SMEDLEY v STATE BUILDING SOCIETY SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, KIRBY P and MAHONEY JA 11 July 1990, 17 October 1990 [1990] NSWCA 167 District Court — Mortgage — Equity — Practice and Procedure DISTRICT COURT — summary relief — striking out of defence — motion for — judge strikes out cross claim — party not present by reason of solicitor's mistake — whether appeal against order lies — whether relief in the nature of certiorari should be granted — held: (1) The orders made were in proceedings ancillary to an action and thus no appeal lies from them. Fraser Credits Pty Ltd vy Osterberg Olsen [1978] 1 NSWLR 121; Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86 applied; (2) Relief in the nature of the prerogative writ of certiorari lies to the District Court in respect of such orders. Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503; Keefe v Marks, (1989) 16 NSWLR 713; (3) However (per Gleeson CJ and Mahoney JA, Kirby P dissenting) the District Court judge had not been shown to be in error and the application for relief should be dismissed. MORTGAGE — duty of mortgagee to mortgagor — mortgagee's sale — whether sale at an under value — whether action lies in equity and at common law. Pendlebury v Colonial Mutual Life Insurance Society Ltd (1912) 13 CLR 676; Latec Investments Pty Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265; Forsythe v Blundell (1973) 129 CLR 47 referred to. District Court Act 1973, s44, s46, s128, s134, s161(1)(1). Law Reform (Law and Equity) Act 1972, s6, s7. Supreme Court Act 1970, s69. Supreme Court Rules Pt15 R26. District Court Rules Pt9 R17; Pt11A R1. Gleeson CJ The appellant, Mr Smedley, asks this Court to review a decision of his Honour Judge Sinclair, QC, in the District Court in April 1989. The nature of that decision, and its procedural background, will be outlined below. There has been lively debate in this Court as to the jurisdictional basis of any review of Judge Sinclair's decision. The appellant has appealed, but the State Building Society ("the respondent") denies the existence of a right of appeal (cf. Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86). Alternatively, the appellant seeks an order in the nature of certiorari. It is common ground that there is jurisdiction to make such an order, although some of the considerations relevant to such relief would raise problems for the appellant in addition to those relevant to a simple appeal (cf. Keefe v Marks (1989) 16 NSWLR 713). However, I am content to dispose of the matter upon the basis that Judge Sinclair has not been shown to be in error in any relevant respect. The application which came before his Honour arose out of the following circumstances. In April 1986 the respondent made a loan of approximately $21,000 to the appellant. That loan was secured by a mortgage over a parcel of vacant land at Wentworth Falls. In August 1986 the appellant went into default under the mortgage and in June 1987 the respondent exercised its power of sale. The respondent had previously obtained valuations of the subject property, one in the order of $14,000 and the other giving a range of between $12,000 and $15,000. In October 1987 the property was sold for approximately $14,000. By 2 UNREPORTED JUDGMENTS that time the debt owing to the respondent was about $31,000 and as a result the respondent became an unsecured creditor of the appellant in an amount of about $17,000. In September 1988 the respondent commenced proceedings in the District Court to recover the balance owing. In November 1988 a defence was filed and soon thereafter there was a motion to strike out the defence. It seems that it was accepted that the defence was not in proper form and on 9 December 1988 the defence was struck out and the appellant was ordered to file an amended defence by 12 December 1988. On the same date the appellant filed an amended defence and cross claim. The cross claim included para8 to paral4 which alleged, in an extremely general fashion, that the respondent was in breach of its duty as mortgagor in relation to its exercise of its power of sale and that it sold the land at Wentworth Falls at a gross under value. Accordingly, the appellant claimed damages. A question was raised during the course of this appeal as to whether the District Court has jurisdiction to entertain such a claim, but in the view that I take of the matter it is unnecessary to pursue that issue. Included amongst the particulars of this claim was an assertion that the respondent's agents had failed to take advantage of an offer of $36,000 for the subject property. It may be observed that there is a measure of superficial implausibility about such an assertion. That a secured creditor who was owed $31,000 would sell a property for which there was an available offer of $36,000 for a price of $14,000, leaving itself unsecured in the amount of $17,000, is, on the face of it, very surprising, having regard to the creditor's own interests. How the valuers could have been so wide of the mark is also a puzzle. The solicitors for the respondent sought further and better particulars of that allegation, and received an answer which indicated that the appellant was not in a position to give any further details. The clear inference was that the appellant's state of knowledge or belief about the supposed offer of $36,000 was extremely vague. In March 1989 the respondent filed a motion to strike out the amended defence and cross claim. This Court was informed by counsel for both parties that the motion invoked the powers of the District Court under Pt9 R17. Those powers include a power to strike out a pleading which discloses no reasonable cause of action or defence or which is otherwise an abuse of the process of the Court. The respondent's solicitors were duly served with the notice of motion and with a supporting affidavit. The supporting affidavit went into a good deal of factual detail directed at demonstrating that there was no substance in either the defence or the cross claim. No affidavit in reply was filed on behalf of the appellant, and when the matter came on for hearing there was no appearance on behalf of the appellant. Judge Sinclair proceeded to hear and determine the application and made orders that the defence and cross claim be struck out, that the plaintiff be at liberty to sign judgment on filing and serving an affidavit of debt and the defendant pay the plaintiffs costs of the motion. His Honour gave short reasons for those