Tanner v Khannara & Inthapanya

District Court Rules 1973 (NSW) - Part 13 LEGISLATION CITED : Local Court (Civil Claims) Act 1970 (NSW) - s 69 Local Court (Civil Claims) Rules 1988 (NSW) Part 11

Adams v Kennick Trading Authority (International) Ltd (1986) 4 NSWLR 503 Allen v Kerr & Anor (1995) Aust Torts Reports 81-323 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Carr v Neill [1999] NSWSC 1263 Cohen v McWilliam (1995) 38 NSWLR 476 CASES CITED : Davies v Pagett (1986) 70 ALR 793 Devries v Australian National Railways Commission (1993) 177 CLR 472 House v The King (1936) 55 CLR 499 Simpson v Alexander (1926) 26 SR (NSW) 296; (1926) 43 WN (NSW) 76 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588 Swain v Waverley Municipal Council [2005] HCA 4

Nee Tanner v Phone Khannara PARTIES : Nee Tanner v Khambao Inthapanya

Mr D Caspersonn (Plaintiff) COUNSEL : Mr A Canceri (Defendants)

Fraser Clancy (Plaintiff) SOLICITORS : G J Byles & Associates (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13935/2004 - NEE TANNER v PHONE KHANNARA 14176/2004 - NEE TANNER v KHAMBAO INTHAPANYA

JUDGMENT (Appeal decision of Local Court Magistrate - refusal to set aside default judgment) 1 MASTER: By summons filed 26 November 2004 in proceedings 13935/2004 the plaintiff Nee Tanner seeks firstly, that the appeal from the decision of the Local Court at Liverpool dated 18 November 2004 in proceedings 868/2002 be allowed; and secondly, that the orders made by Magistrate Maiden be set aside and in lieu thereof substitute orders setting aside the default judgment in those proceedings. By summons filed 16 December 2004 in proceedings 14176/2004 the plaintiff Nee Tanner seeks similar orders in relation to Local Court proceedings 867/2002. 2 In both matters the plaintiff is Nee Tanner who was the defendant in the Local Court proceedings. The defendant in proceedings 13935/2004 is Phone Khannara who was the plaintiff in the Local Court proceedings 868/2002. The defendant in proceedings 14176/2004 is Khambao Inthapanya who was the plaintiff in the Local Court proceedings 867/2002. Nee Tanner relied on two affidavits of Mark Anthony Fraser sworn 18 and 19 November 2004. Both Phone Khannara and Khambao Inthapanya relied on an affidavit of Adam Gustavo Canceri sworn 23 December 2004. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-323 and Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Tribunal member acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Recently in Swain v Waverley Municipal Council [2005] HCA 4 the Chief Justice at [2] reiterated that in the common law system of civil justice, the issues between the parties are determined by the trial process. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal. 4 Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal.

Grounds of appeal 5 In proceedings 13935/2004, Tanner appeals from the whole of the decision of the Magistrate. She submitted that the Magistrate erred: firstly, in not deciding the application by having regard to the whole of the circumstances; secondly, in failing to have regard to all the evidence before him in determining the bona fides of the proposed defence; thirdly, that the Magistrate misapplied the law by holding that he was required to consider (a) the motivation of the defendant in filing a defence, (b) how honest and well intentioned the defendant's conduct was between the entry of judgment and the filing of the application to set it aside; and (c) other aspects of how bona fide the defendant (as opposed to her proposed defence) was; fourthly, that the Magistrate erred in failing to determine the question of whether any prejudice to the plaintiff could be cured by an order as to costs; fifthly, that the Magistrate misapplied the law requiring him to balance the requirements of justice in: (a) failing to pay due regard to the prejudice to be suffered by the defendant by potentially losing the opportunity to lodge a cross-claim against Liaison Travel; and (b) failing to take proper account of the strength of the proposed defence and the problems with the plaintiff's claim; sixthly that the Magistrate misapplied the law, including Adams v Kennick Trading Authority (International) Ltd (1986) 4 NSWLR 503 in that (a) the Magistrate erred in the manner in which he distinguished between bona fides as to the proposed defence and bona fides as to delay, and (b) without finding the defendant was deliberately lying or that she was seeking to file her defence merely to avoid having to pay the debts in question, the Magistrate erred in holding that she lacked bona fides. Similar grounds of appeal are specified in proceedings 14176/2004 Tanner v Inthapanya.

Appeal principles applicable to Magistrate's discretionary decision 6 The principles according to which this court is to decide whether the Magistrate's discretionary decision to set aside default judgments constitutes and error of law, are stated definitively in a short passage in the joint judgment of Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499 at 504-505. It is, I think, useful to re-state them as follows: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred."

