expressed to be on behalf of the first and second opponents and sought leave to pay the unpaid amount of the judgment debt by instalments of $500 per week. 28 The application appears to have been signed by each of the Herchenroders but not on behalf of the first opponent. So far as appears, no affidavit in support, as required by Part 31A r 2 (1)(a), was filed. 29 It is noted on the application that the application was refused on 15 October 1998. So much also appears from the affidavits of the Herchenroders. 30 The Herchenroders commenced paying $500 per week and continued such payments to 25 May 2000. They depose that their financial problems and the difficulty in running the business - which they have carried on - was such that they could not pay the monthly amounts any longer. 31 A meeting with the plaintiff was held in September 2000 at which, amongst other things, he was told that the Herchenroders could pay no more. He said: "I will ring you this week if I am going to go ahead with chasing the money." 32 Nothing more was heard by the Herchenroders, and it may be assumed Budandan, until a Bankruptcy Notice was served on 22 August 2001 on the Herchenroders founded upon the judgment with credit given for payments of $40,500. 33 I should note that according to Mrs Herchenroder's affidavit payment ceased in May 2000 and this appears to be correct. Mr Herchenroder does recall that in the conversation with the plaintiff in September 2000 the following exchange took place: "Mr Smith: I hope you haven't stopped the payments? Mr Herchenroder: Yes we have as of today." 34 The Herchenroder's had been reconciled in July 1999 and Mrs Herchenroder describes the decision taken after the receipt of the Bankruptcy Notice in her affidavit as follows: "My husband and I have decided to defend these proceedings as we are now in a better financial and personal situation to do so."

Mr Herchenroder said: "We are defending these proceedings as we now feel that we have nothing to lose by doing so." 35 The Herchenroders' present solicitor then filed on application to set aside the judgment of 7 August 1998. The application was filed on behalf of all of the opponents and no challenge was made at any stage as to the solicitor's authority to act for Budandan. 36 The application was heard by Judge Sidis at Lismore on 20 September 2001 and an ex tempore judgment delivered.

Irregularity 37 It was common ground before the Judge, as it was before this Court, that the power sought to be invoked was limited to that provided by Part 31 r 12A (1). (Sed quaere: s 159 (1)(b) of the District Court Act 1973). The rule provides: "12A(1) A judgment or order of the Court in any proceedings may, on sufficient cause being shown, be set aside, on terms, by order of the Court, if the judgment was given or entered up, or the order was made, irregularly, illegally or against good faith." 38 It was also common ground that, provided it was established that judgment was given or entered up irregularly, the decision whether to set aside the judgment was a discretionary one. There was no reliance upon allegations of illegality or absence of good faith. 39 Judge Sidis held that the entry of judgment against three opponents when the Confession was expressed in the singular amounted to an irregularity. 40 The Judge observed: "I have been referred to a number of decisions which indicate that, in circumstances such as this, a strict interpretation of the rules is required and strict compliance with their provisions is to be insisted upon." 41 After rejecting submissions based on the definition provisions of Part 14 r 1, which are no longer relied upon, the Judge went on: "In my view it is necessary that where there are multiple defendants, the statement of confession identify with precision, the defendant to whom the confession relates. Thus, it appears that the judgment was obtained irregularly."

Exercise of Discretion 42 Being satisfied as to there being an irregularity, the Judge then turned to what she described as "the exercise of discretion". 43 Having noted that there appeared to be a defence on the merits, an issue not contested before the Judge or this Court, she went on: "… and there is before me an adequate explanation by the second defendants as to their circumstances and situations which led to the application for payment by instalments." 44 Nothing was said as to the position of the first defendant. 45 I should observe that in her summary of the facts the Judge did not refer to the advice given to the Herchenroders by their solicitor that there were no further monies payable by them. 46 The Judge made orders setting aside the judgment against each of the three opponents and made consequential orders. Appeal 47 The claimant sought leave to appeal. The first issue raised in submissions was whether the judge had erred in finding that the judgment was entered up irregularly. 48 Mr Warren of Counsel, who appeared for the claimant, submitted that the strict interpretation of the rules and strict compliance to which the judge referred was not applicable to circumstances such as the present where it was the actions of the opponents or their solicitor which were called into question. 49 He put that strictness was required in cases such as default judgments (Johnson v Dukes (1983) NSWR 730) or self executing judgments (Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110) or situations such as described by Fletcher Moulton LJ in Armitage v Parsons (1908) 2 KB 410 at 417. Although the Judge dissented on the facts of that case, his observation usefully makes the point: "When a defendant does not appear, but leaves his case in the hands of the Court, it is, in my opinion, the duty of the Court to see that judgment is not signed against him by default otherwise than in strict conformity with the rules of procedure."