orders, saying that he was satisfied that there was no "proper, bona fide defence" and that he could not accept what he called "the validity of the defence and cross claim". The appellate review of that decision now sought is related only to a limited part of the defence and cross claim. The appellant seeks to attack the decision only in so far as it relates to para8 to paral4 of the cross claim mentioned earlier which allege a breach of the mortgagee's duty in respect of its power of sale of URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 3 the Wentworth Falls land. The only relevant order following that decision was that the paragraph in question be struck out. The further progress of the cross claim was not the subject of any order. In my opinion it was well open to the learned judge to reach the conclusion that there was no substance in the relevant parts of the cross claim, and that the appellant's case in relation to the alleged breach by the mortgagor of its obligations was hopeless. On the material before him, that was the proper conclusion. The history of the matter, and in particular, the inability of the appellant to give particulars of the allegation that there was an available offer of $36,000 for the land which had been disregarded, and the absence of any challenge or answer to the evidence relied upon by the respondent justified the conclusion that what was involved was nothing more than an attempt by a debtor to delay his creditor. Leave to bring proceedings in this Court although out of time was granted upon the basis that it later appeared that the failure of the appellant's solicitor to turn up to oppose the application in the District Court was the result of some oversight either on the part of the solicitor or a number of his staff. That, however, is not a matter that affects the correctness of the decision of Judge Sinclair. Furthermore, it is not apparent to me that if the solicitor had appeared he would have had anything effective to say in opposition to the motion. In the absence of some evidence to support the allegation that there was an available offer of $36,000 I would have thought it highly likely that the respondent's application would have succeeded, even if it had been opposed. The appeal and application for certiorari should be dismissed with costs. The appellant seeks a continuation for a period of 21 days from this date of order No. 6 made by this Court on 12 December 1989, staying execution on the judgment, and that application is not opposed. Accordingly, such an order should be made. Its purpose is to enable the appellant to make an application to the District Court for a stay of execution on the judgment pending the resolution of such further proceedings, if any, as may be taken in relation to the matter either in the District Court or in the Equity Division of this Court. I presume that if such an application for stay of execution were to have any substantial prospects of success it would need to be supported by evidence of the offer of $36,000 to which reference was earlier made or by some other cogent evidence of the alleged breach of duty by the mortgage exercising its power of sale. Kirby P Before the Court is a purported appeal and a summons for relief in thenature of certiorari directed to Sinclair DCJ. Leave to prosecute the appeal, although out of time, was given upon a limited basis and by a Court differently constituted. See Smedley v State Building Society, Court of Appeal, unreported, 12 December 1989. It was given subject to a contention of the respondents that no appeal lay to this Court from the orders which the appellant challenges. The summons for relief of a prerogative nature was confined by election, to the same challenge to the orders of Sinclair DCJ permitted by the Court in the extension of time for bringing the purported appeal. Sinclair DCJ appeared to submit to the orders of the Court, save as to costs. The prerogative relief was claimed belatedly, and as an insurance, in case the Court were to hold that the purported appeal was incompetent. A mortgagor in default is sued The facts relevant both to the purported appeal and the summons are common. There is little dispute about them. They emerge from the pleading and affidavits filed in the District Court and from the reasons given by Sinclair DCJ for the orders which he made. The parties have treated those materials as constituting the 4 UNREPORTED JUDGMENTS record of the District Court for the purpose of the summons. I am content to proceed upon the same assumption. See Commissioner for Motor Transport v Kirkpatrick (1987) 11 NSWLR 427, 429f; Commissioner for Motor Transport v Kirkpatrick (1988) 13 NSWLR 368, 387ff. In April 1986 the respondent building society made a loan of $20,800 to Mr Smedley. As security, it took a mortgage over real property known as Lot 9, Fletcher Street, Wentworth Falls. On 3 August 1986 Mr Smedley failed to make a payment due on that date under the terms of the mortgage. Following this and later default, the respondent sold the property the subject of the mortgage on 22 June 1987. It recovered $14,109.54 in the sale. However, with accumulated interest, the respondent claimed a debt due and owing to it by Mr Smedley of a further $17,298.73. It thereupon issued out of the District Court a Statement of Liquidated Claim which was filed on 28 September 1988 and served shortly thereafter. On 7 November 1988 Mr Smedley filed a sworn notice of grounds of defence which made no reference to the subject matter of the cross claim, shortly to be mentioned. Ten days later, the respondent filed a motion to have the defence struck out. On 9 December 1988 Mahoney DCJ, by consent of Mr Smedley, ordered that the defence be struck out. He gave Mr Smedley a short time within which to file an amended defence. Such an amended defence and cross claim were filed on 9 December 1988. This document raised, essentially, three issues. They were described in more detail in the reasons of the Court of 12 December 1989. The first two issues, by way of defence, relied upon alleged estoppels said to stand in the way of the recovery by the respondent and, further, a defence under the Credit Home Finance Contracts Act 1984. The third issue was raised by the cross claim. Amongst other things, it alleged that the respondent, as crossdefendant, had breached its duty as mortgagee, in effect, by selling the mortgaged property at an undervalue. One of the particulars given alleged: "(iv) Failure to consider or accept an offer of $36,000 made to the cross claimant for the property which offer was referred by the cross claimant to the crossdefendant." There is no doubt that a mortgagee who recklessly or willingly sacrifices the interests of a mortgagor, eg by selling mortgaged property at an under value, will be liable to the mortgagor for breach of the duty which equity imposes upon the mortgagee to Act in good faith in relation to the sale of mortgaged property for default. Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, 692; Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liquidation) (1965) 113 CLR 265, 288. There is no point questioning why this should happen given the mortgagee's own interests. It does happen and, as the cases show, has happened not infrequently through indifference, incompetence, and sometimes arrogance and even fraud. Mr Smedley verified the truth of the defence. Pursuant to the District Court Rules, he was not called upon to verify the truth of the matters referred to in the cross claim. Under Pt20 R1 of the District Court Rules, a defendant who wishes to plead a cross claim (whether by way of counter claim, crossaction, setoff or otherwise) on any cause of action on which he might have brought an action against the plaintiff in the Court, may plead the cross claim for an amount not exceeding the amount for which an action may be brought under the Act. This is what Mr Smedley proceeded, in the amended document, to do. URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 5 The respondent was not content. On 14 March 1989 it filed a motion in the District Court. It is important to note precisely the orders sought in the motion. They were: 1. That the AMENDED DEFENCE herein be struck out; 2. That judgment be entered up in favour of the plaintiff; and 3. That the defendant pay costs of and incidental to this notice of motion.(emphasis added) No reference was made in the motion to the cross claim. This had been contained under a separate heading "cross claim" in the same document as contained the amended notice of grounds of defence. In support of the motion, the respondent relied upon an affidavit of its solicitor, Mr Michael Hayter. This was a vehicle for annexing various requests for particulars addressed to the solicitor for Mr Smedley. In response to the request for particulars of the alleged offer of $36,000, Mr Smedley's solicitor replied, on 9 February 1989: "7(a) The defendant does not at present have access to documents which would enable him to answer this question with certainty. He believes the offer was made through Raine and Horne at Wentworth Falls. Further particulars will be supplied when the documents are available." Also annexed to the affidavit was correspondence from real estate agents concerning the suggested listing and selling price of the subject property. One of those agents was, in fact, Raine and Horne of Wentworth Falls. Their market appraisal was: "Would estimate the Market Value in the vicinity of $12,000 to $15,000." The Defence and Cross claim are struck out The motion to strike out the amended defence came before Sinclair DCJ on 7 April 1989. Neither Mr Smedley nor his solicitor appeared. It was proved that the solicitor had been put on notice of the hearing and that the motion had been properly served. Unfortunately, as was shown when this matter was first before this Court, the solicitor's failure to appear arose from oversight. The circumstances are set out in the reasons of the Court on the application to proceed out of time. Sinclair DCJ made the following orders: "1. That the defence AND CROSS CLAIM be struck out; 2. The plaintiff be at liberty to sign judgment on filing and service of an affidavit; and 3. That the defendant pay the plaintiff's costs of the motion." (emphasis added) His Honour added in his reasons: "Lest there be any cogent reason why the defendant is not present today either in person or by his legal representative, I direct that the solicitor for the defendant be advised by letter from the solicitor from the plaintiff of the substance of the orders made today." On 27 April 1989 the respondent signed judgment. The first line of attack on the judgment was a motion in the District Court filed on behalf of Mr Smedley on 28 April 1989. This sought an order that the orders of Sinclair DCJ should be set aside. That motion came before Davidson DCJ on 9 October 1989. The Court was informed without contest that Davidson DCJ held that he had no jurisdiction to entertain the motion. Jurisdiction was not attracted by the limited terms provided under Pt31 R12A of the District Court Rules. It was held that no inherent or other power remained to afford his Honour jurisdiction to set aside the 6 UNREPORTED JUDGMENTS orders of the court made by Sinclair DCJ. Coles v Burke (1987) 10 NSWLR 429. It was this outcome which caused Mr Smedley to commence his proceedings in this Court. Extension of time to appeal is given on a limited basis On 20 November 1989 proceedings were brought in the Court of Appeal for, in effect, an extension of time within which to appeal from the orders of Sinclair DCJ. It was those proceedings which were finally heard on 11 December 1989. Also returned before the Court on that occasion was the summons for relief prerogative in nature. It did not require an extension of time, for no fixed time is provided within which such proceedings must be brought. By majority, the Court was prepared to allow Mr Smedley to overcome the impediment caused by the late filing of the purported appeal. I would have done so generally. Priestley JA favoured confining any appeal to the orders striking out para8 to paral4 of the cross claim. Samuels JA favoured dismissing the proceedings altogether. To secure an order of the Court, I joined in the proposal of Priestley JA which represented the matter upon which the majority agreed. For the reasons which I stated, that appeared to be a preferable way of resolving the differences within the Court and more appropriate than the alternative procedure. Cf Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1977] 2 NSWLR 827, 866; O'Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601, 641. It was in this way that, by majority, the Court ordered that Mr Smedley have an extension of time to appeal "but limited to permit (him) to appeal against only those orders of Sinclair DCJ striking out the claimant's cross claim set out in para8 to paral4'". The Court also ordered Mr Smedley to pay the costs