Supreme Court New South Wales Medium Neutral Citation: Deputy Commissioner of Taxation v Judge [2023] NSWSC 204 Hearing dates: 09 March 2023 Date of orders: 09 March 2023 Decision date: 09 March 2023 Jurisdiction: Common Law Before: Weinstein J Decision: (1) The judgment entered by default against the defendant on 12 October 2023 be set aside. (2) The defendant file and serve a defence by 16 March 2023. (3) The defendant is to pay the plaintiff's costs of the motion. (4) I stand the matter over to the Registrar's list on 20 March 2023. Catchwords: JUDGMENTS AND ORDERS – default judgment – application to set aside – where applicant not notified of filing of application for default judgment – where applicant not legally represented when default judgment entered but obtained legal representation and filed application after default judgment entered - default judgment set aside Legislation Cited: Mental Health (Forensic Provisions) Act 1990 (NSW) Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 Category: Procedural rulings Parties: Deputy Commissioner of Taxation (Plaintiff) Mark James Judge (Defendant) Representation: Counsel: O'Sullivan (Defendant) Solicitors: Office of the Chief Tax Counsel (Plaintiff) Dowling & Noble Lawyers (Defendant) File Number(s): 2022/73236 Publication restriction: Nil JUDGMENT 1. A Statement of Claim claiming liquidated damages was filed by the plaintiff on 14 March 2022. It was served on the defendant on 2 September 2022. The time for filing a defence is 28 days in accordance with r 14.3 of the Uniform Civil Procedure Rules 2005 (UCPR). The 28 days expired on Friday 30 September 2022. Monday 3 October 2022 was a public holiday in New South Wales. The Registry was not open on that day. On Wednesday 5 October 2022, no defence having been filed or served, the plaintiff filed a notice of motion for default judgment of a liquidated claim. The application was dealt with in the absence of the parties pursuant to r 16.3 of the UCPR and was not served on the defendant. 2. Default judgment was entered on 12 October 2022, and the defendant was ordered to pay the plaintiff the liquidated sum of $2,422,458.52. 3. On 31 October 2022 a Notice of Appointment of Solicitor was filed by the defendant along with a notice of motion seeking an order that default judgment be set aside as well as ancillary orders. The motion has been stood over on several occasions until today. The defendant/applicant on the motion relies on r 36.16 of the UCPR which provides:- 36.16 Further power to set aside or vary judgment or order (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if— (a) it is a default judgment (other than a default judgment given in open court), or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order. (3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it— (a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or (b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief. (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order. 1. The court has power to set aside this default judgment pursuant to r 36.16 (2)(a) as it was not given in open court. Evidence 1. The defendant/applicant on the motion relies on an affidavit of Mark James Judge sworn on 28 October 2022, an affidavit of Tim Watson-Munro, psychologist, sworn on 9 February 2023 which annexes a report dated 8 February 2023 and an affidavit of the defendant's solicitor Mr Robert Reinoso in 8 March 2023. He also relies on an affidavit of service of Joseph Khoury sworn on 2 September 2022. The plaintiff/respondent on the motion relies on no evidence. 2. In his affidavit, Mr Judge says that he strongly disputes the amounts that the plaintiff alleges are owing to it in the Statement of Claim, and he further says that the amounts are incorrect. He annexes a draft defence which alleges that the amounts claimed are, inter alia, incorrect, erroneously calculated and grossly overstated. 3. Mr Judge further says that in the twelve months to the date of the swearing of his affidavit, he has experienced significant mental health issues which have debilitated him carrying out day-to-day activities and managing his personal affairs. In 2011, he suffered a near fatal injury which caused significant and lasting organ damage. As a result of using medical marijuana, he developed substance abuse issues which exacerbated his mental health difficulties. In April 2022, Mr Judge says that he was detained and held in custody by authorities in Mexico, which aggravated his mental health issues arising from his childhood when he was a ward of the state. He says that his deteriorating mental condition has caused strain on his relationships including with his professional advisors. 4. When he was served with the Statement of Claim, Mr Judge says that due to the issues surrounding his mental health, he did not provide adequate or timely instructions to his solicitors, and in particular with respect to the filing of a defence. In addition, he says that the gravity of his taxation affairs unnecessarily escalated due to his former solicitors' inactivity. He has now retained new solicitors. 5. In his report of 8 February 2023, Mr Watson-Munro says that the defendant is his longstanding client. He first examined him in March 2007. At that time he noted Mr Judge's complex developmental history characterised by "longstanding psychological problems which have been subject to ongoing treatment from the time of his formative adolescence". He observes that Mr Judge is a person of high intelligence, but that he has struggled with problem-solving, impulse control, consequential thinking and emotional regulation for much of his life. At page 2 of that document, Mr Watson-Munro says:- It was suggested that in an optimal state, he is an individual of High Average to Superior intellect. The range of his scores however clearly speaks to his variable task focus and at times impeded comprehension referable to problem-solving. This aspect of his functioning in my respectful view is relevant to the current difficulties he is encountering with the Australian Tax Office (ATO). 1. Mr Watson-Munro notes similar comments he has made through the years to 2020. In that year his opinion was sought as to whether a court should deal with Mr Judge pursuant to s 32 of the Mental Health (Forensic Provisions) Act 1990. At that time a diagnosis of Post Traumatic Stress Disorder (PTSD) was made, and Mr Watson-Munro noted escalating symptoms of anxiety and depression referable to civil proceedings with the ATO. 2. In Mr Watson-Munro's opinion, Mr Judge is exhibiting symptoms that are typical in individuals with PTSD, including an avoidance reaction. Mr Judge believes that his symptoms have recently escalated against the backdrop of his ATO assessment. Mr Watson-Munro believes that Mr Judge's PTSD has impacted upon his capacity to effectively negotiate his life and that he has exhibited poor decision-making, notwithstanding his high intelligence. He notes some very disturbing aspects of Mr Judge's childhood and adulthood which I will not detail in this judgment. In Mr Watson-Munro's view, these aspects of Mr Judge's functioning are relevant to his non-compliance with orders and requests by the ATO and extends to avoidance relating to not attending to important correspondence. He observes that Mr Judge has expressed regret for his non-compliance and has committed to regular engagement with him in the future. 