MAGLARAS and ANOR v WESTAWAY PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, PRIESTLEY and HANDLEY JJA 2 September 1991, 24 December 1991 [1991] NSWCA 179 PRACTICE AND PROCEDURE — Judgment entered by District Court Judge (Gallen DCJ) in absence of defendants — plaintiff later applies to another Judge (Patten ADCJ) to set aside such Judgment — application refused for want of acceptable explanation of the defendants' absence at the trial subsequent further application to third Judge (Garling ADCJ) to set aside Judgment — evidence tendered which shows arguable triable issue on the merits concerning allegedly defective building works and abandonment by builder of the works — Garling ADCJ declined, in reliance upon second Judge's reasons, to set aside Judgment — on appeal, by leave — held: (1) The test to be applied in an application to set aside Judgment entered in the absence of a party requires consideration of all the circumstances. Absence of an adequate explanation for the failure of the party to attend court is relevant but not determinative of the issue. Adams v Kennick trading (International) Limited (1986) 4 NSWLR 503 (CA); Hastie v Nixon, Court of Appeal, unreported, 9 October 1991; (1991) NSWJB 107 Evans v Bartlam [1937] AC 473 (HL);applied; (2) The third judge, by accepting the reasoning of the second judge had applied the incorrect test; (3) upon terms requiring the payment of costs thrown away by the inept conduct of the defendants' case, the judgment should be set aside and the defendants allowed in to defend. WORDS AND PHRASES — "sufficient cause". District Court Rules, Pt2A, R2(3); Pt13, R1(2); Pt26, R5A(1) and (2). Kirby P I agree with Priestley JA. Priestley JA This litigation started in 1986. The defendants got off to a bad start, and their litigious performance has at all times been pretty dismal. As owners of a house they were being sued by a builder for payment for work done on the house. The way they have responded to the litigation has sometimes given the appearance that they were doing all they could to delay the proper hearing of the claim against them. In this appeal they are seeking to have reversed the decision of Garling ADCJ not to set aside a judgment given against them in their absence by Gallen DCJ on 5 November 1990. On that day Gallen DCJ was confronted with a situation which must have seemed to him to fall into a fairly familiar class. A trial was listed for hearing before him in which a builder was claiming money from the owners of premises upon which the builder had done building work in 1985. From the pleadings it appeared that for what was a significant amount of work the builder had not been paid. The pleadings also showed the owners were claiming no money was owed and that the builder owed the owners money for the cost of completing work not done by the builder and rectifying work badly done by the builder. (The pleadings showed a more complicated position than this as I will mention later, but broadly this was the picture the judge would have seen on a quick reading.) 2 UNREPORTED JUDGMENTS There was no appearance for the owners before Gallen DCJ. The builder was represented and ready to present its case. From the file the judge could see that the proceedings had begun in 1986, that in that year the builder had obtained default judgment against the owners, which had later been set aside. The file also showed that a precipe for trial had been filed in December of 1986, that there had been a callover of the matter in July of 1990 which the builder attended but the owners did not, that at the callover the date for trial had been fixed as well as a date for pretrial conference in September. The builder had attended the pre-trial conference but the owners had not. The final part of the picture as it presented itself to Gallen DCJ before trial on 5 November 1990 was that the builder satisfactorily proved that the owners knew of the date for trial and had been seeking an adjournment of it which had not been consented to by the builder. In these circumstances, Gallen DCJ cannot be criticised for proceeding to hear the plaintiff's case. The ordinary statement of claim before Gallen DCJ alleged the making of a contract in September 1985 under which the builder would do building work on the defendants' premises for payment of $55,555. It then alleged that the work had been done and no payment had been made. In the alternative it was alleged that the builder offered to complete the work but the defendants repudiated the agreement by reason of which the builder lost the benefit of the agreement and lost profit it would otherwise have received under the agreement and suffered loss and damage. The builder claimed damages and interest. The defence that was on file denied that any money was owing and said that it was the builder who had wrongly repudiated the agreement and that repudiation had been accepted by the defendants. They denied that the work had been completed under the contract. In their cross claim they alleged the same contract as that alleged by the builder, that the builder had repudiated the agreement, that they had