of the respondent incurred before Mahoney DCJ, Sinclair DCJ and Davidson DCJ. It ordered him to give security for the costs of the appeal. It stood the summons for prerogative relief over to be heard with the appeal. It also stayed execution of the judgment entered by Sinclair DCJ until further order of the Court. It was in this state that the matter came before the Court as now constituted. As previously mentioned, when the proceedings were called, it was announced on behalf of Mr Smedley that the claim for relief prerogative in nature would also be confined to the order striking out para8 to paral4 of the cross claim. It was thus agreed that the judgment entered by Sinclair DCJ would stand. The concern of Mr Smedley, and those appearing for him, was to preserve the entitlement to pursue the claim against the respondent as mortgagee for the sale at an under value of the subject property. The fear was expressed in the earlier proceedings, and repeated before the Court as now constituted, that, unless the order striking out the cross claim were set aside, it could constitute an impediment to the pursuit by Mr Smedley of this allegation made against the respondent. In short, it was suggested that the order of Sinclair DCJ could amount to res judicata or could give rise to an estoppel of the kind described in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 and Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332, 346, 352. To preserve the claim against the mortgagee, which has never been heard and determined on the merits, Mr Smedley sought relief from this Court, either by way of appeal or by an order in the nature of certiorari. An appeal to the Court of Appeal does not lie A fundamental and preliminary difficulty lies in the way of the prosecution of the concerns of Mr Smedley by way of appeal. It arises from the decision of this Court in Fraser Credits Pty Ltd v Osterberg Olsen [1978] 1 NSWLR 121 recently URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 7 confirmed in Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86. The orders made by Sinclair DCJ were clearly made in proceedings "ancillary to an action". In the distinction which Fraser Credits and Clutha draw attention, between rulings, orders, directions or decisions "in an action" and in "proceedings ancillary to an action'', there can be no real argument that the orders of his Honour fall into the latter category. They did not, of their own force, lead to final judgment, nor did they purport to do so. Indeed, as will be shown later, on the cross claim, they did not lead to judgment at all. In respect of the defence, judgment in the action was only obtained following the filing of an affidavit of debt (as contemplated by Sinclair DCJ) and the taking out of the judgment pursuant to the leave which his Honour had granted. Relevantly, under s128(2A) an appeal to this Court lies only from a ruling or order... "in an action". No appeal was brought from the judgment entered as such. Applying Fraser Credits and Clutha, it is clear that no appeal lies to the Court from Sinclair DCJ's order. Although this Court could cure the time difficulty presented by the step which Mr Smedley took in the District Court to endeavour to solve his problems, it cannot cure the more fundamental objection to the appeal which Fraser Credits and Clutha present. That difficulty was foreshadowed when Mr Smedley was given leave to proceed with the "appeal" although out of time. Various efforts were made by his counsel to distinguish Fraser Credits and Clutha. It was suggested that "if the decision is one which, if made in favour of the plaintiff, would entitle the plaintiff to recover the money sought in the statement of claim, then it is a decision in an action". Even if this were the test, the order made in relation to the striking out of the amended defence is not of that character. And the test is irrelevant to the order made concerning the cross claim. The purported appeal is therefore outside the jurisdiction of this Court. It must for that reason be dismissed with costs. Prerogative relief lies Mr Smedley therefore fell back on his summons for relief in the nature of certiorari. The respondent resisted the availability of such relief in a case such as the present because, so it was said, it would effectively circumvent the holding in Clutha. If the record were to be taken as the pleading and evidence in the District Court and the reasons by the judge of that court and if an error on the face of the record included any error of law, an effective appeal on points of law would be provided where Parliament had not done so. At the least, the respondent urged that the jurisdiction should be conserved to a clear case having regard to the discretion to grant or withhold relief prerogative in nature. During the argument of Clutha it was urged that the result of affirming Fraser Credits (and excluding appeals from orders made in proceedings ("ancillary to an action") was not so remarkable when it was remembered that "an enlarged facility of prerogative review" was available if error of law could be shown on the part of the District Court Judge. Glenvill Homes Pty Ltd v Builders Licensing Board [1981] 2 NSWLR 608 and Coles v Burke (1987) 10 NSWLR 429 were referred to. See eg Clutha, 116. The availability of such remedies was made abundantly plain by a recent decision of the Court in Keefe v Marks, (1989) 16 NSWLR 713. In that case, Priestley JA stated that: "The decisions of the District Court of an interlocutory nature (are) subject to review in this Court for nonjurisdictional error of law under s69 of the Supreme Court Act". In addition to the authorities already cited, his Honour referred to 8 UNREPORTED JUDGMENTS Adams v Kennick (International) Ltd (1986) 4 NSWLR 503. His Honour, in Keefe proposed orders calling up from the District Court the orders made by the judge of that court in order to quash them. In the result in Keefe, Gleeson CJ and Meagher JA reached a different conclusion. Their Honours favoured dismissal of the application challenging an order striking out a statement of claim filed in the District Court. In that sense, the observations of Priestley JA in Keefe are in dissent and add no precedential value to the rule earlier established in the many cases to which his Honour referred. But nothing which Gleeson CJ and Meagher JA said in that case cast the slightest doubt upon the correctness of what Priestley JA had concluded concerning the availability of