New South Wales Supreme Court CITATION : Commonwealth Development Bank of Australia Ltd v Rafidi & Anor [1999] NSWSC 616 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 13941/96 HEARING DATE(S) : 3 June 1999 JUDGMENT DATE : 23 June 1999 Commonwealth Development Bank of Australia Ltd (Plaintiff) PARTIES : Iyad Rafidi (First Defendant) Tina Rafidi (Second Defendant) JUDGMENT OF : Master Harrison Mr A G Bell (Plaintiff) COUNSEL : Mr D K L Raphael (Defendants) L E Taylor of Sydney (Plaintiff) SOLICITORS : Smith Monti & Costa of Fairfield (Defendants) CATCHWORDS : Set aside default judgment ACTS CITED : Supreme Court Rules s 40 r 9(2) CASES CITED : Cohen v Williams (1995) 39 NSWLR 476 DECISION : See para 35 16 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON WEDNESDAY, 23 JUNE 1999 13941/96 - COMMONWEALTH DEVELOPMENT BANK OF AUSTRALIA v IYAD RAFIDI & ANOR JUDGMENT (Set aside default judgment) 1 MASTER: By notice of motion filed 19 October 1998 the defendants seek that default judgment entered on 29 January 1997 be set aside. The defendants relied on their affidavits sworn 9 October 1998, a further affidavit of the first defendant of 25 November 1998, affidavits of Tony Manna sworn 9 October 1998, Peter Graham Heness sworn 3 June 1999 and Roslind Sue Winter of 19 May 1999. The plaintiff relied on the affidavits of Nicholas Charles Ireland sworn 18 February 1999, Stephen John Asciak sworn 18 February, Stephen Terry Dubedat sworn 2 March 1999 and Paul Denison Westwood sworn 31 May 1999. Mr Dubedat, Ms Winter and Mr Westwood are handwriting experts. Both defendants were cross examined. 2 The defendants sought an adjournment on the basis that firstly, Mr Manna was unavailable for cross examination and secondly, they wished to file a further affidavit, namely that of Mr Heness. Mr Heness was also unavailable for cross examination. The defendants' solicitors had been notified in time that Mr Manna was required for cross examination. In lieu of granting an adjournment, the plaintiffs wished to proceed with the application even if I allowed the affidavit of Mr Manna and Mr Heness into evidence. I allowed these affidavits to be read. The Law 3 The relevant part of s 40 r 9(2) of the Supreme Court Rules (the Rules) provide: "(2) The Court may set aside or vary a judgment - … (b) where the judgment has been entered after judgment has been given in the absence of a party, whether or not the absent party had notice of trial or of any motion for the judgment." 4 In determining whether default judgment should be set aside Priestley JA in Cohen v McWilliam (1995) 39 NSWLR 476 at 481 stated: "It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only on the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct." 5 For the defendants to succeed in their application to set aside default judgment they must give an adequate explanation for the delay in filing their defence and show that they have a defence on its merits, or as often expressed a bona fide defence. However, as Priestley JA said in Cohen it is a fundamental duty of the court to do justice between the parties. 6 The defendants' counsel submitted that I should accept the defendants' evidence as truthful and that they have an arguable defence. The plaintiff's counsel submitted that, firstly, the defence is not bona fide and has no apparent prospect of success; secondly, the defendants have deliberately sought to avoid service and their actions have caused the plaintiff to incur substantial costs in the Federal Court in the bankruptcy proceedings and thirdly, that the defendants were aware of the default judgment in 1997 so have not adequately explained the delay in the moving to set aside default judgment. The defendants' defence is that the signatures which appear on p 5 of the guarantee were not made by them. A copy of the proposed defence is before the court. 7 I turn to give a history of events that led to the default judgment being entered. By statement of claim filed 25 September 1996 the plaintiff alleged that on 17 January 1996 the first and second defendants executed a guarantee in favour of the plaintiffs (the guarantee). The first defendant is Iyad Rafidi and the second defendant is Tina Rafidi. The first and second defendant are married and were directors J J Kidz Where Pty Limited ACN 066 196076 (Kidz) at the relevant times. The guarantee was executed to secure the repayments to the plaintiff of all moneys advanced or to be advanced to Kidz up to an amount of $241,000 plus interest and costs. As at 28 August 1996 the plaintiff alleged Kidz was indebted to the plaintiff in the sum of $186,929.54. The plaintiff demanded from Kidz payment of the sum of $186,929.54 together with interest. Also by letter dated 28 August 1996 the plaintiff demanded in writing payment of the sum of $186,929.54 from each of the first and second defendants. The plaintiff alleged that Kidz and the first and second defendants have failed to pay the $186,929.54. The plaintiff sought judgment against the first and second defendants for that sum. 8 The plaintiff encountered difficulties in serving the statement of claim upon the defendants. To support the application for substituted service, the plaintiff relied on an affidavit of Brett Donnelly. Mr Donnelly deposed that he had spoken to Peter Heness, the landlord to which the defendants paid rent for commercial premises on 8 October 1996 at 3.30 in the afternoon. However, Mr Heness disputes that this conversation occurred. Mr Heness deposed that during October 1996 he did not receive any enquiry from any person as to the whereabouts of Iyad Rafidi. Neither Mr Donnelly or Mr Heness were available for cross examination. The plaintiff's solicitor was not notified in time that Mr Donnelly was required for cross examination. 