FEDERAL COURT OF AUSTRALIA Stimpson and Meagher (Liquidators); In the matter of Mackenbry Pty Ltd (In Liq) v Santiago [2016] FCA 200 File number: QUD 765 of 2015 Judge: EDELMAN J Date of judgment: 3 March 2016 Catchwords: PRACTICE AND PROCEDURE – application for default judgment – respondent appearing to be in default – lack of evidence that the respondent was properly served with originating process – respondent served with application for default judgment the day before hearing – applicant's failure to appear in Court – application dismissed Legislation: Corporations Act 2001 (Cth) s 588FF(1)(a) Federal Court Rules 2011 (Cth) rr 1.32, 5.23(2)(c), 8.06 Cases cited: Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 Jianshe Southern Pty Ltd v Turnbull Cooktown Pty Ltd (No 2) [2007] FCA 903 Date of hearing: Determined on the papers Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 12 Counsel for the Applicants: The Applicants did not appear Solicitor for the Applicants: South Geldard Lawyers Counsel for the Respondent: The Respondent did not appear ORDERS QUD 765 of 2015 BETWEEN: DAVID MICHAEL STIMPSON AND ANNE MEAGHER AS LIQUIDATORS OF MACKENBRY PTY LTD (IN LIQUIDATION) ACN 129 797 100 AS TRUSTEE FOR THE HAWKES FAMILY TRUST First Applicant MACKENBRY PTY LTD (IN LIQUIDATION) ACN 129 797 100 AS TRUSTEE FOR THE HAWKES FAMILY TRUST Second Applicant AND: GUILLERMO SANTIAGO Respondent JUDGE: EDELMAN J DATE OF ORDER: 3 MARCH 2016 THE COURT ORDERS THAT: 1. The applicant's interlocutory application is dismissed. 2. There be no order as to costs of the application. 3. The matter be relisted for directions on 15 April 2016 at 10.15am. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT EDELMAN J: Introduction 1 This is an application for default judgment in a matter that has been unreasonably delayed. On 27 August 2015, the application was brought by the applicant, the liquidators. The case is not complex. The liquidators seek repayment of $31,293.60 and interest from the respondent, Mr Santiago, alleging that payments to that amount were unfair preferences from the company in liquidation, contrary to s 588FF(1)(a) of the Corporations Act 2001 (Cth). Following delays by the liquidators in serving Mr Santiago, directions were listed for 2 December 2015. Mr Santiago failed to attend. Nearly three months later the liquidators applied for default judgment based on this failure to attend. They served the application for default judgment on Mr Santiago yesterday. The liquidators did not attend the hearing today. It appears that they had assumed that there would be a telephone hearing, based upon previous directions hearings which had been conducted by telephone. But, perhaps by oversight, they had not made any request for a telephone hearing of this application. Later this morning, the liquidators' solicitors consented to their application to be determined on the papers. 2 On the material before me I am satisfied that there is no prejudice to the liquidators to determine the application in the absence of any oral submissions. The application is plainly inadequate. If the liquidators wish to bring an application for default judgment it should be brought after proper service, communication, and conferral between the parties, or at least evidence that this has been attempted. And it should not be brought until after the next directions hearing. 3 For the reasons below, the application is dismissed. The history of this matter 4 Sometimes a relatively small amount of money involved in a claim may cause solicitors to attempt to ensure that they do not spend too much time on the claim. Over servicing a small case would be disproportionate, wasteful, and unjustified. But delays in acting can sometimes increase costs rather than decrease them. In this case, a case management hearing was adjourned, again and again, to allow the liquidators time to serve the originating process on Mr Santiago. The liquidators said that Mr Santiago was eventually served on 23 November 2015, which was less than five days prior to the date set for further directions. But it is unclear what steps were taken in the process of service or to communicate with Mr Santiago. The matter was adjourned again due to the requirements of r 8.06 of the Federal Court Rules 2011 (Cth). 5 On 2 December 2015, the matter came before me for directions. Although there was no record of address for Mr Santiago on the court file, the solicitor for the liquidators asserted that the originating process had been served upon him and that Mr Santiago had been sent a letter informing him of the directions hearing by overnight courier on 26 November 2015. The letter was sent to an address for Mr Santiago in Port Kembla, New South Wales. There appears to have been no acknowledgement of receipt. 6 Mr Santiago failed to attend the 2 December 2015 directions hearing. Orders were made including giving the liquidators leave to file and serve his statement of claim by 8 December 2015 and for Mr Santiago to file and serve his defence by 22 December 2015. A mediation was listed for 22 January 2016. On 20 January 2016, almost immediately before the mediation, the liquidator sought an adjournment of the mediation so that an application for default judgment could be brought. No response was received from Mr Santiago. Mr Santiago still had not filed a defence. He still had not filed an address for service. I adjourned the mediation in circumstances in which I had serious doubts whether Mr Santiago knew about it, or would be able to attend. 