accepted the repudiation, and they claimed damages and interest. After first satisfying himself that the defendants were aware of the matter being listed before him on that day for hearing Gallen DCJ then heard the builder's evidence. The contract was tendered and admitted. Mr Westaway, the builder's managing director gave evidence that some work had been done and progress payments claimed and not paid. He gave evidence that in March 1986 the defendant Mr Maglaras had told him to stay away from the premises. The builder never returned to the premises. Mr Westaway said that at the time when the builder stopped working on the premises "there was only some $2,482 for work outstanding". He also said that the day before Mr Maglaras told him to stay away from the premises he had had a conversation with him in which he asked him for payment and in which Mr Maglaras said he would try and pay him $20,000 in two weeks time. Mr Westaway said that he had told Mr Maglaras that was not good enough, that Mr Maglaras had received payment from the building society for $38,000 which should have gone to the builder and that to this Mr Maglaras had replied that he needed it in his business. On this evidence Gallen DCJ calculated the builder's damages as follows. The contract price was $55,555. An initial deposit of $768 had been paid by the defendants. This was the only amount paid by them. This reduced the price payable, had the contract been completed, to $54,787. The builder's estimate of the value of the work remaining to be done was $2,482. His Honour pointed out that it would have cost the builder something to earn that amount and then said that he thought to deduct $2,000 from $54,787 would be doing substantial justice. URJ MAGLARAS and ANOR v WESTAWAY PTY LTD (Priestley JA) 3 He did that and assessed the builder's damages at $52,787. He then calculated interest on that at $51,906 and pronounced judgment for the builder in the total sum of $104,693. I make a number of comments about the way in which (i) the decision to give judgment for the builder, and (ii) the amount of the judgment were reached. First, as Mr Westaway's evidence was undisputed it was not necessary for the judge to look at certain aspects of the case with any closeness. The contract provided that the $55,555 was to be paid progressively: $768 as a deposit, $23,676 as first progress payment, $13,889 as second progress payment, $13,889 as third progress payment and $3,333 as the final payment. In the builder's particulars of claim it was alleged that the first progress payment was to be paid upon completion of the pitching of the roof, the second upon completion of the internal and external lining, and the third upon completion of pre-painting. Three requests for progress payments were tendered before Gallen DCJ, dated 19 November 1985, 22 November 1985 and 10 December 1985. The first two were for the first and second progress payments and the third was for the sum of the first and second progress payments. That is, at 10 December $37,565 was being claimed. The builder had alleged in its ordinary statement of claim that on 10 December the owners had taken possession of the building. All this would give some reason for thinking that more remained to be done of the contract work than Mr Westaway said. However, in the circumstances his statement was not questioned. Second, the method of calculating damages used by the judge was not strictly correct. On general principles, it would seem to me that the proper method in the present case would have been to prove the profit the builder could have made on the whole contract and add the amount actually spent on what had been done. (See McGregor on Damages, 15th ed 1988 at 677, par 1055. Probably however, on the basis of Mr Westaway's evidence, use of the different method did not matter very much, because although rough and ready, it was likely to bring out a result fairly close to that which would have been reached by the proper method, provided the estimate of the value of the work required to complete the contract was a reliable one. This brings me to my third comment which is that Mr Westaway's estimate was a very important piece of evidence in the claim the builder was making. In the circumstances as he knew them, I think Gallen DCJ was quite entitled to act upon that estimate. If however the proceedings before Gallen DCJ had been contested, and if there had been a factual issue about the extent of the work yet to be done under the contract, then the amount for which judgment should be given would depend upon the resolution of that issue, and depending upon the way in which it was resolved, it may well have been necessary to give much closer consideration to the way in which damages should be calculated. All this is on the assumption in favour of the builder, that if the proceedings were contested, the builder would be able to establish that it was the owner who had repudiated the contract and that it had then been brought to an end by the builder's acceptance of that repudiation. The owners learned of the judgment against them late on 5 November. On 8 November 1990 they filed a motion to set it aside, pursuant to Pt26 R5A(1) and R5(2) of the District Court Rules. So far as relevant these provide that where an action that has been set down for trial is called on for trial and the plaintiff but the not the defendant appears the court may proceed to the trial of the action and, if it does, and gives judgment, the judgment "may, on sufficient cause being shown, be set aside by order of the court on terms". 