9 On 8 October 1996 Brett Donnelly also deposed that at 8.00 pm he attended 6 Matero Close Edensor Park (the property) to serve the defendants with a statement of liquidated claim. A male person he encountered told him that the defendants had moved back to Lebanon. However, Mr Donnelly recorded that the occupant of 7 Matero Close said that the people who lived at No 6 were named Rafidi and had been there for five years. On 15 October 1996 Mr Donnelly had a conversation with Iyad Rafidi where Mr Rafidi advised Mr Donnelly that he would accept service at any time. The first defendant denies that he had a conversation with Mr Donnelly and denies being present at the property on that day. On 15 October 1996 at 8.55 pm Mr Donnelly attended the property and spoke to a male person he had not encountered previously. The male person said "He does not want to speak to you, now piss off." Mr Donnelly was then physically assaulted. 10 In a letter by Lawler Davidson to the plaintiff dated 23 August 1996 (Ex 1) the writer Mark Franklin referred to a conversation with Mr Heness. Mr Heness provided a wealth of information concerning the whereabouts and financial position of the first defendant to Mr Franklin. 11 A letter by Acumen Financial Services to Lawler Davidson dated 9 October 1996 stated that when the commercial agent attended the property, a male fitting the description of Iyad Rafidi advised that the defendants had moved back to Lebanon. Once again despite the alleged return to Lebanon the neighbours at Nos 7 and 9 confirmed to the commercial agent that the occupants had lived there for a number of years. I accept there is a dispute between Mr Donnelly and Mr Heness as to whether or not they had a conversation in October 1996. There is a dispute also as to whether Mr Donnelly spoke to the first defendant on 15 October 1996. 12 On 19 November 1996 the court made an order for substituted service. The court ordered that a sealed copy of the statement of claim and affidavit of Tessa Bruno sworn 15 November 1996 be posted by ordinary post to No 6 Mataro Close, Edensor Park together with the sealed copy of the order. Service of the statement of claim was deemed to have occurred at the expiry of 14 days after the above order had been complied with. 13 On 29 January 1997 default judgment was entered. Judgment was entered against the first and second defendants in the sum of $196,186 with costs. 14 The contents of the defendants' affidavit of 9 October 1998 are identical. They deposed that they have never received a statement of claim. They say that at the time that service was purported to be effected they did not reside at 6 Mataro Close, Edensor Park. They say that they left that home on or about 1 July 1996 and moved in with the first defendant's brother-in-law Tony Manna at 2/11 Chiswick Road, Granville. They say they continued to reside there until about 17 December 1996 when they moved to rented premises in Franklin Street, Bossley Park. Tony Manna has also filed an affidavit confirming the defendants' version of events but was unavailable for cross examination. A real property search shows that on 18 August 1997 the defendants transferred the property to Giuliano Carrozzi and Melina Cavasinni. 15 In August 1997 a creditors petition was issued against the defendants by Martin and Savage Pty Limited. On 18 August 1997 the plaintiff in these proceedings, the Commonwealth Development Bank, had its notice of motion seeking to be substituted as petitioning creditor heard. The bank's motion was unsuccessful on the basis that it had not made a demand for the sum outstanding by the defendants by July 1996, being the time the act of bankruptcy relied upon the original creditor's petition. The bank's demand was not made until August 1996 so the motion was dismissed. 16 Since 18 August 1996 the plaintiff in these proceedings attempted to serve bankruptcy notices upon the defendants. In August, 1998 the defendants were forwarded the bankruptcy notices via the first defendant's father's home at Cabramatta. These notices referred to the default judgment. They are disputing that service has been effected in the current bankruptcy proceedings. According to the defendants this was the first notice they had of the default judgment. On 19 October 1998 the defendants filed this notice of motion to set the default judgment aside and sought leave to file a defence. 