Workers Compensation Nominal Insurer v Arab

Evidence for Mr Arab

1. In support of his motion, Mr Arab relied upon two affidavits of his solicitor, Mr Harry Hatton affirmed on 18 July 2024 (Exhibit A) and 22 August 2024 (Exhibit B). Mr Arab also relied upon an affidavit he prepared, after business hours, on 5 November 2024 (Exhibit C). He prepared this after the Nominal Insurer had served its written submissions in which, among other things, it had criticised Mr Arab for failing to explain his default in filing a defence.
2. In the first of Mr Hatton's affidavits, he deposed to only receiving instructions to act for Mr Arab on 25 June 2024; only two days before the Nominal Insurer brought its motion; although, to be sure, Mr Hatton indicated that his firm (Ehsani Legal Pty Ltd) had been in communication with the Nominal Insurer's lawyers from early June. He further indicated that his firm had effectively asked the Nominal Insurer's lawyers to hold off on obtaining default judgment until his firm had sufficient time to obtain instructions.
3. Mr Hatton also indicated that he only learnt of a default judgment having been obtained against Mr Arab weeks later, on 16 July 2024. He added that in the time between obtaining instructions to act for Mr Arab and the date he learnt that a default judgment had been entered, his firm had supplied a request for particulars. This had remained unanswered. Curiously, I observe, the letter requesting particulars was not annexed to this affidavit.
4. In Mr Hatton's latter affidavit, he deposed to receiving instructions in and around early August to prepare a Defence; as well as drafting a cross-claim. Drafts of both documents were annexed to this affidavit.
5. By his proposed Defence, Mr Arab wishes to contend that he ran a Persian restaurant in Merrylands, in partnership with a Mr Jawad Najafi; that the worker (Ms Sakhrawi) attended that restaurant at about the date that she said she was injured, but was not actually a worker of the company, the restaurant or Mr Arab personally. Thus, Mr Arab wishes to contend that neither the company nor the restaurant was obliged to keep a policy of insurance for the benefit, amongst others, of Ms Sakhrawi. Mr Arab further disputes receiving the Nominal Insurer's notice requiring the company to reimburse it. Therefore, it is said, the Company could not make any application to the Personal Injury Commission for a determination of its liability. Essentially, Mr Arab would wish to submit that the company was not liable for the statutory debt and, derivatively, nor was he. Alternatively, Mr Arab would wish to contend that the Nominal Insurer did not mitigate its loss to the Insurance Fund and, otherwise negligently accepted Ms Sakhrawi's claim. Finally, he would wish to say that the company's liability was not established prior its being wound up.
6. Mr Arab verified this defence by affidavit on 19 August 2024. However, that affidavit was not read on the present application. I note, in passing, that Mr Arab did not attend in court today for the hearing although, in fairness, he was not specifically required to attend by lawyers for the Nominal Insurer for cross-examination.
7. By his proposed cross-claim, Mr Arab appears to seek indemnity or contribution from Mr Najafi (as the second cross-defendant), who he says was a partner in the operation of the Merrylands restaurant. Further, he would wish claim against Ms Sakhrawi (as the first cross-defendant) for what he contends was a fraudulent claim for work injury damages. The central contention appears to be that Ms Sakhrawi was not an employee of the company, the restaurant, the partnership, of himself personally, or Mr Najafi personally. Mr Arab wishes to say that by reason of Ms Sakhrawi's asserted fraud, she has suffered 'pure economic loss' which he quantifies as the amount of the Nominal Insurer's claim against him.
8. In Mr Arab's affidavit, he initially indicated his background as an Iranian asylum seeker who arrived in the country in 2013. He deposed to never having learned to read or write in English. He acknowledged being served with the statement of claim on or about 8 May 2024. He deposed that at or about the time he was served, he did not know of its substance or effect. In early June, he took it to his lawyer, but he was not in a financial position to 'consult' with that lawyer until early July, after the default judgment had been entered. It was only later that month he instructed his lawyer to file a motion to set aside the judgment. He indicated that due to a need to obtain documents, he was not in a position to prepare a proposed Defence and proposed cross-claim until late August.