relief in a proper case. Indeed, both the Chief Justice and Meagher JA appear to have accepted that such relief would be available, if the grounds were made out. They proceeded to deal with the summons before them upon that footing and dismissed it on the merits. It is therefore plain that relief in the nature of a prerogative writ of certiorari is available to call up the record of the District Court to quash orders, including interlocutory orders, which are shown to be infected (relevantly) by nonjurisdictional error of law. The remedy is discretionary. Have grounds for its provision been established in the instant case? Examining precisely what the trial judge did To answer this question it is necessary to examine precisely what it was that Sinclair DCJ did. Although his Honour's judgment bears the date 7 April 1989 (the day on which he determined the motion) it was not received in the Court of Appeal until 3 January 1990. It was not before the Court, differently constituted, which extended the time for Mr Smedley to bring his purported appeal. We have now had access to it. After reciting the nature of the action, the claim made in the Statement of Liquidated Claim and the fact that the evidence in the affidavit "does support the plaintiff's claim", his Honour referred to the filing of "amended grounds of defence and cross claim". He then examined the admissions and denials contained in the grounds of defence. He continued: "Thereafter in the grounds of defence the plaintiff really seems to set out a cross claim whereby in substance, as I read it, he asserts the property was sold for less than the proper amount and the defendant thereby incurred a loss. But I should return for a moment to paragraph 4 of the grounds of defence whereby the defendant pleads an estoppel arising from an alleged oral representation, about which on the evidence before me, there is a dispute of fact, the substance of which, according to the defendant's Grounds of Defence is that the plaintiff was aware of the default and nevertheless agreed to refrain from taking any action in respect of such default. Thereafter there are a number of claims in the alternative both by way of defence and cross claim, the validity of which I have great difficulty in accepting. I have come to the conclusion that I should accept the submissions of law put to me by the solicitor for the applicant/plaintiff that once again the grounds of defence do not disclose a proper, bona fide defence. It is unfortunate that the defendant is not represented here today, but I am perfectly satisfied on the affidavit of service and the statement... from the Bar Table that there has been adequate notice of this application." His Honour then went on to make the orders previously stated including the order that the defence and the cross claim be struck out. URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 9 It will be remembered that, by concession, Mr Smedley does not now seek in the summons proceedings to challenge the order made striking out the defence. Nor does he even challenge the order giving leave to sign judgment; nor even the judgment subsequently signed. Nor does he challenge the order for the payment of costs, accepting that they were properly ordered (as this Court confirmed) including for default of appearance on the occasion that the matter was before Sinclair DCJ. Therefore, the sole order that is contested is that which provided that the "cross claim be struck out". The basis in the Rules of the District Court for the order which Sinclair DCJ made in respect of the cross claim appears to have been Pt9 R17 DCR. That rule provides: "17(1) Where a pleading - (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or (c) is otherwise an abuse of the process of the Court, The Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleading be struck out. (2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1). (3) Where the Court makes an order under sub-rule (1) it may make such further order as to - (a) subsequent steps in the proceedings being taken as though the matter so struck out had not been pleaded; (b) granting time to any party to file amendment documents; (c) granting leave to a plaintiff to have judgment entered up after the striking out of grounds of defence, despite the affluction of any time limited for entering up judgment; (d) costs; and (e) any other matter consequent on the order, as the Court thinks fit." The foregoing rule is authorised by s161(2)(1) of the District Court Act 1973. Its validity was not questioned. With respect to Sinclair DCJ, who had the disadvantage of dealing with this matter, doubtless in a busy motion list in the absence of Mr Smedley and his representative and without the full argument which this Court has had I do not believe that the striking out of the cross claim was authorised by law. First, it is necessary to study the notice of motion which the respondent brought before his Honour and in which the relief sought was spelt out. I repeat that such relief was, and was only: "That the Amended Defence herein be struck out." It made no reference to striking out the cross claim. The affidavit of the respondent's solicitor which accompanied the notice of motion also referred only to the "Notice of Grounds of Defence". It asserted only that "the Notice of Grounds of Defence discloses no reasonable grounds of defence". It did not assert that the cross claim disclosed no "reasonable cause of action" within Pt9 R17 or was in some "other case appropriate to the nature of the pleading" such as to warrant an order striking it out. The references to the paragraphs of the notice of defence in the solicitor's affidavit are clearly references to the paragraphs of the grounds of defence themselves and not to the paragraphs of the cross claim. 