17 I turn to consider whether the defendants have a bona fide defence. The defendants say that they have been shown a document by their solicitor which purports to be a deed of guarantee from themselves to the Commonwealth Bank in respect of money s advanced to Kidz. They say that this is the first time that they have seen these documents and that the signatures that appear on the document and guarantee are not their signatures. They say that they have not guaranteed the payments of moneys by that company to the Commonwealth Bank. (I shall refer to the handwriting experts' evidence later in this judgment). 18 The defendants admit that they had previously given personal guarantees to the ANZ bank but say that after doing so, decided that they would not provide personal guarantees in the future. Kidz was involved in the manufacturing and retailing of children's clothes. In December 1995 Kidz had 4 retail outlets at Parramatta, Hurstville, Miranda and Penrith. The company needed to borrow money to pay for the fitting out of the Penrith shop. At that time the company owed $130,000 to a firm called "It Fits" and $60,000 to the ANZ bank. 19 The first defendant admitted that he knew security would need to be given for the loan to be approved and it needed to be satisfactory to both the company and the bank. Both defendants realised the importance of obtaining this loan. The first defendant does not recall a meeting which took place at the company's factory at Lansvale with Mr Asciak who then held the position of Business Development Officer of the Parramatta branch. However, the first defendant does recall discussions with Mr Asciak about the loan (t 7). According to the first defendant, Mr Asciak told him that he required a bank guarantee from the defendants and the first defendant replied that they would not sign a personal guarantee. The first defendant does not depose to this conversation in his affidavit. 20 The first defendant admitted that he signed a Privacy Act consent in favour of the Commonwealth Development Bank next to the words guarantor and below the term "Guarantor". Full names and addresses of guarantors and then the names of the first defendant and his wife also appear on that document. The first defendant acknowledged that he read that document before signing it. The second defendant recalled a meeting between Mr Asciak at the factory. She said that she left the business arrangements to her husband and signed documents when advised to do so by her husband (the first defendant). She did not take an active role in the conversation and could not recall the details of the conversation. 21 Mr Asciak's version of events is that in December 1995 he visited the factory premises. He recalled that during this meeting he said to the defendants that the bank would require personal guarantees from both directors and that this was a normal requirement. Neither defendants said anything in response to this that indicated that they would not be prepared to give personal guarantees. 22 The defendants subsequently signed an application for finance dated 17 January 1996. Paragraph 5(b) of that application for finance required the defendants to enter into a joint and several guarantee for $241,000 by Iyad Rafidi and Tina Rafidi. Both defendants gave evidence that they had no difficulty reading the English language. The first defendant admitted that he read most of the relevant parts of the document and although he believed he read para (5) he does not recall noticing the reference to the personal guarantee. 23 Both parties admit signing the application for finance. Also on 17 January 1996 the parties admit to signing a number of documents such as an equitable mortgage, a document entitled composite authority, a request to complete and pay, solvency statement, statutory declaration, four letters of request and indemnity, a guarantee drawing authority. The defendants said that they signed the documents at the office of Mr Chapman the company's financial adviser. The first defendant signed and the second defendant attended Mr Chapman's office later as both defendants could not be away from the factory at the same time. The defendants admitted affixing their signatures on the back page of the guarantee but they deny signing the guarantee at the foot of page 5. Additionally, both defendants deny placing the initials in the margin at para 5 of the document. 24 The first defendant identified his signature and recognised the signature of his wife on the last page of the guarantee. The first defendant thought the last page of the guarantee may have been given to him separately. This cannot be correct as the document is folded and the last page is printed on both sides with the disputed signatures on one side and the other signatures referred to above on the other side of the page. The first defendant said that he relied on his financial adviser, Mr Chapman. It was Mr Chapman who gave him the documents which he signed, except the personal guarantee which he refused to sign. The first defendant now believes that the signatures on the second last page of the guarantee are that of Mr Chapman. The first defendant does not remember how long it took to sign the documents but estimates it took an hour or two. He does not recall whether he signed the documents in the morning or the afternoon. 