Local Court proceedings 7 The statement of claim in proceedings 867/02 pleaded that in October 2001 Tanner signed an agreement to borrow $35,000 from Khambao Inthapanya. The loan was for a period of one month due for repayment before 9 November 2001. The statement of claim in proceedings 868/02 pleaded that Tanner entered into a loan agreement with Phone Khannara for $25,000 on 14 February 2002. These statements of claims were filed by Inthapanya and Khannara respectively on 23 May 2002. In both matters the plaintiffs sued to recover the principal sum and interest. On 13 August 2003 the Local Court struck out Tanner's defences. 8 On 15 August 2003 default judgment was entered against Tanner in both matters. On 5 July 2004 Tanner filed notices of motion to have the default judgments set aside. On 16 November 2004 Magistrate Maiden heard these motions. On 18 November 2004 the Magistrate handed down reasons for judgment. 9 Tanner submitted that the Magistrate applied the wrong test. In the reasons for judgment, the Magistrate after giving a history of the proceedings, referred to Part 11 r 1 of the Local Court (Civil Claims) Rules 1988 (NSW) (LCR). 10 Part 11 r 1 of the LCR provides: "Default Judgment … (3) Without limiting subrule (2), a default judgment under this rule may be set aside, on terms, by order of the court if:

(a) service of the statement of claim in the action was effected by posting under Part 7 rule 20 (1), and

(b) the defendant satisfies the court that: (i) he did not receive the statement of claim in due time, (ii) he has a defence on the merits to the plaintiff's claim, or there is other reason why it would be unjust or unconscionable for the judgment to stand." 11 While the Magistrate in his reasons referred to the statements of claims as having been served by the defendant, he did not refer to them as having been served personally (see Exs A). That being so Part 11 r 1(3) does not apply. Part 11 r 1(3) applies only where service has been by post. 12 The correct rule is Part 11 r 1(2) which reads: "(2) A default judgment under this rule may, on sufficient cause being shown or if the parties consent, be set aside, on terms, by order of the court." 13 The Magistrate had to determine whether there was sufficient cause shown to set aside the default judgment. However after quoting Part 11 r 1(3) the Magistrate stated: "The law in relation to such application has been clearly settled for some time. The Applicant bears an onus on the balance of probabilities to establish that she has a defence on the merits, that the defence is bona fide and that there is a reasonable explanation for the delay in not filing a defence or doing whatever was required to avoid a judgement being entered up by default. Further, in giving consideration to these issues, part of the process required is to balance the competing interests of the parties in the prejudice to the Applicant in not having the judgement set aside and enabling the matter to be determined on its merits and the prejudice to the Respondents in not being able to proceed with the fruits of the judgement and recoup the moneys the subject of them.

