KING-ORSBORN v ARTTWON DEVELOPMENT LTD SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL Kirpy P, HANDLEY and SHELLER JJA 17 May 1995 [1995] NSWCA 242 DISTRICT COURT — practice and procedure — serious and repeated default by defendants in modest debt recovery action — non-compliance with orders of judges — inadequate explanations — judge requires payment in large sum by afternoon of hearing — rejects future provision of mortgage as inadequate — whether discretion miscarried — held: In the circumstances, it did not. PRACTICE & PROCEDURE — District Court — persistent defaults by defendants in observance of orders of District Court judges — request for merciful indulgence — judge offers indulgence on terms that security in cash be provided that day — whether discretion miscarried — held: It did not. COURTS & JUDGES — jurisdiction District Court — whether jurisdiction to require security to be provided for past defaults — whether beyond power — held: It was not — although no express power to order security existed there was power to strike out defective defence upon terms. Sheller JA. Ex tempore On 30 September 1994, his Honour Judge Mahoney QC heard an application by way of notice of motion filed 11 August 1994 in which the respondent, Arttwon Development Ltd, applied to have the appellants, Mrs and Mr King-Orsborn's defences and cross-claims in proceedings commenced by the respondent on 5 August 1992 struck out. Those proceedings were commenced in the Local Court and transferred to the District Court. The appellants' defence and cross-claim were filed on 6 October 1992 and the respondent's defence to cross-claim on 30 October 1992. The application before Mahoney DCJ was supported by two affidavits which were read without objection. The first in point of time was that of Mr Graham Smith of 17 May 1993. Mr Curtin, who appeared for the respondent before Mahoney DCJ and on this appeal, informed his Honour that the affidavit was read by way of background. The affidavit substantiated a claim by the respondent based upon non-payment in accordance with the terms of a deed made by the appellants and the respondent on 18 February 1992 for an amount of $8,800 with interest as at 17 May 1993 of $1,043. The affidavit also revealed that on 28 October 1992 the respondent had sought particulars of the appellants' cross-claim and that at least as late as 16 February 1993 these particulars had not been supplied. On 16 February 1993 a notice of discovery and notice to admit facts and the authenticity of documents was served by the respondent on the appellants. In March 1993 the appellants' then solicitors gave notice of ceasing to act. The second affidavit read before Mahoney DCJ was that of Peter Ryan of 10 August 1994. That affidavit deposed that on 18 March 1994 his Honour Judge Solomon ordered the appellants to serve a verified list of documents within fourteen days. That order was not complied with. On 17 June 1994 his Honour 2 UNREPORTED JUDGMENTS Judge Dent QC ordered the appellants to serve a verified list of documents within fourteen days and that within one month the appellants serve upon the respondent statements of the evidence in chief they would seek to call in pursuit of their defence and cross-claim. The appellants did not comply with those orders. On 25 July 1994 Mr Ryan, who was the respondent's solicitor, sent a letter to the appellants' solicitors advising of their non-compliance with Dent DCJ's orders. In that letter the solicitor wrote: ... We are instructed that we require verified List of Documents and Statements of Evidence in Chief to be served on this office by close of business Friday 29 July 1994, failing which we are to bring a further motion for dismissal of your clients' defence and cross-claim. At the date of Mr Ryan's affidavit, no reply had been received to that letter. On 12 August 1994, that is to say the day after the respondent's notice of motion had been filed, the appellants' solicitors wrote enclosing a list of documents and said that they had attempted to file the same in the District Court but they were returned because a notice of change of solicitor had not been filed. The solicitors wrote that they were attending to that and would shortly be able to let the respondent's solicitors have a sealed copy. On 15 September 1994 the appellants' solicitors wrote again to the respondent's solicitors enclosing a sealed copy of the notice of change of solicitor and list of documents. The letter went on to say: ... Our client instructs us that she has been ill and because of this she has been unable to provide the Affidavits relating to her evidence within the time that she was ordered and she is shortly going to let us have a Medical Certificate to substantiate this ... They went on to ask whether the respondent's solicitors were prepared to consent to withdrawing the notice of motion if the appellants agreed to provide the affidavits within one month and pay the costs of bringing the notice of motion. On 21 September 1994 the respondent's solicitors wrote back saying: ... At present time there has been no evidence produced or mention made of the First Defendant's medical illnesses despite the fact that the Defendants were put on notice of their breach of Orders on 25 July 1994 and that this Motion was served on 19 August Prior to obtaining our client's instructions to consent to a withdrawal of the Notice of Motion against the First Defendant we require by 5 pm on 23 September 1994 evidence of the First Defendant's medical illnesses on which you seek to rely should our client proceed with the Motion... The letter went on to point out that no reason had been given for the non- compliance of the second defendant with the orders made by Dent DCJ. Finally it said: ... If you provide the requisite evidence of the First Defendant's