10 UNREPORTED JUDGMENTS The form of the amended defence and cross claim should be noticed. Although collected in the one document, it is clearly divided into two parts. This is shown both by headings of equal emphasis (on pp | and 6 of the document). They are "Amended notice of grounds of defence" and "Cross claim". Furthermore, the paragraph numbering of these two parts of the document are not continuous. The "Amended notice of grounds of defence" constitutes paral to para21. The Cross claim constitutes paral to paral4. As Pt20 of the District Court Rules indicates cross claims in the District Court are a generic description of a separate cause of action, whether based on a "counter claim', "crossaction'', "setoff' or otherwise. In the District Court, cross claims are not a form of defence. The previous distinction between crossactions and setoffs is rendered irrelevant for the District Court by the terms of Pt20 RI DCR. The cross claim is thus not part of the defence. It is in the nature of a statement of claim which, for convenience, is brought into the current litigation between the parties and pleaded by way of a cross claim. It is true that, in the affidavit of the respondent's solicitor, reference is made in para9 and para10 to "the defendant's allegation that the property was sold by the plaintiff for a value less than its market value". It is in such connection that the valuations of other valuers (including Raine and Horne of Wentworth Falls) were annexed. However, that paragraph does not refer in terms to the cross claim. It was not relevant to do so in a motion addressed only to the defence. The material referred to was relevant to the contention in para6 of the amended notice of grounds of defence that, in purporting to exercise its power of sale as mortgagee, the respondent had realised "insufficient funds to discharge the defendant's obligation to the plaintiff under the mortgage". Therefore, on the face both of the motion and of the affidavit in support of it, the sole relief being sought from Sinclair DCJ concerned the defence. It was expressed in those terms. It was not expressed to refer to the cross claim. The confusion of the two may be understandable because of the use of a common document. However, especially because of the absence of Mr Smedley or his representative, it became particularly important for Sinclair DCJ to conserve any relief which he gave to that of which Mr Smedley had notice. The only relief of which Mr Smedley had notice was that an order would be sought striking out his defence. Upon that basis alone, I believe his Honour went beyond what he was asked and authorised to do. However, there is an additional ground which was that urged on the Court by the claimant. It raises a point of principle. It was that, whatever basis existed in law to warrant an order of the kind which Sinclair DCJ made, there was no basis in the evidence before him, including in the terms of the pleading, to warrant the relief given in respect of the cross claim. This was a claim brought by Mr Smedley. It was not verified; but I have pointed out that a cross claim (as distinct from a defence) does not need to be verified. The evidence as to a sale at an under value was not really before his Honour to permit him to determine the strength or weakness of his case, as cross claimant. He could not even form a view that the case was a weak one, for the only evidence he had was that provided in an affidavit directed to the defence and supplied by the respondent to the present proceedings. It was fundamental that before dismissing the cross claim, his Honour should give Mr Smedley the opportunity to be heard and to provide the evidence, if any, which he had to support it. There was on the face of the pleadings an assertion of an offer of $36,000 for the subject property. It is true that the particulars were unforthcoming URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 11 in respect of details. But documents were promised. A decision on the matter could not be made until, at least, Mr Smedley and his representatives were on notice that the issue was before the District Court for decision. The notice of motion did not say so. The affidavit accompanying it did not clearly indicate that this would be sought. It could not, in any case, cure the defect of the motion, which claimed a limited order only, in respect of the defence. Mere apparent weakness does not authorise peremptory termination of a case In Brimson v Rocla Concrete Pipes Ltd (1982) 2 NSWLR 937 Cross J, considering the equivalent provision of the Supreme Court Rules (Ptl5 R26 SCR) pointed out, correctly in my view, that an order under such a rule could only be made where a pleading was on its face obviously defective. An opinion that a case was weak or even very weak would not be sufficient to justify invocation of the peremptory power to dismiss a claim without the opportunity of a hearing on the merits. His Honour said: "Before the court will strike out a statement of claim summarily, it must be 'clear and beyond all doubt' that the pleading is hopeless. Kellaway v Bury (1892) 66 LTR 599 at 602 per Lindley LJ. Such a pleading was struck out in Hill v Scott (1892) 8 WN (NSW) 98 at 99 where Stephen J described the pleading as 'palpably and unmistakably bad'. Pring J in Woods v Wilson (1902) 19 WN (NSW) 147 at 148 said: 'I think it would be wrong for me to strike out' (the pleading) 'unless it is plain beyond all doubt that it is bad in law.' This principle is established as the approach to be taken to applications to strike out a pleading and summarily to terminate an action. It is laid down by a series of decisions of the High Court of Australia, repeatedly applied in this Court. See Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 91-2; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 128-9; Pannizutti v Trask (1987) 10 NSWLR 531; Rajski v Powell (1987) 11 NSWLR 522. Yeldham v Rajski (1989) 18 NSWLR 48, 50. The importance of precision in confining the entitlement to summary judgment to cases where there is no defence to the action, and denying it where there is a defence to part of the relief claimed, was emphasised by Needham J in ZS Projects Pty Ltd v G and R Investments Pty Ltd (1989) 9 NSWLR 686, 689. I agree with what his Honour there said. It is consonant with the exceptional nature of such relief. It is exceptional because the general principle of our law is that litigants are entitled to a hearing on the merits of any but a clearly hopeless or manifestly unarguable case. When by these standards I turn to the cross claim, I do not believe that Sinclair DCJ was authorised to strike it out. Quite apart from the fact that the motion did not ask him to do so, there was no evidentiary basis to do so (for the cross claimant had not had the opportunity of providing evidence) and the pleading was not, on its face, manifestly hopeless or bad. We do not have the transcript of the argument concerning the cross claim (if any argument separate to that advanced on the defence was placed before his Honour). But on its face, the cross claim sufficiently pleads a breach of the mortgagee's duty to the mortgagor to sell the mortgaged property in the case of a default at a proper value. Clearly, if it were the fact that Mr Smedley could prove that he had notified the respondent of a purchaser who was willing to pay $36,000 (which would have cleared his debt to the respondent and even left him in credit) the obdurate refusal of the respondent to pursue that offer and to accept it if it were firm, would be a breach of its duty as mortgagee. 