4 UNREPORTED JUDGMENTS The motion was heard by Associate Judge Patten on 8 and 13 February 1991. He reserved his decision, which he delivered on 27 February 1991. In his reasons he said that evidence had been given by three witnesses to explain why it W8S that the owner had not been represented at the hearing on 5S November 1990. He referred also to there having been in evidence before him two reports by building consultants which indicated that the builder had not completed the work under the contract and which also indicated there had been some degree of defective workmanship. He accepted the two reports as providing some evidence the building work was incomplete but "in the absence of evidence as to the extent and manner of performance of the respective obligations of plaintiff and defendants under the building contract" did not accept the reports as providing reliable evidence of defective workmanship or cost of rectification. He said the reports did not support the defence that the builder repudiated the contract or that there was a total failure of consideration. He then went on to say that the common thread which seemed to run through the authorities to which he had been referred by counsel concerning the setting aside of judgments was that where an order had been regularly made against an absent party, that party must show, in order to have the order set aside that the failure to be present was not the party's fault or at least that there was an acceptable explanation for the party's absence. He held that the owners' conduct in relation to the proceedings on November 5 1990 was such as to disentitle them to any relief from the consequences thereof. To the extent that his Honour rested his decision on the owner's failure to go to court on the day listed for trial and the unsatisfactory nature of the explanations for that failure, and on nothing more in a case where it was being asserted that there were bona fide defences on the merits, it seems to me he was in error. In Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 the words "sufficient cause" in Ptl3 R1(2) were considered by this court. That rule dealt with the setting aside of a default judgment. Hope JA said: "A refusal of relief to an applicant is not automatically justified because he has failed to establish one relevant matter, such as an adequate explanation for the failure to defend or for delay; such a failure must be considered in the light of all the circumstances. The absence of an adequate explanation, particularly if it is coupled with prejudice, may justify the denial of relief, but only when considered with the other relevant circumstances of the case, bearing in mind what Lord Wright said in Evans v Bartlam [1937] AC 473 at 489: '... if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication." (at 506) In Hastie v Nixon (Court of Appeal, unreported, 9 October 1991) this court considered the meaning of the words "sufficient cause" in Pt2A R2(3). This rule deals with the setting aside of a judgment obtained on an application for summary judgment. The question in Hastie was whether the same interpretation should be given to "sufficient cause" in a Pt2A setting aside case as had been given to it in Adams in a Pt13 setting aside case. The court was of the view that the same interpretation should be given to the words in the different rules. The court also recognised that the circumstances arising under the different rules calling for consideration of the question whether sufficient cause had been shown would be likely to be very different. I think the same observations apply to the words "sufficient cause" in Pt26 R5A(2)(b). This is fully supported, it seems to me, by what was said by Jordan CJ in Vacuum Oil Pty Co Ltd v Stockdale 42 SR 239 at 241-2. The same general approach is taken in other jurisdictions. Recent URJ MAGLARAS and ANOR v WESTAWAY PTY LTD (Priestley JA) 5 examples are Davies v Pagett (1986) 10 FCR 226 (Full Federal Court) and Halmer v Cairns Hospital Board (Full Court, Supreme Court of Queensland, unreported, 17 October 1991), the latter being a case where an appeal against the refusal of a second application to set aside a default judgment was upheld. Thus, in accordance with what Hope JA said in Adams, it was necessary for Patten ADCJ to consider more than whether a satisfactory explanation for the owners' non-appearance had been given, he had to consider that fact with the other relevant circumstances of the case. That means, in this case he had to consider whether some bona fide issue had been shown in regard to the builder's claim which if found in the owners' favour would mean judgment could not be entered as it had