25 The first defendant's explanation as to why he signed the document when he was not prepared to give a guarantee was that Mr Asciak said that he understood that the defendants were not going to give a personal guarantee but were going to do a financial check on then before the creation of a loan (t 9.35-40). This conversation also does not appear in the first defendant's affidavit. The first defendant maintains that although it was very obvious to him that the document was a guarantee and even though his signature appears on the guarantee and that he read it before signing it he did not want to sign the guarantee and only did so because he was assured that at the end of the day they would not be signing a guarantee (t 18). He also did not appreciate that he was signing a guarantee because his business consultant Mr Chapman understood he would not be signing any guarantee documents (t 17). The first defendant also admitted that he signed the guarantee in four other places. The first defendant conceded that he never wrote back to the bank informing it that he had not agreed to give a personal guarantee. 26 Mrs Rafidi, the second defendant relied on her husband's advice because he was responsible for the business side of things and she would sign the documents her husband told her to sign. According to the second defendant before she went into Mr Chapman's office her husband said "Go in. Be very careful, don't sign any personal guarantees as we discussed." She replied "That's fine." (t 41). Of course this cannot be the literal truth as it was both defendants' evidence that they went to Mr Chapman's office separately. She said that on 17 January 1996 she knew she needed to sign documentation to obtain the loan. "To be honest" she did not read the documentation because she had been too busy in the factory. Mr Chapman took phone calls and in between then he would say "sign here Tina." She noticed that her husband had told her not sign a personal guarantee. Her husband had not signed the second last page. Mr Chapman said to her "We'll have to call him back in. Aren't you going to sign it?" She replied "No. I don't trust any gentlemen." Then Mr Chapman had a few words to say about men and women. He then said "Are going to sign it or not." According to the second defendant, Mr Chapman was very abrupt and he did not like her. Despite the second defendant's perception that Mr Chapman did not like her, he apparently asked her out to lunch afterwards. The second defendant was upset at receiving this invitation and this caused her to remember the signing of the guarantee. None of these conversations between her husband and herself, herself and Mr Chapman are referred to in her affidavit. At this stage it is appropriate to record my impression of the second defendant's demeanour. She appeared anxious to tell the court that she had been told by her husband not to sign a guarantee. 27 In relation to the second defendant's signature on page 6 of the guarantee, the handwriting experts Mr Westwood and Ms Winter agree that the questioned signatures in the name Tina Rafidi were written by the person who wrote the specimen Tina Rafidi signatures. As Mrs Rafidi signed the specimen signatures, there is no expert evidence to support the second defendant's assertion that she did not sign the guarantee at the foot of page 5. It is inconceivable that someone forged her initials in the margin at para (5) of the guarantee. 28 The handwriting experts also agree that the questioned Iyad Rafidi signature on page 6 of the guarantee was written by the person who wrote the specimen Iyad Rafidi signatures. The only substantive issue they are not in complete agreement, is in respect of opinions regarding the initials and signature in the name of Iyad Rafidi on pages 2 and 5 respectively of the subject guarantee. In Mr Westwood's view the initials on page 2 may well have been written by the writer of the specimen Iyad Rafidi signatures, and the questioned signature on page 5 was probably written by the writer. Ms Winter was unable to reach a conclusion one way or the other on the issue. This evidence does not support the first defendant's version that it was not his signature on page 5. 29 There are some difficulties with the defendants' version of events. The events surrounding the signing of the guarantee make the first defendant's explanation as to the signature on the second last page not being his, implausible. He was an experienced businessman. On 17 January 1996 he signed at least 10 documents in order to obtain the loan, yet did not place his initials on the guarantee at paragraph (5) nor did he sign on the second last page but turned the document over and signed the last page. When giving evidence, he did not display any difficulty recognising documents or answering questions in relation to them. He admitted he was familiar with and recognised a personal guarantee. 