The majority took the view that the judgment should be amended to correct the inadvertent error, however, it is clear that a factor was the 'insignificant amount' of the error. 50 I think Mr Warren is correct when he puts that the present case, where it is the inadequacy of the opponent's solicitor's document that has caused the issue to arise, can be distinguished from cases of that sort. 51 However, that does not, of itself, solve the problem. 52 The Registrar holding a confession that refers to a singular defendant has entered up judgment against three defendants. 53 In WL McLean v Commonwealth of Australia (unreported, 22 August 1996) Sperling J, dealing with an offer of compromise addressed to the defendant but which read "the defendant offers ….." regarded that as a slip. He said "it would be plain to anyone reading the document that 'the defendant' was to be read as a reference to the plaintiff. The document is to be so construed". 54 I do not think it can be said that it would be plain to a Registrar entering up judgment that the singular in the Confession was intended to be the plural. 55 Amongst other things, the document's wording refers to the first defendant in the singular and the second defendants in the plural. An unlikely, but not impossible, view is that the document is intended to refer only to the single first defendant. 56 During addresses reference was made to the absence of any later defence or document filed by other defendants and the application for leave to pay by instalments. However, whilst events occurring after the entry of judgment may well affect what should follow from an irregularity, I do not think, in this case at least, that they show that an irregularity has not occurred. 57 Mr Warren referred to Harkness v Bell's Asbestos and Engineering Ltd [1967] 2 QB 729 in which the Court of Appeal amended the form of a Registrar's order. Lord Denning MR said at 735: "As to the second flaw namely that the registrar's order was not in the right form, it seems to me that this was a mere accidental slip or omission within the slip rule, R.S.C Part 20 r11 … it was a mere misreading of the Act which led to this slip … The slip can and should be corrected by expressing the order in proper form.

… This new rule does away with the distinction between nullities and irregularities. Every omission or mistake in practice and procedure is henceforth to be regarded as an irregularity which the court can and should rectify so long as it can do so without injustice." 58 This statement does not advance the claimant's contention for here the judgment itself is not irregular in form. It is the Notice of Confession and the procedure that followed that led to the alleged irregularity. No application was made to Judge Sidis to amend the Notice of Confession and such an application would have, if made for the claimant, faced many obvious difficulties. 59 Mr Warren also referred to Fox v Ashwin (1887) 4 WN (NSW) 78 where it was held that an error by a Court Officer did not invalidate a judgment. However, that case was concerned with the validity of the judgment, before it was set aside, as against a third party and was not concerned with an issue between parties.

60 Mr Warren also relied upon the decision in Coles v Burke (1987) 10 NSWLR 429 in which it was held that for a judgment to be set aside under r 12A on the ground of being against good faith the person who procured the judgment had to be 'guilty of some misconduct or dishonourable conduct'.

61 In that case Kirby P, speaking with the concurrence of the other members of the Court, said: "The genus which is involved in the phrase 'irregularly, illegally or against good faith' appears to me to be misconduct or dishonourable conduct of the person who procured the judgment which it is suggested undermined the authority of that judgment warranting the exceptional course for which r 12A provides."

62 The grounds of irregularity or illegality were expressly not relied upon and a question arises as to whether this obiter dicta should lead to the same limitation in respect of an application founded upon irregularity.

63 The issue is resolved by a Court judgment in Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110. Kirby P was the presiding member of the Court.

64 An issue in that case, on appeal, was whether the limitation applied on the facts of that matter to a case that was put on the ground being against good faith.