Evidence for the Nominal Insurer

1. In opposition to the motion, the Nominal Insurer relied upon the affidavit of its solicitor, Kamil Aydinliogulu, affirmed on 27 September 2024 (Exhibit 1).
2. By this affidavit, and with reference to supporting documentation, the solicitor relevantly deposed to the service of notices upon the company both before and after it had entered into liquidation. He also deposed (again with reference to supporting documentation) to a certificate the Nominal Insurer issued pursuant to s 145A(3) of the WC Act (to the effect that it will be unable or unlikely to recover, by way of reimbursement, what it paid to a worker, from the company, given that it was being wound up and unable to pay its debts).
3. The solicitor then addressed events that occurred after the Nominal Insurer commenced the suit on 11 April 2024 and after the originating process was served on 8 May 2024.
4. This provided more precise detail about communications with Mr Arab's lawyers than that which had been supplied in Mr Hatton's first affidavit. Specifically, Mr Aydinliogulu pinpointed correspondence passing between the respective lawyers on 6 June 2024. The upshot of this was that the Nominal Insurer was prepared to hold off applying for default judgment for another 2 weeks (not the three weeks which Mr Arab sought to respond to the statement of claim), but it would proceed to file for default judgment without further notice from 20 June 2024. In the events that occurred, as that day came and went, the Nominal Insurer waited another week (27 June 2024) before applying for default judgment.
5. Separately, Mr Aydninlioglu alluded to the circumstance of Mr Arab's lawyers serving a request for particulars on or about 1 July 2024, by which date the Nominal Insurer had already obtained its default judgment. The Nominal Insurer's solicitors responded to that on 29 July 2024.

Submissions

1. Both parties prepared written submissions which were supplemented orally by Counsel at the hearing of the motion.

Mr Arab's submissions

1. By his solicitor's written submissions (MFI 1), Mr Arab placed reliance upon the independent operation of both r 36.15 and r 36.16(2)(a) of the UCPR.
2. As to the latter ground, being r 36.16(2)(a), in substance, Mr Arab argued, firstly, that he had a bona fide defence on the merits. This was in the form of the proposed Defence attached to Mr Hatton's second affidavit. Emphasis was placed upon Mr Arab's vehement denial of the contention that Ms Sakhrawi was an employee of the company of which he was a director or an employee of Mr Arab personally. Reference was also placed on Mr Arab having a proposed cross-claim.
3. Mr Arab complained about what he described as a denial of procedural fairness by issuing a notice (under s 145 of the WC Act). If there was a denial of procedural fairness it was not by the Nominal Insurer.
4. He has indicated that he is prepared to file the proposed defence (and presumably cross-claim) even if his request for particulars (which he acknowledges was prepared out of time and after default judgement had been entered against him) remained unanswered.
5. He submitted that there would be no prejudice to the Nominal Insurer if the default judgment was set aside. The time that had lapsed since the default judgment was entered was not lengthy and the Nominal Insurer had not taken any step to enforce the judgment.
6. As to the former ground for setting aside a default judgment, being as of right under r 36.15, Mr Arab submits that the default judgment was made against good faith. This, it was said, was manifested by the Nominal Insurer filing for default judgment despite its being aware that Mr Arab was legally represented. It was suggested that this constituted a 'professional discourtesy' and effectively wasted time that could easily have been avoided had a communication been sent to his solicitor either a day or two before applying to file the judgment. Further, reliance was placed on the contention that the Nominal Insurer did not serve him with the orders for default judgment; which meant that his solicitors only found about it by happenstance.
7. As a fallback argument, it appeared suggested, albeit faintly, that although the Nominal Defendant's conduct may not constitute an 'irregularity' for the purposes of r 36.15, it might justify the Court's intervention under s 63(3) of the CP Act, although Mr Arab did not specify what order should be made under that provision.