30 There were also inconsistencies in the first defendant's evidence. The first defendant gave evidence that they moved out of the property in July 1996 at a time when they were experiencing financial difficulty and the house was to be put on the market. His wife did not want to stay in the property with people going through it. He said that he told the ANZ bank that he had moved and gave it his new address. He returned to the house every 3 weeks or so to mow the lawn and clean up. He kept the electricity connected because he had lighting going on and off and the fridge had a few drinks it. There was no-one living in the house but the furniture was left in there. He does not recall when he had the mail re-directed but he found mail in the letter box from time to time which he handed to his solicitor. He was not sure if the telephones lines remained connected between July 1996 to December 1996. He does not remember receiving a s 57(2)(b) notice but if he had received it he would have handed it over to his solicitor. 31 The first defendant conceded that he may not have told his solicitor that he had moved. In relation to the first defendant informing the ANZ bank of his change of address, there is correspondence addressed to the first defendant at 6 Mataro Close, Edensor Park between 14 January 1997 and 17 October 1997. The bank's letter of 14 January 1997 refers to a round table meeting to attempt to come to a commercial settlement in relation to money owed by the Rafidi group of accounts to the bank. The negotiations resulted in a settlement which was later dishonoured. Be that as it may, it is clear that the first defendant received correspondence at the property in order to follow up the bank's offer. This correspondence commenced 7 months after the first defendant allegedly left the property. Also it is clear that the first defendant did not tell the ANZ bank throughout this period that he had moved premises. 32 The first defendant was asked in cross examination how could he explain his electricity bill of $300 in November 1996. He remembered that the prior electricity bills were in the order of $700. However the electricity account revealed a different scenario. In April 1996 the electricity account was in the sum of $404.35, at as June 1996 the account was for the sum of $340.20 and up to September 1996, the account was in the sum of $309.25. The electricity bill did not decrease markedly during the period when the defendants had allegedly moved out of the premises. 33 I turn now to consider whether the defendants have explained the delay in moving to set aside the default judgment. As previously stated the defendants in their affidavits depose that they only became aware of the default judgment in August 1998 when the bankruptcy notices were forwarded to them by the first defendant's father. This version of events is at odds with a letter by the defendants' solicitor to the plaintiff's solicitor dated 14 August 1997 (annexure B to the first defendant's affidavit of 25 November 1998) which referred to the default judgment having been entered. When confronted with this evidence both defendants conceded that in August 1997 they knew about the default judgment being entered. But their motion to set aside judgment was not filed until over a year later, namely on 19 October 1998. It is my view that the defendants caused this motion to be filed after the bankruptcy notice was served on them in a bid to stave off the bankruptcy proceedings. They have not provided an adequate explanation for their delay. 34 I cannot accept that the defendants were giving frank and truthful evidence. They both gave evidence under cross examination which conflicted with their affidavit evidence on a number of matters. One topic was when they became aware of the default judgment being entered. The second defendant gave evidence of a critical conversation in relation to the signing of the guarantee which did not appear in her affidavit. The first defendant also gave evidence of a conversation relating to the guarantee which did not appear in his affidavit. The first defendant gave inconsistent evidence about informing the ANZ bank of his change of address and the electricity accounts. The version of events of the defendants that caused them to not sign the guarantee at para (5) nor initial para (5) and not sign at the foot of page 5 yet signed in four other places is implausible. The expert evidence does not support the defendants' contentions. Although there is some evidence by Mr Manna and Mr Heness which may assist the defendants, I have reluctantly come to the conclusion on the balance of probabilities that the defendants do not have a bona fide defence. Nor have the defendants furnished an adequate explanation in the delay in moving to set aside default judgment. Justice is best served if the default judgment is not set aside. I dismiss the motion with costs. 35 The orders I make are: (1) The notice of motion filed 19 October 1998 is dismissed. (2) The defendants are to pay the plaintiff's costs. ********** Last Modified: 06/24/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.