medical illnesses within the time frame specified we will seek our client's instructions to withdraw the Notice of Motion as against the First Defendant. That led to a letter of 23 September 1994 from the appellants' solicitors enclosing a document given by the medical records manager of Wingecarribee Health Service and dated 12 September 1994. The document addressed "To whom it may concern" states: This is to confirm that SUSAN OSBORN of 174B Woolooware Road, Cronulla, presented to the Emergency Department of this hospital on 5 July, 1994, for treatment after falling off a horse ... URJ KING-ORSBORN v ARTTWON DEVELOPMENT LTD (Sheller JA) 3 On 27 September 1994 the respondent's solicitor confirmed a telephone conversation that their instructions were to proceed with the notice of motion for summary judgment and continued: ... Unless you advise to the contrary we confirm that the Plaintiff will be proceeding on the basis that the First Defendant produce no medical evidence other than that furnished in your letter of 23 September 1994. As I have said, the notice of motion came on for hearing before Mahoney DCJ on 30 September, that is to say two months after the letter advising of noncompliance and six weeks after the notice of motion was filed. It appears that at 11.20 am on that morning counsel for the respondent was served with an affidavit of Mrs King-Orsborn. In that affidavit which was dated the previous day, Mrs King-Orsborn deposed as follows: ... 2. On the Sth July 1994 I fell off a horse and was admitted to the Emergency Department of the Bowral District Hospital for treatment. 3. Isay I was suffering the effects of my fall for the following month and I was not able to concentrate or attend to give my Solicitor instructions so that she could prepare the Witnesses Statements. 4. Since mid August 1994 1 have been very busy & until the 29th of September 1994 I have not had time to give instructions to my Solicitor. 5. The Second Defendant and the Second Cross-Claimant is my husband and I know from my own knowledge that he has been extremely busy during this time because he has had to look after me and look after the children and also run a family business. 6. I apologise to the Court for not complying with the orders. I say that I have today given instructions to my Solicitor and the Statement will be filed within the following week... The medical certificate was also put in evidence before his Honour. The position was that the appellants had failed to comply with the orders made on 1$ March 1994 and had failed to comply in time with the orders made on 17 June 1994. Together with the service of the affidavit came a document which was described as a witness statement sited by Mrs King-Orsborn. It is fairly acknowledged that, even allowing for the deficiencies both in the content and form of that statement, having regard to the nature of the appellants' crossclaim, compliance with Dent DCJ's order would have required witness statements from other witnesses. An obvious example would be a witness statement from Mr Geoff Falk. In addition to that the appellants' evidence on the notice of motion was put on at the last moment and the evidence, such as it was, purporting to explain the delay, I would regard as contemptuous. It amounted to no more than saying that Mrs King-Orsborn and her husband were too busy to attend to orders made by the Court. The medical evidence throws considerable doubt upon what Mrs King-Orsborn swore in her affidavit. However this may be, on any view there was a substantial and serious breach of the two orders that had been made by the Court. Mr Curtin made it plain in his submissions to Mahoney DCJ that his application was principally based on the failure to comply with Dent DCJ's directions on 17 June 1994. He dealt with the unsatisfactory material placed before his Honour by the appellants. He submitted that it was within his Honour's power to strike out the defence and cross-claim for failure to comply with those 4 UNREPORTED JUDGMENTS orders. He pointed out that, at its best, Mrs King-Orsborn's affidavit did not explain the delay between the date the order was made and 5 July and the period from one month thereafter, namely, 5 August to the date the application came before his Honour. He pointed to the fact that there was no direct evidence from the other appellant, Mr King-Orsborn. There was also apparently some doubt as to whether Mrs King-Orsborn had certified the list of documents. On the basis of that material, counsel submitted that the orders made by Dent DCJ had not been complied with. In response, Miss Karageorge, who appeared for the appellants, said that it was obvious that her client had not complied with the directions of the Court. Asked by his Honour whether she wished to evoke some sort of beneficent jurisdiction or discretion "that wells up out of the Court's bosom to provide some sort of relief', Miss Karageorge replied, "That's correct, your Honour". His Honour said: Do you know the best way to get it going? Come up with something in the way of an earnest. How much is involved? To this question, Mr Curtin replied, "It's about — just over $12,000 ...". A discussion followed between his Honour and the legal representatives. In the course of that discussion his Honour said he had in mind that if the appellants were to have a further indulgence from the Court, it should be on the basis of some payment into Court to show that they genuinely intended to defend the proceedings. After the luncheon adjournment for reasons which were explained satisfactorily to his Honour, Miss Karageorge was late in returning to Court. Before she returned, his Honour had some discussion and announced that he accepted the proposition put to him by the respondent's counsel that, to the extent to which the District Court Rules themselves