It is clear from the authorities that, when considering these matters and considering the matters which the Applicant is required to prove, regard should be had to the whole of the circumstances and not in isolation on any of the requirements. Wray v Bernacki Constructions Pty Ltd (CA(NSW) Mahoney, Priestley and Clarke JJ, No 40516/89, 15 June 1990, unreported)." 14 The Magistrate then referred to Adams. 15 Hope JA in Adams at 506 said that: "A court exercising jurisdiction under this subrule has to look at the whole of the relevant circumstances and decide whether or not sufficient cause has been shown. The existence of a bona fide ground of defence and an adequate explanation for the failure to defend and any delay are the most relevant matters to consider, but there may be other matters." 16 The Magistrate turned his mind to the whole of the relevant circumstances. Although the Magistrate referred to the incorrect rule he did identify and apply the correct test. 17 In Adams the NSWCA decided what constituted "sufficient cause" pursuant to Part 13 r 1(2) of the District Court Rules 1973 (NSW) (DCR). Part 13 r 1(2) of the DCR is in identical terms to Part 11(2) of the LCR. Tanner submitted that the Magistrate misapplied the law, including Adams in that (a) the Magistrate erred in the manner in which he distinguished between bona fides as to the proposed defence and bona fides as to delay, and (b) without finding the defendant was deliberately lying or that she was seeking to file her defence merely to avoid having to pay the debts in question, the Magistrate erred in holding that she lacked bona fides. 18 Tanner also submitted that the Magistrate did not look at the composite test. The composite test is referred to in Simpson v Alexander (1926) 26 SR (NSW) 296 at 301; (1926) 43 WN (NSW) 76 at 78, where Street CJ (with whom Gordon and Campbell JJ agreed) stated that in relation to the defence; "…all that is required on an application to set aside default judgment is that the defendant should swear to facts which, if established at the trial, will afford a defence; and should establish his or her bona fides in setting up the defence." 19 Street CJ in Simpson continued: "Although, however, issues of fact cannot ordinarily be gone into on an application of this kind, and although it is not usual to go beyond the evidence put forward by the defendant for the purpose of disclosing a defence on the merits, there is, so far as I know, no inflexible rule of law or of practice preventing affidavits in answer from being received." 20 Hope JA in Adams in quoting the passage above from Simpson, said at 507: "Whatever else this statement means, in my opinion it means that evidence can be received, by cross-examination or otherwise, as to the bona fides of the applicant in seeking to rely upon the defence, even though the evidence adduced relates to the issues which would be determined if the matter went to trial. However the question to which this evidence is directed is not simply whether the applicant has shown a defence on the merits; it goes rather to the composite question whether the applicant has shown a bona fide defence on the merits. If the judge hearing the application concludes that the applicant has deliberately lied about the alleged defence and is thus dishonest in raising it, the applicant would fail to establish that he had a bona fide defence on the merits. But if in such a case the judge merely concluded that he preferred the evidence of the respondent to that of the applicant, or anything as to credit short of a disbelief by the applicant in the facts he relied on to found the defence, he would not on that account alone be entitled to find that the applicant had failed to establish that he had shown a bona fide defence on the merits. If he did so, he would be trying the issue to be determined at the trial, and this would be an error of law." 21 Hope JA continued in Adams at 509: "It is true that the onus lies on the claimant to show sufficient cause, but if he swears to facts which, if true, would establish a defence, unless the judge hearing the application finds that the defence is put forward without an honest belief in those facts or, the issue of the applicant's belief having been raised, he is not satisfied that the applicant does believe in them, a bona fide defence on the merits is shown." 22 Tanner submitted that for the Magistrate to find that the defence was not bona fide he would have to had made a finding that she was lying. 23 The Magistrate's said: "As to the Applicant's evidence generally, I found her demeanour in the witness box to be unsatisfactory. There were long pauses at times before she would answer what I regarded as simple questions where there was no suggestion of her not understanding what she was being asked and this persisted with questions both by her counsel and counsel for the Respondents. I found her to be a witness in whom I could not have confidence." 24 Although the Magistrate did not find Tanner be a witness of credit, the Magistrate fell short of finding her to be a liar. 25 In Adams the learned District Court Judge had to some extent, tried the issues which would have to be determined at trial. The Magistrate did not take this approach and was satisfied that if the matters in the amended defence were made out the defendant could establish a defence. 26 The Magistrate continued: "In all of the circumstances, whilst the Applicant has been able to satisfy me that she can meet the first test in these matters which is to establish a defence on the merits to the extent that she is required by the authorities to do so, I am not satisfied that the defence she proposes is bona fide and I am not satisfied as to her explanation in relation to her delay." 27 That is, the Magistrate was of the view that Tanner did not establish her bona fides in setting up the defence. 28 Tanner's counsel also drew this court's attention to Cohen v McWilliam (1995) 38 NSWLR 476, where Priestley JA stated at 481: "… whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct…" 29 And Davies v Pagett (1986) 70 ALR 793 where the Full Federal court stated in a joint judgment (Morling, Beaumont and Wilcox JJ) at 798: "It is true, as Lord Atkin said in Evans v Bartlam (at 480), that it is inappropriate to lay down rigid rules to govern the exercise of the discretion. On the other hand, speaking generally, the cases show that a defendant who has an apparently good defence should not be refused the opportunity of defending, even though a lengthy interval of time has elapsed, provided that no irreparable prejudice is thereby done to the plaintiff (see Atwood v Chichester (1878) 3 QBD 722; Rosing v Ben Shemesh [1960] VR 173; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 at 449)." 30 As to prejudice the Magistrate stated: "I am of the view that the prejudice to the Respondents in having to give up their petition in the Federal Court and return to this Court to further litigate this matter outweighs in the circumstances of the delay by the Applicant and the unsatisfactory nature of her evidence and the other matters to which I have referred, the prejudice to the Applicant in not having these judgements set aside." 31 There was further consideration taken into account, namely the transfer of Tanner's interest in the family home to her husband. The Magistrate stated: "…I am asked to accept that the decision to transfer the home to her husband was coincidentally just before the time of her then solicitors getting a letter from the Respondents solicitors confirming that proceedings were to be commenced and that it is a coincidence that the transfer was not registered until a couple of months (approximately) after she was served with the statements of claim. … I find it most surprising that given her association with legal firms over the years, she transferred her half interest in the house to her husband, which, on her evidence is a final transaction, without the benefit of some family law order or agreement by reason of which, if nothing else, no stamp duty would have been payable on the transaction." 32 The Magistrate continued: "…The issue of the transfer is relevant to the determinations on the bona fides of the Applicant and her credit overall in these proceedings. I am of the view that, even if the consideration of any prejudice to the Respondents was constrained to a view of the effect upon them of their entitlements to proceed to enforce the judgements they currently hold, the fact that they would be obliged to enter into further proceedings in the Supreme Court and or pursue additional steps in the Federal Court to render an otherwise unavailable asset presently not in the hands of the Applicant into her hands is, in my view, a potential further prejudice to them rather than a means by which this Court may hold that there is no prejudice because of the existence of those rights or remedies." 33 I am of the view that it was open to the Magistrate to make the decision he did. There is no error of law. The appeal is dismissed. The orders of Magistrate Maiden dated 18 November 2004 are affirmed. The summons filed 26 November 2004 is dismissed. 34 Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendants' costs as agreed or assessed.

(2) The orders of Magistrate Maiden dated 18 November 2004 are affirmed.

(3) The summons filed 26 November 2004 and the summons filed 16 December 2004 are dismissed.

(4) The plaintiff is to pay the defendants' costs in both matters as agreed or assessed. **********

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