been by Gallen DCJ. Patten ADCJ to some extent considered this question when he dealt with the building consultants' reports which were before him. However he only rejected those reports in regard to matters going to the owners' cross action. One important issue that needed to be considered was whether those reports supported the view that the incompleteness of the work required under the contract showed that there was a triable issue that the value of the work required to complete what had been promised to be done under the contract materially exceeded $2,482. Patten ADCJ did accept those reports as showing that the work was to an extent in complete. He did not, in his reasons for judgment, look further into that matter. Perhaps this was because the two reports are not at all clear in this respect. However, there was a related matter which he does not mention in his reasons at all, which was directly raised in the proceedings, as a passage in the transcript of evidence shows. The witness being cross-examined was Mr Knaggs, a former solicitor, whom Mr Maglaras had been relying on to obtain an adjournment of the trial on 5 November 1990 and who had forgotten to go to court. "Q. Well I suggest to you that you didn't turn up because you didn't have a leg to stand on, what do you say to that? A. That's nonsense. I beg your pardon, that is not true, I know very well that Con's defence is what I consider to be iron-clad on this matter. The position is that he hasn't - the time hasn't arrived for the first progress payment because the roof hasn't been completed, the specification says no payment shall be due until the roof is completed and I have photographs to show the roof is not completed. The defence in my view is absolute but it's not for me to say. Q. With respect, no it's not. KINTOMINAS: Your Honour, with respect, my friend asked this witness to give his opinion in a sense, he ought to let him complete it. HIS HONOUR: He was asked whether he didn't turn up because he knew he didn't have a leg to stand on and he's denied that. I think that's probably an answer to the question isn't it? I mean, you can ask him to explain it if you wish to in re-examination." In re-examination the following took place: "KINTOMINAS: Q. You said in answer to my friend that you considered Mr Maglaras' claim to be ironclad. A. Yes. Q. Are you yourself familiar with the building? A. Yes I am. I used to in fact live in the building. Q. And is it correct that it's in the same state now as it was after Westaway ceased work on it? A. I met Con in at the end of 1976 (sic) and I took some photographs on Monday which show the building in exactly the same state that it's been ever since I first saw it at that time. Q. Have you seen a copy of the evidence that was given on behalf of the plaintiff before Judge Gallen on 5 November? A. Yes. 6 UNREPORTED JUDGMENTS Q. And are you aware that an employee of the plaintiff asserted that there was only $2,482 for work outstanding? A. Yes I have. OBJECTION. DUNCAN: It's an interlocutory hearing. We're not here to try the merits. HIS HONOUR: Well that's so, although to an extent I think in broad terms perhaps the merits are relevant. I'll allow that question. It's only a question of whether he was aware of that evidence being given. WITNESS: Yes it was." Eventually Mr Knaggs was not allowed to give his opinion of the value of the work outstanding under the contract. It does not seem to have occurred to counsel to ask either him or Mr Maglaras to describe the physical state of the building at the time when the builder ceased work on it. That simple evidence alone, would have shown whether or not the pitching of the roof was complete or the internal and external lining were complete. This would have been sufficient to raise a question about the accuracy of Mr Westaway's estimate and would at the same time have shown that there was an arguable issue arising from what Mr Knaggs had said in the excerpt from his cross examination I have set out. However, the questions were not asked and the evidence remained in a somewhat cloudy state. Some photographs had been tendered and rejected. Nevertheless, even on what I have set out it seems to me that enough had emerged to make it necessary for the judge to consider whether there were triable issues on the merits. As I have already indicated, he appears to have been deflected from this consideration by the conclusions he had reached about the unacceptability of the owner's explanation for the non-appearance on 5 November. In the event, he dismissed the application with costs. A further notice of motion seeking the setting aside of the judgment given by Gallen DCJ was filed by the owners on 20 March 1991. The builder in turn filed a notice of motion seeking to have the owner's motion struck out. These motions were heard together on 7 June 1991 by Garling ADCJ. Mr Knaggs was permitted by the judge to appear for the owners. Garling ADCJ asked Mr Knaggs what evidence was proposed to be put before him which had not been before Patten ADCJ. Mr Knaggs replied that one item was the photographs which had been tendered before Patten