White v Dortenzio [2004] VSC 381

Supreme Court of Victoria|2004-10-04|Before: KELLAM J.

PRACTICE - Application to set aside judgment - Plaintiff the trustee in bankruptcy of husband of defendant - Order for sale of matrimonial property entered in default of defence - Defendant's defence that plaintiff's half interest in the property subject to an equity of exoneration or a constructive trust by reason of fraud of husband - Arguable defence - Property Law Act 1958 ss.223, 224.

On 27 July 2004 the trustee commenced proceedings by way of originating motion seeking orders for the sale of the property. A summons on origination motion was issued the same day seeking such orders to be made by the judge in the Practice Court. The matter came on before Osborn J on 27 August 2004 whereby he ordered that the affidavit of the trustee filed in support of the summons stand as his statement of claim, and that the wife file and serve a defence and any counterclaim within 21 days.

In determining that there should not be summary judgment upon the originating motion Osborn J said:

"(3) There is no dispute that in his capacity as trustee of the bankrupt estate of Bruno Dortenzio the plaintiff is a registered proprietor of one of two equal undivided shares in the land. The defendant is registered as proprietor of the other share.

(4) The defendant seeks to resist today's orders on the basis that an affidavit filed on her behalf gives rise to serious questions of disputed fact and law relating to the position at equity of the parties. IT is contended on her behalf that the mortgage to the Commonwealth Bank was utilised in part to discharge obligations arising out of a fraud upon her by Bruno Dortenzio. It is said that as a consequence of the plaintiff's interest is subject to an equity of exoneration or a constructive trust and that there is a good reason in terms of the language of s.223 of the Property Law Act why no order should be made for sale. In particular it is said that an offer to purchase the plaintiff's interest in the land which reflects the value of the respective equities of the parties has been made to the plaintiff by the defendant. For like reasons it is also contended that an order under s.222 or s.224 would not be appropriate.

(5) Despite the criticisms made by Mr Bracken of counsel with respect to the affidavit material put forward on behalf of the defendant, some of which may ultimately be proven to be well-founded, I have formed the view that the matter does give rise to sufficiently serious questions of disputed fact and law to make it inappropriate for resolution in the Practice Court and without a full hearing. Accordingly I propose to make orders to extradite the resolution of the matter."

It is contended by the wife that the decision of Osborn J establishes that she has "already satisfied the court that she has a defence on the merits". However, in my view, no more should be assumed from his Honour's orders and his reasons than that he considered that the special procedure contemplated by Rule 45.05 in relation to contested but uncomplicated matters, was inappropriate in circumstances where he formed the view that serious questions of fact and law were in dispute. I cannot conclude on the material before me, that his Honour was satisfied that the wife had a good defence on the merits sufficient for the purpose of a successful application to set aside judgment.

Following the order of Osborn J and on 14 September 2004, the solicitor for the wife telephoned the solicitor for the trustee seeking to discuss settlement and seeking to defer the filing of the defence and counterclaim.

On 16 September 2005 the trustee's solicitors informed the wife's solicitors by facsimile letter that they had "no instructions as yet" as to settlement proposals but that the trustee did "not agree to extend the period for filing defence and counterclaim" as ordered by Osborn J.

The time for compliance with the orders of Osborn J expired that day, 16 September 2004. On 20 September 2004, the trustee made ex parte application to Smith J for judgment in default of defence. Apparently this was done on the basis of the order for liberty to apply made by Osborn J, in the Practice Court. That application was supported by an affidavit sworn on 20 September 2004 by the solicitor for the trustee which, somewhat surprisingly, failed to refer to the telephone conversation of 14 September 2004 between the solicitor for the trustee and the solicitor for the wife, or to the facsimile letter sent by the solicitor for the trustee in response. Indeed, the affidavit in question deposed "No notification has been received from or on behalf of the defendant by any means, suggesting that the defendant proposes serving a defence or counterclaim after the time allowed by the orders ... or indicating that the defendant proposes making application for extension of time to do so". This statement, although being perhaps on one view literally accurate, did not reveal the full circumstances in relation to this matter, as the wife, through her solicitors, had clearly requested an extension of time to enable settlement discussions to take place. That said, however, I observed that a copy of the letter from the solicitors for the trustee to the solicitors for the wife dated 16 September 2004 is on the court file, and from that I infer that counsel for the trustee properly ensured that the letter was brought to the attention of Smith J who that day made detailed orders for the sale of the property.

Upon being served with the order of Smith J on 23 September 2004 the wife forthwith swore an affidavit in support of a summons to set aside judgment which summons was issued on 24 September 2004. That summons came on for hearing before me on 29 September 2004. At that time, the reasons for the order of Osborn J were not available. I subsequently obtained a copy of those reasons and forwarded them to counsel for the trustee and the wife so as to enable them to make further submissions should they have considered it appropriate. No further submissions have been received.

I am satisfied that the application to set aside the default judgment was made promptly, it having been filed on 24 September 2004 being the day after service of the default judgment. Further, I am satisfied that an explanation as to the delay in filing and serving the defence has been given, it being that the solicitor for the wife was endeavouring to resolve the matter. Although the solicitor for the wife should, in my view, have acted with more alacrity, notwithstanding his desire to settle the proceedings without incurring further costs, any default was due to his conduct rather than that of the wife herself. As stated in Collins Book Depot Pty Ltd v Bretherton[1]:

"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."

There have been delays in the matter, some of which appear to have been caused by the wife's attempts to resolve the matter, but in all the circumstances I do not conclude that the trustee would be greatly prejudiced by further delay, in a manner that could not be adequately compensated for by suitable award of costs. Accordingly, the issue to be determined is whether the wife has established that she has a defence on the merits. The authorities are clear as to what is required. she must establish that she has an arguable defence which carries some degree of conviction. The trustee contends that she has not established a defence as to the merits.