65 Coles was distinguished. Further the Court held that 'It would still be contrary to good faith for a client to attempt to retain the benefit of an order innocently obtained by his legal practitioner if it had been obtained contrary to a promise or representation binding on the client'. There was no allegation of personal misconduct or dishonourable conduct in that case.

66 More importantly for present purposes, the Court held that the District Court Judge was in error in holding, for unrelated reasons, that the ex parte order under consideration was not made irregularly within the meaning of the rule. The Court concluded that a further application based upon the irregularity was bound to succeed. That conclusion could not have been reached if it were accepted that an application founded upon an irregularity could only succeed if misconduct or dishonourable conduct were established.

67 In my view Roach makes it clear that the ground of irregularity referred to in r 12A can be made out without misconduct or dishonourable conduct being established.

68 With respect I consider Judge Sidis to have been correct in holding that the judgment was entered up irregularly.

Waiver 69 The next issue is whether the opponents by their actions have waived the irregularity. 70 It is clear that, having been advised that they had a defence on the merits, the Herchenroders decided that they would not pursue that defence but rather confess to the claim in order to make an application for leave to pay by instalments which, if successful, would afford them protection against immediate enforcement of the whole judgment. It would also have the effect of giving them time to pay the debt upon which the judgment was founded. 71 Mr Warren referred to the observation in District Court Procedure New South Wales (Butterworths 1990) at 6722 that "the procedure with respect to irregular judgments will not apply where the irregularity has been waived". 72 A similar passage appears in Ritchie's Supreme Court Practice at 2861-2 under paragraph 40.9.12. 73 Mr Warren pointed out that no authority was given for that proposition. An examination of cases referred to in the more general note shows that related decisions in the main turn upon the terms of Rules of Court. The term 'waiver' is used to describe the situation where the rules limit or exclude reliance upon the irregularity. It is unnecessary to identify the sense in which the word is used in this context (see Commonwealth v Verwayen (1990) 170 CLR 394 per Brennan J at 422). 74 Section 159 of the District Court Act provides:- "159(1) Where, in the purported commencement of any proceedings or at any stage in the course of or in connection with any proceedings, there is, by reason of anything done or left undone, a failure to comply with any requirements of this Act or of the rules whether in respect of time, place, manner, form or content or in any other respect - (a) the failure shall be treated as an irregularity and shall not nullify the proceedings, or any step taken in the proceedings, or any document, judgment or order in the proceedings; and …. (b) ………… (2) The Court shall not set aside any proceedings or any step taken in any proceedings or any document, judgment or order in any proceedings on the ground of a failure to which subsection (1) applies on the application of any party unless the application is made within a reasonable time and before the applicant has taken any fresh step after becoming aware of the irregularity." 75 It would seem, no doubt through inadvertence, that this provision was not drawn to Her Honour's attention despite its relevance to the application being made. 76 In this matter there was a failure to comply with the rules in that the Confession did not identify the defendant or defendants confessing to the claim. That failure is to be treated as an irregularity. The opponents are taken to be aware of the irregularity since their solicitor completed the document. 77 Affidavits filed by both Herchenroders said that they did not recall seeing the Confession, however, in accordance with ordinary principles, the knowledge of the solicitor will be imputed to the client (Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110 at 114). 78 It is my view that the Herchenroders' application for leave to pay by instalments after becoming aware of the irregularity attracted the operation of s 159(2). I would also add, so did the lapse of an unreasonable time. 79 In Rein v Stein (1892) 66 LT 469, in which case the issue was whether there had been a waiver of the right to object to the issuing of a writ, Cave J said: "It seems to me that, in order to establish a waiver, you must show that the party alleged to have waived his objection has taken some step which is only necessary or only useful if the objection has been actually waived, or if the objection has never been entertained at all." 80 The application for leave to pay by instalments could only be useful if any objection to the judgment had been waived. Indeed, the opponents had advisedly laid the foundation for the judgment the validity of which was the basis of any grant of leave to pay by instalments. It does not matter that the application was unsuccessful. 81 In The Assunta (1902) P 150 it was held that the making of an application for security of costs amounted to a step in the proceedings which, taken after knowledge of an irregularity, waived the irregularity. 82 In Fry v Moore (1889) 23 QBD 395 it was held that the seeking of an order that a statement of claim be delivered was a waiver of non-service. Lindley J said: "The irregularity has, however, been waived by the defendant, and the judgment must stand." 83 In my view the opponents' actions in this case had the same effect. 84 I am inclined to the view that the conclusion that the opponents had waived the irregularity removes a necessary pre-condition to the exercise by Judge Sidis of a discretion to set the judgments aside. 