The Nominal Insurer's submissions

1. By its Counsel's written submissions (MFI 2), the Nominal Insurer submitted, relevantly, that for the purposes of the principles concerning r 36.16, it is insufficient to merely articulate a proposed defence; it is necessary to adduce some evidence of the (proposed) pleaded facts.
2. Alternatively, the Nominal Insurer submitted, again with reference to the principles concerning r 36.16, the Court needs to be satisfied that setting aside the default judgment would have utility. This, the Nominal Insurer submits, Mr Arab cannot do. He is seeking to contest issues that were required to be contested in the Personal Injury Commission; most notably the issue as to whether or not the company was the employer of Ms Sakhhrawi. Citing two decisions of the Supreme Court of New South Wales (in particular) Coombs v Workcover Authority of NSW [2014] NSWSC 1701 ('Coombs') at [22] and Teofilo v State of New South Wales [2007] NSWSC 767 ('Teofilo') at [11], the Nominal Insurer submitted that questions of an employer's liability fell within the exclusive jurisdiction of the Commission.
3. The Nominal Insurer argued that it was incorrect for Mr Arab to contend that under s 145A of the WC Act, it had to issue any particular notice or demand to the director, or any particular requirement to stipulate when the certificate under that provision was made.
4. The Nominal Insurer pointed out that the proposed defence does not raise any defence under s 145A(5) of the WC Act. That provision set out several exceptions to the definition of a 'culpable director'.
5. As to a further aspect concerning the principles relating to applications under r 36.16, the Nominal Insurer had argued in its Counsel's written submissions that Mr Arab's delay prior to the filing of the application for default judgment - a period spanning nearly 7 weeks - was insufficiently explained.
6. Further still, it argued that Mr Arab did not give any indication that a defence might be available prior to the application for default judgment being made. Further, Mr Aydinlioglu's affidavit proved that the Nominal Insurer notified Mr Arab of the former's intention to apply for default judgment within a certain period and Mr Arab had not sought an extension of that period after it had lapsed.
7. In a similar vein, the Nominal Insurer argued that Mr Arab's apparent failure to provide instructions to his lawyers for virtually 7 weeks was inconsistent with his obligation to facilitate case management objectives.
8. Further, in terms of prejudice to Mr Arab should the Court reject his application to set aside the default judgment, he can still pursue his proposed cross-claim and that militates against the Court exercising its discretion (to set the judgment aside) in his favour. Later, as will become apparent, this position became somewhat qualified.
9. In his written submissions, Counsel for the Nominal Insurer did not address the ground for setting aside the judgment under r 36.15.

Determination

1. There is no dispute that Mr Arab was "in default" by failing to file his defence within the prescribed period (r 16.2 of the UCPR).
2. I will address the ground under r 36.15 first. By this ground, a default judgment may be set aside as of right.

Rule 36.15

1. There were two limbs to this argument. First, it was suggested, albeit tentatively (see paragraph 29 of Mr Arab's written submissions) that there was an irregularity. Secondly, it was suggested that there was an absence of good faith.
2. Neither ground is persuasive. As to the argument about irregularity, in Ritchie's Uniform Civil Procedure (NSW), at [36.15.12] the learned commentators of that text conveniently suggested that the cases dealing with this concept generally fell within three categories: (a) non-compliance (with provisions of the CP Act or UCPR); (b) excessive judgments (for example, in the sense of a monetary judgment on a debt exceeding what was actually due) and (c) lack of notice.
3. Only the last of these was suggested here. But the contemporary correspondence plainly indicates that the Nominal Insurer did serve its statement of claim upon Mr Arab. He admitted that as much.
4. As to the argument of an absence of good faith, this is related to but separate to the argument of irregularity (based upon a lack of notice). This argument is centred upon the proposition that it was against good faith for the Nominal Insurer to proceed to file an application when it knew that Mr Arab was represented. Instinctively, a reasonable response to this point is 'so what'? Mr Arab's contention, if it was good, would significantly undermine the operation of the court rule (r 14.3(1) of the UCPR) which requires the timely filing of defences. It would also contravene at least one of the overriding case management objectives of the 'quick' resolution of litigation. It is untenable. At any rate, the contemporary correspondence of 6 June 2024 indicates that the Nominal Defendant made allowance for Mr Arab by negotiating a period of time for him to file it. Indeed, initially, Mr Arab's lawyer sought 3 weeks and the Nominal Insurer insisted on two weeks to file the defence but ultimately, and perhaps pragmatically, the Nominal Insurer filed its application only after the period of 3 weeks that Mr Arab's lawyer had requested. I acknowledge the force of the Nominal Insurer's argument that if Mr Arab needed more time, he could have instructed his lawyer to request it from the Nominal Insurer.
5. There was no requirement for the Nominal Insurer to itself serve a copy of the Court's order for default judgment. That matter is only relevant to the enforcement of a default judgment.
6. The suggested ground under r 36.15 is rejected.