might be seen to be silent on sanctioning the non-compliance with specific directions, there must of necessity be some inherent or implied jurisdiction. A little later he observed: ... My Associate has just come into Court and she has been down in my chambers up until just a few moments ago. She tells me that there are no further messages that have come through after two o'clock and consequently I proceed to make an order in accordance with paragraph one of the notice of motion and strike out the defences and cross-claims of the first and second defendants ... Shortly thereafter Miss Karageorge appeared in Court and explained her absence and his Honour vacated the orders that he had just made. Miss Karageorge told his Honour that she had spoken to her client: ... and he instructs me that he and his wife own a property at 174E Woolooware Road, Cronulla. That property is worth $450,000. There is a mortgage of $290,000 owing to the State Bank ... His Honour said, "Let's come to the bottom line. What is his proposition?". Miss Karageorge said: Your Honour, as a last resort he's prepared to sign a mortgage and a caveat on that property to protect the interests of Arttwon in the event that if he's allowed to prosecute his defence, if it fails so there'1] be a fund there that Arttwon can recover their judgment. Mr Curtin said that he was without instructions, but thought the respondent would be concerned that most mortgages were "all money" mortgages. He said: If the State Bank is owed more or consolidates other debts, perhaps and even though we may have a second mortgage, the first mortgagee may take everything ... URJ KING-ORSBORN v ARTTWON DEVELOPMENT LTD (Sheller JA) 5 Discussion followed about whether or not the respondent would have a caveatable interest and his Honour asked how long it would take to produce the document. Miss Karageorge said it could be done within a week. His Honour said he was shortly to leave Sydney and Miss Karageorge said: ... Perhaps you can make conditional orders that in the event that the mortgage isn't signed. His Honour said: Perhaps I could. There's another way out of it, too. If he's got all that equity in the place, then all that he is really being looked to is to come up with five percent of his equity, isn't it? Miss Karageorge said: That's correct, your Honour — I asked him straight out if he had $15,000 on him. His Honour remarked, "Very few people do walk around with $15,000 in their pocket." Miss Karageorge submitted that the appellants were really being asked to provide security for costs which was unusual. His Honour said it was not security for costs, "It's security for verdict". Shortly after this his Honour said: ... Can he raise $12,000 between now and four o'clock? Miss Karageorge replied, "No". His Honour said: Right, so you're just left with whatever discretion you can squeeze out of the judicial bosom at the moment. Miss Karageorge said: ... | would think that you could make orders that are selfexecutory in the sense that if the defendants do not produce a mortgage securing $15,000 to the plaintiff by such and such a time, their defence be struck out. His Honour said: Mortgage isn't good enough. Further discussion ensued about the unusual nature of what was being sought. Miss Karageorge said that her clients had other businesses. His Honour said: If they are as well placed as that and they' ve got a quarter of a million dollars equity in their house, $12,000 is a mere bagatelle. Miss Karageorge submitted that if her clients gave a mortgage, the respondent would be able to register a caveat and they would be protected: ... I mean, they'd be in a far better position than most people who are carrying on litigation because there's a fund there. Further discussion took place about the problem, if any, in registering the caveat and Miss Karageorge explained what the position was. His Honour asked about the first mortgage and if it was for a fixed sum, and ultimately Miss Karageorge said: ... I haven't read the mortgage. Asked if there was anything else she wanted to put, Miss Karageorge said: ... that litigants have got a right to have their cases litigated. My client has been along to this Court represented by counsel on at least two other occasions. There was an application for summary judgment by the plaintiff. At that stage my client was represented by counsel. That application was unsuccessful. 6 UNREPORTED JUDGMENTS She put that it was difficult to see what prejudice there was to the respondent. She referred to the fact that there had been difficulties with the former solicitors. There was some discussion about the nature of the defence. Miss Karageorge summarised this at the end of a short submission: ... They blackmailed our client into signing a deed whereby they assumed personal liability to pay rent, when prior to that they had no personal liability and we're seeking to have that deed set aside ... A little further on she said: The first and the second defendants are cross-partners. I mean, that's why the deed was entered into. It was obvious to everyone that Corace weren't going to be able to pay the rent. But we say that our clients were blackmailed into paying it because they weren't allowed to get in to get hold of their business records. It was going to ruin the company's business. After a further short interchange, Miss Karageorge said there was nothing else she wished to put and his Honour said: ... Thank you. Well, I have heard further submissions, now, from Mrs Karageorge. I see no reason to change the views I had earlier about the merits of the case. It seems to me that the only differential factor between the situation at 2.20 when I made the orders and now at 2.35 when I come to reconsider them, is that Ms Karageorge's non-appearance was tied up with the fact that her watch was slow