12 UNREPORTED JUDGMENTS It may seem unlikely that Mr Smedley could prove these facts. In particular, he nominated Raine and Horne, Wentworth Falls, yet their letter (in evidence before Sinclair DCJ) suggested that the price for which the property was sold was entirely proper. Furthermore, no explanation could be suggested as to why a disinterested financial organisation, such as the respondent, would refuse at least to investigate such an offer which promised a total liquidation of the debt instead of a partial payment and the necessity to pursue Mr Smedley for a liquidated claim which continues to grow. The case might seem improbable. Even, apparently, very weak. But Mr Smedley was entitled to have it determined on the evidence. Instead, the cross claim was struck out without a hearing and although no notice of that possibility was given to him by the motion before the District Court. But should discretionary relief be given? Against the foregoing arguments three reasons are suggested to deny the exercise of the discretion to provide relief. The first is that, in substance, the defence and the cross claim were one document and Sinclair DCJ was entitled to treat them as such and to strike them out together. I have already dealt with a suggested basis for doing so under Pt9 R17(1)(a). As pleaded, I do not believe that it can be said that the cross claim disclosed "no reasonable cause of action". Nor do I believe that the cross claim was "otherwise an abuse of the process of the court" within Pt9 R17(c). A faint suggestion was made that what was done could be supported under Pt!l1A DCR providing for the summary disposal of proceedings in the District Court. The answers to that contention are two. First, it is not the relief claimed in the motion of which Mr Smedley had notice. Secondly, it is relevant, in any case, only to the defence and the judgment which followed the order striking it out. It is not relevant to the order striking out the cross claim. I can therefore see no basis, founded in the Rules, for the order which his Honour made in respect of the cross claim. Secondly, however, a question was raised during argument as to whether the cross claim might not properly be within the jurisdiction of the District Court. It was suggested that the duty owed by a mortgagee to a mortgagor is an equitable duty. The District Court has a limited jurisdiction in equity proceedings under 8134 of the District Court Act. None of the grounds of jurisdiction there provided (except possibly that mentioned in s134(1)(d) upon which Mr Smedley was not in a position to rely) would seem to ground an express jurisdiction in the District Court in proceedings which, in the Supreme Court, would be brought in the Equity Division. The District Court is a court of limited jurisdiction. The boundaries of its jurisdiction are spelt out by statute, principally the District Court Act. The court does not have a general equitable jurisdiction. See s44. But it does have jurisdiction under s44(1)(a), subject to the Act, to hear and dispose of: (a) Any personal action at law where the amount claimed does not exceed $100,000 where on a balance of account or after an admitted setoff or otherwise." The present respondent invoked the jurisdiction of the court on that basis. By inference, in his cross claim, Mr Smedley asserts that there is a need for a balance of account, a setoff or other resolution of the now admitted claim but contested cross claim. Provision is made by s46 of the District Court Act for judges of that court to grant equitable relief. Further, by s6 of the Law Reform (Law and Equity) Act 1972, the District Court has "in every proceeding before it" the power to: URJ SMEDLEY v STATE BUILDING SOCIETY (Kirby P) 13 "Give such and the like effect to every ground of defence, EQUITABLE or legal, as in full and ample a manner as might and ought to be done in the like case by the Supreme Court under the Supreme Court Act, 1970." (emphasis added) From the foregoing, the question is posed as to whether the cross claim brought by Mr Smedley asserts an equitable claim which lies outside the jurisdiction of the District Court and is confined to the Supreme Court. It is not asserting a "ground of defence". It would not, therefore, appear to attract the additional jurisdiction conferred by the Law and Equity Act. See also s7 of that Act. Although it is plain that this argument was not raised before Sinclair DCJ - and did not form any part of his Honour's reasons for striking out the cross claim - if it were a valid argument it could provide a discretionary reason for this Court to withhold relief of the prerogative character which Mr Smedley seeks. If it would be futile to send the cross claim back to the District Court, on the ground that that court had no jurisdiction to deal with it, the order made would be confirmed, although upon a different basis. For three reasons I would not dispose of the claim for relief on that footing. First, the District Court has not had the opportunity to decide the asserted jurisdiction and in the first instance it should be afforded the opportunity to determine its own jurisdiction where it is challenged. Cf A Barton v Berman [1980] 1 NSWLR 63, 67. Secondly, the matter is not without complexity and difficulty. It was not raised by the parties but by this Court. It was therefore not dealt with fully in argument before us. I would not be content to deal such an issue of the jurisdiction of the District Court without affording the parties the opportunity to advance their arguments on the point where normally they would be advanced, viz in the court of trial. Thirdly, the actual claim made in the paragraphs of the cross claim which Mr Smedley defends, simply asserts that the crossdefendant (ie the respondent): "In selling the property owed a duty to the cross claimant to conduct himself as a reasonable man would in selling his own property so that the cross claimant (ie Mr Smedley) could receive credit for the full value of the property." It is then claimed that the respondent breached that duty, including by the