Rule 36.16

1. By this rule, the Court is empowered, in its discretion, to set aside the default judgment (r 36.16(2)).

Principles

1. In Jones v Riley [2022] NSWDC 323, in relation to applications of this kind, I observed (excluding a footnote): "49…. the correct starting point is that the undoubted discretion that the Court has is shaped by case management objectives and considerations identified in ss 56 - 60 of the Civil Procedure Act 2005 (NSW). Cases decided before that enactment, to the extent that they illuminate relevant considerations, have to be viewed in the light of these statutory provisions. As Allsop ACJ said in Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230 at [36], those statutory provisions "bring about a new statutory balance among various factors in litigation including court and party efficiency and the delivery of individual justice". Allsop ACJ's observations were approved by Sackville AJA in Dai v Zhu [2013] NSWCA 412 at [88]. 50. Fundamentally, the question is whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Dai v Zhu [2013] NSWCA 412 at [83]; J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd [2019] NSWCA 283 at [49]. 51. That said, conventionally understood, applications under r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW) invite consideration of three principal considerations: (a) whether the applicant has an arguable defence (which is bona fide asserted and gives rise to a triable issue); (b) whether an applicant has provided an adequate explanation for failing to file a defence; (c) the length of delay; and (d) whether the respondent would be prejudiced if the default judgment was set aside. 52. In Dai v Zhu at [89], Sackville JA explained that the rationale for the requirement that the applicant for relief demonstrate a bona fide ground of defence is that "in the exercise of its 'unfettered, though judicial, discretion' the Court will consider … (a) whether any useful purpose would be served by setting aside the default judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained".
2. To these authorities, and in recognition of the arguments put forward in this matter, I refer to some additional authorities. The first concerns the observations of Hodgson JA in Magnate Projects Pty Ltd v Youma Constructions (No.2) [2005] NSWCA 331 ('Magnate Projects') at [52]-[55], which relate to the aspect of proof of a bona fide defence on the merits, were as follows: "52 In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require "a reasonably clear case of merits to be shown"; that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant's default, and hardship to the respondent. 53 In the present case, in my opinion there was no evidence from Youma going to its defence on the merits, except to the extent that evidence supporting its defence appeared in documentary material relied on by Magnate. 54 Although Youma's verified Defence and Cross-claim were part of the record of the Court, and did not need to be tendered on the question of what issues they raised, in my opinion they could not function as evidence on any issues unless appropriately put into evidence, for example, by the reading of the affidavit verifying them. If Youma had sought to read that affidavit, its evidentiary value could have been ruled on in response to objections taken; and then it would have been clear to what extent, if at all, that affidavit stood as evidentiary support for the defence and/or the cross-claim. As I have said, nothing like that happened. 55 Assertions in the affidavit of Mr. Nassif that was read, to the effect that he believed that the defence and cross-claim "have merit" or that the cross-claim is "valid", do not in my opinion appropriately support any assertions of fact so as to amount to evidence supporting a defence on the merits or a cross-claim." (emphasis added)
3. Secondly, as the commentators in Ritchie's Uniform Civil Procedure (NSW) pointed out at [36.16.22], although it may be said that the ordinary case requires proof of facts, the requirement has been described as not being 'inflexible': J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd t/as Greenwood Group Realtors [2019] NSWCA 293 per Gleeson JA at [52], citing Dai v Zhu [2013] NSWCA 412 at [93].
4. Finally, I also agree with Mr Arab's submission, supported by the Court of Appeal's decision in Violi v Commonwealth Bank of Australia [2015] NSWCA 152 per Bergin CJ in Eq (with whom Sackville AJA agreed, on this point) at [109], that on applications of this kind, the Court is not required to embark upon a determination of the truth of the facts arising under the proposed defence. The issue, rather, is whether the facts, as sworn by the applicant would, if established at trial, afford a defence.