7 This application for default judgment was not filed for more than another month. On 26 February 2016, nearly three months after Mr Santiago had failed to appear at the directions hearing, the liquidators brought an application for default judgment against Mr Santiago, pursuant to r 5.23(2)(c) of the Federal Court Rules. The application did not refer to Mr Santiago's defaults in compliance with court orders other than his failure to attend the case management hearing on 2 December 2015. The accompanying affidavit evidence did not describe the attempts to contact Mr Santiago. The liquidators apparently did not intend even to serve the application on Mr Santiago. After a direction from the Court the solicitors for the liquidators served it on Mr Santiago. But it was only served yesterday. The solicitors filed an affidavit saying that yesterday, on 2 March 2016, a private investigator attended Mr Santiago's work address in New South Wales and served him with the interlocutory application. At the time of service Mr Santiago confirmed his full name. 8 Rule 5.23(2)(c) allows the Court to make an order for judgment against a respondent who is in default if (i) the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings, (ii) the applicant applies for default judgment, (iii) the respondent is in default, and (iv) the Court is satisfied that the applicant is entitled to the relief claimed. The order is discretionary. It is made in the interests of justice (r 1.32). 9 The essential issue in this case is (iv). A default judgment, by definition, denies a respondent a proper right to respond. The discretion to order judgment in default should therefore be exercised cautiously. Mere delay and expense are rarely sufficient. Factors which, if sufficiently serious, might be sufficient include (i) where an inference can be drawn from non-compliance that a respondent is unable or unwilling to cooperate with the Court and the other party or parties in having the matter ready for trial within an acceptable period, or (ii) where the non-compliance is continuing and occasioning significant unnecessary delay, expense and prejudice to the respondents: see Jianshe Southern Pty Ltd v Turnbull Cooktown Pty Ltd (No 2) [2007] FCA 903 [26] (Besanko J). As Wilcox and Gummow JJ said in Lenijamar Pty Ltd v AGC (Advances) Limited [1991] ATPR 41-082; (1990) 27 FCR 388, 396: the rules must be administered sensibly and with an appreciation both of the fact that some delays are unavoidable, and unpredictable, by even the most conscientious parties and their lawyers, and of the likely serious consequences to an applicant of staying or dismissing a claim; …. We would not wish our observations to cause respondents to apply for dismissal of proceedings simply because there has been a non-compliance with a direction by the applicant, even though it does not cause or indicate a continuing problem in preparing the matter for an early trial. 10 Mr Santiago's failure to attend the case management hearing on 2 December 2015 is very concerning. So is his failure to file an address for service or a defence. I am also concerned by his absence today. Nevertheless, I have no evidence that Mr Santiago was served with any document prior to yesterday. Nor do I have any evidence of any communications between the liquidators and Mr Santiago or even any attempts to communicate. In the absence of evidence of satisfactory efforts made by the liquidators to serve the required documents on Mr Santiago or evidence of their attempts to communicate with him, I decline to enter default judgment. 11 Further delays and expense incurred in this matter can be avoided by the liquidator taking reasonable steps to ensure, and bring to the attention of the Court, that all the relevant documents (including these reasons for decision) have been brought to Mr Santiago's attention. It would be appropriate also to attempt to elicit a response from Mr Santiago to the litigation as well as his response to the possibility of mediation which is currently adjourned. An email sent to the Court this afternoon gives some reason for optimism that the parties might be able to communicate in the future: the liquidator's solicitors informed the Court that a friend of Mr Santiago had told them that he could not attend the hearing today (in a different State from where he resides and in circumstances in which he had fewer than 24 hours' notice). Conclusion 12 In light of the insufficiency of evidence on this application, the delay in making the application, the very late service of it upon Mr Santiago, and in circumstances where it seems that Mr Santiago has not incurred any costs, my preliminary view is that the appropriate order is that there be no order as to the costs of this application. I will make that order in the absence of submissions but, if it is sought, I will give either party an opportunity to make any submissions concerning why it should be rescinded. I will relist the matter for directions on 15 April 2016 at 10.15am to permit the liquidators some time to address the matters raised in the previous paragraph. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman. Associate: Dated: 3 March 2016