failure to consider or accept the offer of $36,000 previously mentioned. Whether a mortgagee is liable by the common law of negligence to a mortgagor in circumstances such as the present (if the facts pleaded by Mr Smedley could be proved) is a matter of some doubt and controversy. See Forsythe v Blundell (1973) 129 CLR 477. Daly v Sydney Stock Exchange Ltd [1981] 2 NSWLR 179, 197; Expo International Pty Ltd (Receivers and Managers Appointed) (In Liq) v Chant [1979] 2 NSWLR 820, 834; RP Meagher, WMC Gummow and JRF Lehane, Equity: Doctrines and Remedies 2nd ed, Butterworths, Sydney, 1984, 51f. This Court has heard no argument to the effect that the only basis of the claim pleaded by Mr Smedley in his cross claim is one provided by equity. If, in addition to equitable obligations, a mortgagee is subject to a common law duty of care to a mortgagor in the conduct of the mortgagee's sale of the mortgaged property for default, there would be no doubt that the District Court would have jurisdiction to entertain the cross claim upon that basis. Its jurisdiction would not be ousted (at least in whole) by the concurrent existence of equitable claims. This provides a further reason why the matter should go back for determination in the District Court and not be disposed of here at this stage of the argument. 14 UNREPORTED JUDGMENTS But the third reason advanced for withholding relief of a prerogative character was the most telling. It was that all Sinclair DCJ had done was to strike out the cross claim. He had not provided for a judgment in respect of the cross claim, as such. Mr Smedley could return forthwith to the District Court and either start again or seek leave to file an amended cross claim. No impediment (so it was put) stands in his way of doing so. Alternatively he could, to cure the previously unsuspected problem which might arise from the limited jurisdiction of the District Court to determine equitable claims (as distinct from defences), himself elect now to bring the cross claim in the Supreme Court. The respondent conceded that it could not resist a short extension of the stay earlier granted by the court on the execution of the judgment entered in its favour, whilst Mr Smedley and his representatives decided whether to bring the cross claim again and, if so, in which jurisdiction. I was at first minded to accept that argument. However, I consider that it is flawed. The cross claim was, in my opinion, invalidly struck out for the reasons which I have stated. At least so far as the reasons given by Sinclair DCJ disclose, the order striking out the cross claim had nothing to do with the District Court's jurisdiction. Nor did it follow a separate consideration of the evidence on the cross claim or a determination that, on its face, the cross claim did not disclose a valid cause of action, was so hopeless to warrant peremptory termination or was an abuse of process of the court. It was simply lumped in with the defence in respect only of which the motion sought relief. Conclusions and orders As we now know (but Sinclair DCJ did not at the time know), Mr Smedley's absence from the proceedings before him was contrary to his instructions and wishes. It was the result of a mistake and oversight in the office of his solicitor. Bankruptcy proceedings have been commenced against Mr Smedley. They affect his status. He does not now contest the judgment which the respondent has secured against him. But he does wish to pursue the cross claim before execution is had on that judgment. He also wishes to be protected by a stay of the execution of the judgment lest his trustee should decline to pursue the cross claim he wishes to bring. He has only been denied the opportunity of pursuing that cross claim by an apparent mistake on the part of the trial judge compounding the mistake on the part of his solicitor. Adherence to the law requires, in my opinion, that the order striking out the cross claim be set aside. The matter should then be returned to the District Court where, doubtless, the validity of the cross claim and whether it will warrant a stay of the judgment now entered, can be separately and properly considered. To secure a continuing stay of execution of the judgment Mr Smedley would, doubtless, for the first time, have to provide some evidence to support the viability of the cross claim. The course which I propose is the appropriate way to correct the record. It is also the appropriate way to deal with the judgment which was entered in Mr Smedley's absence. It is the appropriate way to put Mr Smedley to the test on the genuineness of the cross claim. It is not appropriate, to sustain an order which went beyond the motion filed, which was then made in the absence of the party affected and which was made although the process then struck out did not fall into the very limited categories of case permitting such peremptory relief. The orders which I would therefore propose are: 1. Pursuant to s69 of the Supreme Court Act 1970, call up the record of proceedings number DC 10926/98 from the District Court; URJ SMEDLEY v STATE BUILDING SOCIETY (Mahoney JA) 15 2. Order that the order made by Sinclair DCJ on 7 April 1989 that the cross claim of David Abigail Smedley filed in that court be struck out, be quashed; 3. Order that the proceedings be returned to the District Court to be dealt with according to law; 4. Order that execution of the judgment signed by the respondent against the said David Abigail Smedley be stayed for 14 days or such further or other time as is provided by a Judge of the District Court or of the Supreme Court; 5. Order that the respondent, State Building Society Ltd pay the costs of the said David Abigail Smedley of the summons. No order as to the costs therein of Sinclair DCJ; and 6. Order that the appeal of the said David Abigail Smedley from the orders of the District Court be dismissed with costs; such costs to be setoff against the costs provided in para(5). Mahoney JA I agree with the judgment of the Chief Justice in respect of the appeal and application for certiorari. I agree also with the stay which he proposes. 1. Appeal and application for certiorari dismissed with costs. 2. By consent continue for 21 days from this date the stay of execution of the judgment of Judge Sinclair QC referred to in 0.6 made by this Court on 12 December 1989. Counsel for the appellant: W Schuller Counsel for the respondent: C Birch Solicitors for the appellant: I M Genge Solicitors for the respondent: Pigott Stinson