Adequate explanation for delay?

1. I allowed Mr Arab to rely upon his affidavit filed after business hours yesterday; in spite of Nominal Insurer's objection as to its lateness. In doing so I indicated that that, and another objection raised by Counsel for the Nominal Insurer (going to the truth of one of assertions made in that affidavit), could be treated as to going to the weight.
2. This latter point has some significance. Mr Arab deposed to his difficulties with spoken English or his capacity to read written English. However, as came out in argument, I would have expected that problem to have been promptly identified by his lawyer, Mr Hatton. I would also have expected that this would have provided another reason for Mr Hatton, in his communications with Nominal Insurer's lawyers, to negotiate for an agreed further extension of time to file the Defence. That was not sought. Indeed, difficulties in communicating with Mr Arab was omitted altogether from Mr Hatton's affidavits. Further, in the proposed Defence, Mr Arab had prepared a verifying affidavit. There was no indication that he had the assistance of an interpreter to prepare that verifying affidavit. In the circumstances I place very little weight upon Mr Arab's evidence in this respect. Inserting this explanation after Counsel for the Nominal Insurer had pointed to the absence of an explanation struck me as a somewhat transparent afterthought.
3. Mr Arab's point about financial difficulties was also inadequately explained. It amounted simply to a vague assertion with an absence of particularity about what the problems were and how they affected his capacity to file a Defence (or cross-claim) within the requisite period of time. Again, it was telling that they were not adverted to in correspondence Mr Hatton had sent to the Nominal Insurer's solicitors.
4. I find that such explanation as Mr Arab may have had for his delay has not been satisfactorily explained.

Length of delay

1. I do not regard the length of the delay as overtly substantial. Put negatively, this matter would not be material to my determination if there were not other matters that were more material.

Whether bona fide arguable defence?

1. As indicated, there are two aspects to this: a bona fide assertion of a defence; and a triable issue.
2. As to the first of those, in this case, Mr Arab verified his draft Defence. However, as Counsel for the Nominal Insurer correctly pointed out (with reference to the passage in Magnate Projects at [54]), that verifying affidavit was not read and nor was Mr Hatton himself in any position to depose to its truthfulness. This is an initial stumbling block for Mr Arab.
3. As to the question or aspect of triable issue, it is a matter which lies at the heart of this application.
4. I accept the Nominal Insurer's submission (summarised in sub-paragraphs 6.2 - 6.21 of MFI 2) regarding the structure of the statutory scheme under Division 6 of Part 4 of the WC Act and also s 105 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (the 'WIM Act'). That submission is hereby incorporated in these reasons (Annexure A). I note that Counsel for Mr Arab did not contest the accuracy of that summary when I invited him to comment upon it.
5. Further, and contrary to what appeared in the draft Defence, on the hearing of the application, Counsel for Mr Arab also conceded that the company had been served with the s 145(1) notice. I note that a notice had been served on the company by post on or about 4 February 2022 and then, following the company's entry into liquidation, a further section 145(1) notice was served on the liquidator on 22 September 2023.
6. In the circumstances, Counsel for Mr Arab was driven to accept that whilst it had the opportunity to apply to the Personal Injury Commission under s 145(3), the company did not do so.
7. He submitted, although he accepted that he had no authority to support the position, that this Court could (and should) step in and determine the point that Mr Arab now wishes to raise about the company not employing the worker. In the light of the decisions in Coombes and earlier in Teofilo, and with further reference to s 105(1) of the WIM Act, I very much doubt whether this Court has the jurisdiction to determine that issue even if, unlike those decisions, the Personal Injury Commission did not actually determine the question. To do so would subvert a carefully crafted statutory scheme.
8. Counsel for Mr Arab also appeared to suggest that there was some additional requirement for the Nominal Insurer to serve a s 145(1) notice on Mr Arab personally, as a director.
9. I do not accept that submission as raising even a reasonably arguable contention. It is plainly contrary to the text and, would also appear plainly inarguable as a matter of statutory objects; given that directors essentially become liable by operation of law unless they can establish an exception under s 145A.
10. I note that even if I am wrong in this view, so that the point would be arguable, the draft Defence does not plead, as a material facts the points of (a) his unawareness of the notice to the company; and (b) any of the alternative factual circumstances in s 145A(5) of the WC Act.
11. I am not satisfied that the proposed Defence raises a triable issue (regarding whether the worker was an employee of the company) that, at least, this Court has the jurisdiction to determine.
12. The same problem, it seems to me, bedevils that part of the proposed cross-claim by which Mr Arab proposes to claim against the worker herself. It strikes me that the factual substratum underlying that particular claim is premised on the contention that the worker was not actually employed by the Company (see paragraphs 8 and 15 of the proposed cross-claim). I also agree with Counsel for the Nominal Insurer that Mr Arab's claim against the worker would also be premised upon the issue whether he was a 'culpable director'. By parity of reasoning, if he is precluded from raising the point in his Defence, he should also be precluded against raising it in a prospective cross-claim against the worker.