In her affidavit sworn on 27 August 2004 the wife states that in early August 2004 she found a document which purports to be a loan agreement between her and her now bankrupt husband with his former employer, Tuncay S Pty Ltd. She states she did not sign the document as is purported on its face. She states she never received any money from Tuncay S Pty Ltd. She deposes to the fact that mortgage borrowings upon the security of the family home were obtained by her husband and herself from the Commonwealth Bank from which the sum of $40,000 was repaid to Tuncay S Pty Ltd. Thus, she contends that the plaintiff's beneficial interest in the property is less than 50%. On this factual basis she proposed to claim that the trustee's interest in the land is subject to a trust, charge or lien in her favour. It should be observed that the order made by Smith J provides that after payment of the expenses of the sale, the mortgage to the Commonwealth Bank is to be repaid and then the balance to be paid in equal shares to the trustee and to the wife. It is submitted by counsel for the trustee that the wife will still be able to maintain separate proceedings to demonstrate that the interest of the plaintiff is partly based upon the fraud upon the wife by her husband. That appears to me to be a highly unsatisfactory process for the resolution of the issue.

The wife satisfied Osborn J on 24 August 2004 that the matter gave "rise to sufficiently serious questions of disputed fact and law to make it inappropriate for resolution .. without a full hearing". Nothing has occurred since then to say that his Honour's conclusion does not continue to apply. It remains the case that the wife has sworn that she did not sign the agreement with Tuncay S Pty Ltd and thus the mortgage to the Commonwealth Bank was utilised in part to discharge obligations arising out of a fraud upon her by her husband. In this regard, in my view, she has an arguable case, both upon the facts and the law, the full merits of which can be considered only after hearing evidence and submissions. IT is true, that the plaintiff is the registered proprietor of one equal undivided share in the land and has a State right to seek sale of the property under s.223 of the Property Law Act. The Court in such circumstances must direct a sale "unless it sees good reason to the contrary".

However, if the defendant establishes that the plaintiff is not entitled to a moity by reason of the equitable claims made by the defendant then s.224 of the Property Law Act 1958 will apply. Section 224 provides that:

" ... Where any party interested in the property requests a sale of the property, the Court may direct a sale unless another party interested in the property undertake(s) to purchase the share of the party requesting a sale."

The wife has deposed to the fact that she and her three children currently reside on the property and that she has made an open offer to the trustee to purchase the trustee's interest in the property. It should be observed in this regard that Osborn J raised the issue of mediation with counsel for the trustee but was informed that "the plaintiff has not yet called for proofs of debt and that" the "position in terms of the commercial realities of the case" was yet to be resolved. It should be observed further that Osborn J referred the matter to the Listing Master for further directions in order to maintain "the opportunity for a further expeditious referral to mediation". Regrettably, the further directions hearing to be conducted by the Listing Master which was listed for hearing on 24 September 2004 did not take place by reason of the failure to comply with the order for delivery of the defence and counterclaim within 21 days and the subsequent ex parte application for summary judgment.

Thus, returning to the issue of whether the wife has demonstrated that she has a defence on the merits, it cannot be said that she has no possible defence. As held by Osborn J there are serious issues of fact and law to be determined. The principles upon which the discretion to set aside judgment under Rule 21.07 should be examined are not in doubt. The primary consideration for a judge is whether there are matters in the defence to which the court should pay heed. If there are merits in one or more of the defences then the discretion will ordinarily be exercised so as to permit the matter to proceed to final adjudication, so long as the defendant has an adequate explanation for his or her failure to file a defence[2]. It is not for the judge to determine the merits of the defence for himself or herself, or to seek to resolve factual issues which might appear to exist on the materials before the court[3]. In my view, the wife has demonstrated that she has an arguable defence. If the wife establishes that the mortgage to the Commonwealth Bank was used, in part, to discharge obligations arising out of a fraud upon her by her husband, the trustee's interest may be subject to an equity of exoneration or a constructive trust, and that may be good reason, in terms of the language of s.223 of the Property Law Act, for no order being made for sale. Likewise, if the offer made by the wife to purchase the trustee's interest in the land reflects the value of the respective equities of the parties there may be good reason why an order for sale should not be made under either that section or s.224. In all the circumstances and taking into account the fact that the trustee has not submitted that he will suffer any prejudice which cannot be cured by costs, I conclude that the judgment entered against the wife should be set aside.

It may of course be that the setting aside of the judgment will prove to be a pyrrhic victory for the wife. She must understand that if she fails to establish her defence, the overwhelming likelihood is that the property will be sold, and that the costs of this proceeding will seriously diminish, if not extinguish, any equity which she has in the property. In the interests of all concerned, it is imperative that this matter be resolved with expedition. It is regrettable indeed that the orders of Osborn J which were designed to achieve this course were not able to be given effect by reason of the failure of the wife's solicitor to comply with his timetable as to the filing and serving of the defence.

1. The orders made on 20 September 2004 by Smith J be set aside.

2. The defendant be given leave to defend the proceeding.

3. The defendant file and serve a defence and counterclaim by 6 October 2004.

4. The matter be referred to the Listing Master for directions on a date to be fixed by the Associate to the Listing Master.

6. The defendant pay the costs of the plaintiff's application for judgment and the costs of the summons to set aside judgment.

7. Pursuant to Rule 60.04 of the Supreme Court Rules this order be drawn up by the defendant's solicitors and signed by a judge.

[2] Kostakanellis v Allen [1974] VicRp 71; [1974] VR 596 at 602.

[3] Lau v Citic Australian Commodity Trading Pty Ltd [1999] VSCA 34.

At a glance

Court

Decision date

Before

Source

Judgment (32 paragraphs)

Parties