85 However, I do not need to determine this question as, if that is not so, it calls for a reconsideration by this Court of the discretion exercised by the Judge. Having regard to the way in which I consider that the discretion should be exercised, which I discuss later, the result is the same. Judicial Discretion 86 The next issue is whether, assuming the judgment was irregularly obtained, her Honour validly exercised her discretion in setting aside the judgment. 87 Were I approaching the matter afresh I would not exercise the discretion under the rule to set aside the judgments. 88 I consider the following facts lead to that conclusion:- (a) The legal advice to the Herchenroders that they had a defence on the merits. I should add that the affidavits do not suggest that their second solicitors disagreed with that advice, albeit they did warn of the expenditure of time and legal costs. (b) The decision, despite that advice, to confess to the claim in order to seek the protection of a payments by instalment order and to get on with running the business. (c) The application for such an order. (d) The payments of instalments. (e) The decision, when it was more convenient for them, to defend the proceedings to which they had in effect consented to judgment three years before. Even two years, if it were thought the conversation of September 2000 supported further delay. Even then what was involved was a decision to take no steps to challenge the judgment if no more was demanded under it. 89 However, I am not approaching the matter afresh and the decision of the learned District Court Judge should stand unless it appears, relevantly, that she failed to take into account relevant considerations or has made some relevant error of fact. 90 Whilst I am conscious, as Mr Priestley pointed out, that the judgment was given ex tempore and on circuit, with all the pressures that implies, I do consider that the Judge has failed to take into account relevant considerations. 91 I cannot find in the judgment and Mr Priestley properly conceded that there was not, a reference to the legal advice obtained by the Herchenroders that they had a defence on the merits. 92 This is a very relevant consideration and one that, had it been present to Her Honour's mind, would have been expected to be referred to in the judgment. 93 It may be that an absence of appreciation of this matter led to a failure to consider, at least in any way that appears from the judgment, the circumstance that the Herchenroders had made a decision to confess to the claim in order to seek the protection of an order permitting payment by instalments. 94 The mere making of an application for leave to pay by instalments and the making of payments may have been encompassed in Her Honour's words which I set out earlier; however, the foundation advisedly laid for that application has not been considered. 95 Further, the Judge does not appear to have taken the nature of the irregularity and the cause of it into consideration on the question of how her discretion should be exercised. It was clearly a failure within the opponents' camp that led to the irregularity. No doubt this fact is not determinative, however, it is clearly relevant on the issue as to whether the blameless party should be forced to a contested hearing two or three years after he had obtained, without fault on his part, a judgment following confession. 96 I should note Mr Priestley's brave submission that the plaintiff's attorney was at fault because he submitted a judgment document in apparent response to the Registrar's notice. I do not accept this view. 97 I am of the view that the Judge had not considered relevant matters and that her discretion has miscarried. 98 In those circumstances a reconsideration of the discretionary aspects of this application leads me to the view that the judgment should not have been set aside. 99 It seems clear enough that before Judge Sidis neither party sought to distinguish the position of the two Herchenroders and Budandan. Before this Court the position has been essentially the same. 100 In these circumstances the proper order, I consider, would be to make the same order in respect of the judgment against Budandan as against the Herchenroders. 101 If the matter is not to be approached in that way, it is appropriate to consider on what basis the judgment against Budandan was set aside. 102 There is no reference to the question in Her Honour's judgment other than the order. There is no evidence as to the financial position of the Company or why discretion should be exercised in its favour. 103 I consider that without any reasoning as to why the order against Budandan was set aside, no doubt because it was considered by both represented parties to march with the order against the Herchenroders, the order in respect of the Company should not be allowed to stand. 104 There was reference in argument to Johnson and the setting aside of a judgment against a properly served defendant after the setting aside of a judgment against another defendant because of want of service. However, that decision turned substantially upon rules relating to ejectment actions. Further, no reliance was placed upon such an approach by Judge Sidis. 105 The opponents, by way of Notice of Contention have, in the event that the appeal succeeds, sought a stay of the judgments until the cross claim which has been filed pursuant to the leave granted by Judge Sidis has been heard. 106 Mr Priestley submitted that the cross claims remain on foot even should the appeal succeed, and he noted that there had been no appeal against the leave to file the cross claim. 107 The effect, however, of the orders I propose will be that the original proceedings were concluded by judgment. 108 In these circumstances an order, consequential to an order setting aside the judgment, necessarily falls with an order which has the effect of restoring the judgments. 109 Accordingly, I propose that the stay be refused.