and not due to any disinclination on the part of the defendants to participate any further in the action. KARAGEORGE: Your Honour, I'm sorry, I was also on the phone to my client. His Honovr: So 1 am back in the situation where I was just before one o'clock when I invited Ms Karageorge to see whether or not there was some way in which a proposition could emanate from her clients to excite a discretion which, up until that stage, had been wholly unexcited by the facts as disclosed in the case. The fact that Ms Karageorge was absent has been explained to my satisfaction but that doesn't mean to say that her clients' situation in law is any the stronger. The defences and crossclaims of the first and second defendant will be struck out and the respondent is to pay the applicant's costs of the motion ... The appellants, by leave, appeal from those orders. The grounds of appeal which have been put fairly and fully by Mr Willmott, who appears for the appellants, fall under two heads. The first is that his Honour erred in the exercise of a discretion as to whether or not he would strike out the defence and cross-claim. We were taken, with some care, through that part of the transcript which I have summarised. Various comments were made about what his Honour said. In summary it was submitted that his Honour became obsessed with the idea that an order should be made unless some substantial security were forthcoming from the appellants and that that obsession carried the day to the exclusion of other relevant matters such as prejudice to the respondent and the fact, as it was asserted, that to some extent the appellants had complied with Dent DCJ's orders. I do not so read the transcript. The starting point was that the legal representative of the appellants accepted that they were in breach of the orders and that they had to make a case for the Court to exercise some indulgence if an order was not to be made. His Honour, as a matter of argument, brought to the attention of the legal representatives what he had in mind, namely, that there should be some security for the possible verdict that would be recovered if the respondent succeeded in the proceedings. This was discussed and offered by way of mortgage. The URJ KING-ORSBORN v ARTTWON DEVELOPMENT LTD (Kirby P) 7 disadvantages of the mortgage offered were dealt with in submission and ultimately his Honour formed the view that the mortgage offered was not sufficient. He turned to what he described as the other way out of it, that is to say, the payment of a sum of money into Court. In this context his Honour asked whether $12,000 could be raised by four o'clock. I think that this question can be fairly criticised. It does give the impression, certainly to someone reading the transcript, that the appellants were being asked unreasonably to provide an amount of $12,000 in cash within a period of less than two hours. However, the appellants did not suggest that money by way of a security deposit could be raised if a greater period of time was allowed. Indeed, it appears from the transcript that the most that the appellants were prepared to offer, as a last resort, was the mortgage. His Honour was of the opinion that that was not good enough. The argument thereafter turned upon various matters which were advanced by Miss Karageorge — prejudice, the nature of the defence and so on. Miss Karageorge was given every opportunity to put before his Honour everything she wished in support of the appellants' argument. After hearing her submissions his Honour made his orders. My view has fluctuated during argument about whether it could be said that the discretion was exercised in an unreasonable manner by seeking to compel the appellants at very short notice to come up with a large amount of money as the price for having the summons dismissed. However, looked at as a whole I do not think that this is what happened. Rather during argument his Honour tested out a number of possibilities. He, quite appropriately, thought it was a case in which the appellants should put up some security to demonstrate, against the background of inordinate delay, that their defence was bona fide and would be proceeded with in a bona fide way. In short, I am not satisfied that any error has been shown in the exercise of his Honour's discretion. The second ground of appeal was that it was beyond his Honour's power to compel the appellants to put up any amount by way of security as a condition of not having the defence and cross-claim struck out. No express power enabling a court to order security is to be found in the District Court Rules. However, the situation was that there had been an acknowledged breach of two orders of the Court. On the basis of that breach, certainly in so far as the delay in filing the verified list of documents was concerned, there was power to strike out the statement of defence. There was a very real question in this case, in light of the delay and the evidence to which I have referred, about whether the appellants were bona fide in seeking to pursue their defence. In those circumstances it seems to me to have been within the implied power of the District Court to require that some security be put up as an earnest of the appellants' genuineness. Accordingly, in my opinion, there was power in the Court to require, as a condition of any order dismissing the respondent's application, that some security be given by the appellants. For these reasons the appeal should be dismissed with costs. Kirby P. I agree. Handley JA. I also agree. Kirby P. The order of the Court is the appeal is dismissed with costs. Appeal dismissed with costs. 8 UNREPORTED JUDGMENTS Counsel for the appellant: M S Willmott Counsel for the respondent: G Curtin Solicitors for the appellant: Karageorge & Co Solicitors for the respondent: Paul A Brown & Co