Prejudice

1. Although the Nominal Insurer correctly pointed out parties' obligations to facilitate case management objectives, and putting aside its point about utility, there was no specific prejudice it could point to if Mr Arab was allowed to run his defence against it. It seems to me that the Nominal Insurer's case, on evidence, is narrow in compass. But if the defence ran, it could (it is presently hard to say) be a substantial matter to prove the fact of whether the injured worker was an employee of the company. Overall, such prejudice would not be substantial on the evidence presented.
2. There is, on the other hand, significant detriment to Mr Arab if he was not permitted to run his defence. I do not think that it can be assumed that he would effectively be capable of reducing or transferring his own liabilities to either or both of the cross-defendants identified in his proposed cross-claim.

Other discretionary matters

1. No other discretionary matter was raised under s 58(2) of the CP Act as being material to the fate of the application.
2. In conclusion, the absence of triable issue is, in my view, dispositive of the application. That is to say, there is no utility in setting aside the default judgment as against the Nominal Insurer to permit Mr Arab to run the defence he wishes to run against it.
3. The position is different in relation to the cross-claim in part. Mr Arab may, if advised, have leave to file a cross-claim, however, as presently indicated, in my view, this is confined to his claim against his asserted partner, that being Jawad Najafi, the proposed second cross-defendant. Leave to file a cross-claim should be limited to paragraphs 1-7 of the proposed cross-claim furnished to this Court. That proposed cross-claim should be filed with this Court and served within 7 days. Otherwise, the Notice of Motion dated 18 July 2024 is dismissed.

Costs

1. On the issue of costs, the application to set aside the default judgment fails. Costs should ordinarily follow the event.
2. If I was wrong, I would have accepted the Nominal Insurer's submission that as the party seeking an indulgence, Mr Arab should pay its costs in opposing the application (which opposition was reasonably based).
3. However, the Nominal Insurer also seeks that those costs be paid on an indemnity basis, relying upon its solicitor's letter to Mr Hatton on 29 July 2024. The offer amounted to a dismissal of the Notice of Motion with no order as to costs. This was a walk away offer. That letter relevantly did advert to considerations which, by these reasons, have been vindicated. Counsel for Mr Arab did not wish to be heard on the issue of indemnity costs. Mr Arab should pay the Nominal Insurer's costs up to 29 July 2024 on a party and party basis and from 30 July 2024 on an indemnity basis.

Amendments 07 November 2024 - Catchwords amended, Paragraph [68]: Addition of 'and served' and Addition of Annexure A in conclusion of judgment DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 November 2024