3. Mr Reinoso was instructed by Mr Judge on 7 October 2022, when he wrote to the plaintiff and informed her that his firm acted for Mr Judge, and that he anticipated being in a position to file and serve a defence within 14 days. Mr Reinoso also says that his client contends that his former accountant lodged material with the plaintiff without the defendant's authority and which did not accurately reflect the defendant's tax position in the tax years ending 2015, 2016, 2017 and 2019, which are the subject of dispute in this case. He believes that the proposed defence will need to be amended. There may also be some grounds for a cross claim. 4. Neither Mr Judge, nor Mr Watson-Munro nor Mr Reinoso was required for cross-examination. The party's submissions 1. Mr O'Sullivan, who appeared for the defendant/applicant on the motion submitted both orally and in writing that Mr Judge has provided a reasonable explanation for the delay (being his debilitating mental health problems) and that the delay in seeking to set aside the default judgment was relatively short, particularly in the context of his debilitating mental health problems. He observed that the plaintiff proceeded with the default judgment application even though she had notice on 7 October 2022 that Mr Judge wanted to defend the claim. He also submitted that the defendant has a prima facie defence, and that the proposed defence annexed to Mr Judge's affidavit would be amended to take into account comments recently made by the plaintiff about the defence. 2. Mr Gilfedder who appeared on behalf of the plaintiff/respondent on the motion relied on Division 350 of the Taxation Administration Act 1953 (Cth), which deals with the evidentiary effect of official tax documents for the purposes of taxation laws and procedural and evidentiary matters relating to proceedings to recover an amount of a tax-related liability. Those sections deal with the production of certain documents, and the conclusive and prima facie effects of the production of those documents. In this matter, no such documents were ever produced in evidence, and the default judgment was procured on the basis of a pleading to which the defendant never responded. Mr Gilfedder submitted that on the basis of the draft defence annexed to Mr Judge's affidavit, the inevitable result of the proceedings, if I were to set aside the default judgment, is that it would be a "colossal waste of the court's time" as the defence would be entirely "untenable". I observe that Mr Reinoso says in his affidavit that the draft defence will be amended. Consideration 1. The principles for setting aside default judgment are well known. Prior to exercising its discretion in favour of a defendant, a court is required to ascertain whether or not the defendant has a prima facie meritorious defence, whether or not the defendant had notice of the application to obtain default judgment, the reasons for the defendant's absence and his failure to file a timely defence, whether there has been undue delay in applying to set aside the judgment and whether or not any prejudice suffered by the plaintiff can be compensated for in an order for costs. 2. As to the merits of the proposed defence, the defendant must satisfy the court that he has a genuine or reasonably arguable basis for impugning the plaintiff's claim as it would be purposeless to set aside a judgment where a defendant has a futile defence. In Vacuum Oil Pty Co Ltd v Stockdale (1942) 42 SR (NSW) 239 at 243-244, Jordan CJ said:- The question is whether, upon the material that has been placed before (the court), there is a real likelihood that it would be unjust to the defendant to allow the judgment to stand. If so, it should be set aside on such terms as will minimise the possibility of injustice to the plaintiff. If not, (the court) should not interfere. 1. In the present case, Mr Judge has annexed a proposed defence which when amended, will likely disclose several triable issues in response to the claims made by the plaintiff in the statement of claim. There is also the possibility of a cross claim. In my view, the dictates of justice are such that the parties should have a proper opportunity to present their cases on the merits. 2. Furthermore, the defendant had no notice of the plaintiff's application for default judgment. In my view, it is generally good practice to notify a party about an application for default judgment as there may be some good reason why a defendant, who proposes to defend a claim, has not filed a defence within time. However, in the present case Mr Judge was not legally represented at the time he was served, so that there was no legal practitioner who might have been served on his behalf, and there is evidence in the affidavit of Mr Khoury that he avoided service of the statement of claim. In those circumstances, I express no criticism of the plaintiff. 3. Moreover, in my opinion the defendant has given a satisfactory explanation for not filing a defence in a timely fashion, i.e., that his mental health issues prevented him from providing solicitors with sufficient instructions. I accept the uncontroverted opinion of Mr Watson-Munro that the defendant's mental health condition is genuine and long-standing and has affected his dealings with the plaintiff.` 4. Finally, I observe that the defendant has brought this application expeditiously such that there has not been any significant delay in bringing the application to set aside the default judgment. 5. Taking all matters into account, I propose to exercise my discretion in favour of the defendant and set aside the default judgment obtained by the plaintiff on 12 October 2022. 6. As to costs, it was submitted on behalf of the plaintiff that she should have her costs. The defendant did not disagree. Orders 1. I make the following orders:- 1. The judgment entered by default against the defendant on 12 October 2023 be set aside. 2. The defendant file and serve a defence by 16 March 2023. 3. The defendant is to pay the plaintiff's costs of the motion. 4. I stand the matter over to the Registrar's list on 20 March 2023. ********** 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: 10 March 2023