ADCJ but objected to and rejected. (Counsel for the builder agreed that the photographs had been rejected as asserted. Garling ADCJ was told that the reason for the objection and the rejection was that the photographs had been taken about six years after the work was left unfinished and although they were tendered on the basis that evidence would be given that they accurately showed the point to which the work had been taken by December 1985.) Mr Knaggs told Garling ADCJ that since the hearing before Patten ADCJ some photographs almost contemporary with the cessation of building work had been located in an old brief to counsel. Mr Knaggs then submitted that these photographs would show that the roof on the building was in fact less than half complete and that he wished to raise the point that that showed that the first progress payment had not been due. Mr Knaggs then said that he wished to read an affidavit of Mr Maglaras sworn 15 May 1991. The judge read that affidavit. In it Mr Maglaras referred to a draft defence which had been prepared long before and not filed. A copy was annexed. He said that it contained "far more of the essence" of his defence than the one actually filed and he had no idea why it was not used and filed. I would be prepared to read this part of his affidavit as intending to say that he was swearing to the truth of the facts in that draft defence. It could be that the failure to swear URJ MAGLARAS and ANOR v WESTAWAY PTY LTD (Priestley JA) 7 directly to the facts was deliberate evasiveness, but it looks far more likely to me to have been a repetition of the ineptitude shown throughout the conduct of the owners' case in the District Court. In the draft defence the owners alleged that the builder had abandoned the building works on 10 December 1985 in an incomplete state and exposed to the elements. They said that that abandonment and subsequent behaviour on the part of the builder entitled them, not the builder to put the contract to an end, which they had done. In para4 of the affidavit Mr Maglaras referred to the photographs and asserted that they clearly showed the pitching of the roof and the lining had not been completed by 10 December. In para7 he denied the conversation of 20 March 1986 relied upon by Mr Westaway as justifying the builder in treating the contract as at an end because of repudiatory conduct by the owners. All these matters in my opinion showed triable issues of the sort I have earlier discussed. Two principal ones concern repudiation and the extent to which the contract work had been done by 10 December 1985. Within these two issues a number of questions of fact would need to be decided; two examples only are whether there was a conversation on 20 March 1986, and if so, what was then said; and whether the builder had been entitled to ask for the first and second progress payments when it did. However, Garling ADCJ dismissed the motion and made some ancillary orders. In giving his reasons he mentioned having given leave to Mr Knaggs to appear, and continued: "He argues that I have the right to reconsider this matter despite Judge Patten's decision and I accept that I do have that right." He then referred to matters which had not been put before Patten ADCJ in which he included the photographs and the reference by Mr Maglaras to the matters in the annexed draft defence to that affidavit which had never been filed. He concluded: "There was also some suggestion that an argument that there should have been in evidence that the first payment was not due at the time the roof was pitched and that that matter should have been argued before Judge Patten. I have had the advantage of reading the judgment of Judge Gallen and Associate Judge Patten. I am not convinced that there is any new matter which requires me to consider the very careful judgment given by Judge Patten." It was from this decision that leave to appeal was granted. This court was not hearing an appeal from the decisions of either Gallen DCJ or Patten ADCIJ. It has been necessary to deal with what they did however, both to make the whole case understandable, and also, as concerns Patten ADCJ's decision, because so much reliance was placed on it by Garling ADCJ. In my opinion, although the approach of Garling ADCJ was a very understandable one in the circumstances, his decision should be set aside. I have already given reasons why I think the materials before Garling ADCJ showed that there was an arguable defence on the merits open to the owners. This is enough in all of the circumstances which I have outlined in this case to require the setting aside of the judgment that had been entered against them, upon suitable terms. Despite the unsatisfactory way in which the owners went about their attempts to defend the proceedings, I do not think it would be right to conclude that their defences were not bona fide; it may be that they will fail at a trial, (something I am not in a position to form an opinion about) but it seems plain to me that the owners' case has not simply been manufactured in order to delay the builder in getting its money; there are sufficient