Admissibility 110 Mr Warren sought an order that the Court admit as further evidence on the interlocutory application the letter of Messrs Atwood Marshal to the Registrar of 5 August 1998, the Registrar's Notice of Confession, the application for leave to pay by instalments and its back sheet. 111 Mr Priestley opposed that course. The Court deferred its decision, and as mentioned earlier, Counsel addressed on that basis. 112 In the event, the material appearing from the Herchenroders' affidavits and the documents already before the Court leads to the same conclusion as a consideration of all the material including the proposed new material. 113 Accordingly, it is unnecessary to determine the issue, however, I should state my views shortly on the question. 114 From what was put it appears clear enough that the documents, a copy in the case of the Registrar's notice, were in the court file. 115 Other than the letter of 5 August 1998 I would, were it necessary to do so, propose that the documents should be admitted. In my view on an application such as this the District Court Judge is entitled to have regard to the procedural documents in the file, not affidavits, unless one of the parties raises an issue as to the availability of such a document. 116 Mr Priestley, who also appeared before Judge Sidis, made it clear that he could not recall how the documents, other than the letter of 5 August 1999 were dealt with, if at all. 117 In respect of that letter, however, Mr Priestley was able to say that objection was taken to it on the basis that no notice had been given of the fact that it would be sought to be tendered and relied upon. The Judge rejected the letter. There is no transcript or judgment as to that and her decision may have included an issue seen to be one of procedural fairness on the facts of the particular matter. I would propose, were it necessary to do so, that the letter not be admitted.

Leave to Appeal 118 Mr Priestley submitted that, it being conceded that there was at least an arguable case on the merits, justice would be best served by allowing the Judge's order to stand and the matter proceed to trial. He put that the issue was confined, the hearing would be relatively short and that the claimant would not be prejudiced. He said: "The only prejudice truly that can be said to be facing the claimant in the proceedings by the order that has been made below is that he now faces the same risk that any other litigant will face, namely that he may not succeed in the claim that he seeks to put …" 119 That proposition seems to overlook the fact that the claimant was relieved of that risk by the actions of the opponents, for their own purposes, now more than three and a half years ago. 120 If, as I consider, the learned trial judge fell into error then, in the circumstances of this case, justice is best served by an order rectifying that error. 121 In written submissions Mr Priestley put that the judgments in the decision of the High Court in Gerlack v Clifton Bricks Pty Ltd (2002) HCA 22 handed down on 30 May 2002 supported the contention that leave to appeal should be refused. 122 I am unable to so read the judgments of the majority and think it sufficient to refer to the observation of Gaudron, McHugh and Hayne JJ at 4: "The principles governing the grant of leave to appeal against interlocutory orders are well established. If those tests are met, leave to appeal against an interlocutory order, such as an order dispensing with a jury, should be given. If the tests are not met, leave should be refused."

Orders 123 I propose: (i) that leave to appeal be granted; (ii) that the appeal be allowed; (iii) that the order of Judge Sidis setting aside the judgment against the opponents be set aside; (iv) that the stay sought by the opponents be refused; (v) that the opponents pay the claimant's costs of the motion in the District Court; (vi) that the opponents pay the claimant's costs of the appeal. ********

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