signs in the materials 8 UNREPORTED JUDGMENTS that were before Garling ADCJ to show that what the owners want to raise in defence are matters it was sought to raise in 1986 and are matters which whether they end in success for the owners or not, should go to trial in the ordinary way. With respect to Garling ADCJ, he seems to me to have been in error in thinking that there had to be new matter before him which was not before Patten ADCJ before he was required to consider that judge's judgment. What that judge had decided was not the matter which Garling ADCJ had to consider, although in many second application cases the previous judgment would be a convenient source of information. The position adopted by Garling ADCJ might be appropriate for a judge to adopt if that judge had been the one who heard the previous application. But under a system which, as both counsel for the builder and the judge himself recognised, (and see Rogers v Council of the Shire of Eurobodalla Court of Appeal, 24 October 1986) allows a person against whom a judgment has been entered after a hearing in his or her absence to make successive applications to set that judgment aside, it is necessary for each separate judge who hears it to give independent consideration to the question whether sufficient cause has been shown for setting the judgment aside. I do not think such a system holds any great terrors of successive applications proving to be vexatious. There will be few cases where litigants persist in making further applications when there is no basis for doing so. This is particularly so if costs orders along the way are enforced. Even in this court, when the application for leave to appeal came on for hearing, the owners' case was not in proper form to proceed. Enough emerged however to warrant the granting of leave to appeal, and the making of orders designed to allow the appeal to be disposed of with minimum further expense. This lack of proper readiness, even at a minute to midnight (and the reason for which the court does not know; the eventual written submissions and materials were in good order) must be reflected in the costs order in the appeal. Another matter not yet mentioned will affect the orders to be made disposing of the matter in this court. Ordinarily in a case of this kind the court would consider ordering payment into court of the judgment amount as a condition of setting the judgment aside. In this case however the building contract gave the builder a caveatable interest in the owners' property. There is accordingly no need for a condition for payment in. The orders I propose are: 1. Leave to appeal granted. 2. Appeal allowed. 3. Orders made by Garling ADCJ on 7 June 1991 set aside, except those ordering the appellants to pay the respondent's costs. 4. Judgment and orders pronounced by Gallen DCJ on 5 November 1990 to be set aside, except those ordering the appellants to pay the respondent's costs, if and when condition in order 6 fulfilled. 5. No order for costs of the appeal (including application for leave). 6. Order 4 is conditional upon the appellants within twenty-eight days of today's date paying $5,000 to the Registrar of the District Court on account of and to abide payment of the costs to be paid by the appellants pursuant to the costs orders of Garling ADCJ, Gallen DCJ and Patten ADCJ, payment out of the $5,000 or parts thereof to be made by the Registrar to the respondent to the extent of the amount of any certificate of taxation of any of those costs orders or the amount stated in a letter of authority from the solicitors for the appellants, upon presentation to the Registrar of such certificate or certificates or letter or letters. URJ MAGLARAS and ANOR v WESTAWAY PTY LTD (Handley JA) 9 7. Liberty to apply. Handley JA I agree with Priestley JA. aun 7. 1. Leave to appeal granted. 2. 3. Orders made by Garling ADCJ on 7 June 1991 set aside, except those Appeal allowed. ordering the appellants to pay the respondent's costs. Judgment and orders pronounced by Gallen DCJ on 5 November 1990 to be set aside, except those ordering the appellants to pay the respondent's costs, if and when condition in order 6 fulfilled. No order for costs of the appeal (including application for leave). Order 4 is conditional upon the appellants within twenty-eight days of today's date paying $5,000 to the Registrar of the District Court on account of and to abide payment of the costs to be paid by the appellants pursuant to the costs orders of Garling ADCJ, Gallen DCJ and Patten ADCJ, payment out of the $5,000 or parts thereof to be made by the Registrar to the respondent to the extent of the amount of any certificate of taxation of any of those costs orders or the amount stated in a letter of authority from the solicitors for the appellants, upon presentation to the Registrar of such certificate or certificates or letter or letters. Liberty to apply. Counsel for the Appellant: M C Ramage QC / G Ikners Counsel for the Respondent: M B Duncan Solicitors for the Appellant: Andrews, Solicitors Solicitors for the Respondent: Williams Woolf and O'Brien by their city agents Holt Thomson