New South Wales Supreme Court CITATION : Bidvest v McKenzie [2000] NSWSC 209 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 20309/99 HEARING DATE(S) : 15 March 2000 JUDGMENT DATE : 23 March 2000 Bidvest Australia Limited (Plaintiff) PARTIES : Peter John McKenzie t/as Specialised Installation Services (Defendant) JUDGMENT OF : Master Harrison Mr N Francey (Plaintiff) COUNSEL : Mr S Habib (Defendant) Mr Stephen Moss McCabes SOLICITORS : (Plaintiff) Turtons (Defendant) LEGISLATION CITED : Supreme Court Rules - s 40 r 9 Law Reform (Miscellaneous) Act Evans v Bartland (1937) AC 473 at 489 Vacuum Oil Pty Limited Stockdale (1942) 42 SR 239 CASES CITED : Cuttle v Brand (1947) 64 WN 96 Cohen v McWilliam (1995-96) 38 NSWLR 476 at 481 Storey v John (NSWCA, unreported 8 December 1997) DECISION : See para 23 8 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON THURSDAY, 23 MARCH 2000 20309/99 - BIDVEST AUSTRALIA LIMITED v PETER JOHN McKENZIE t/as SPECIALISED INSTALLATION SERVICES JUDGMENT (Set aside default judgment) 1 MASTER: By notice of motion filed 13 December 1999 the defendant seeks firstly that judgment entered against him on 15 September 1999 be set aside or alternatively that the proceedings be stayed. The second order is not pressed. The defendant relied on his affidavits sworn 12 December 1998 and 17 February 2000 and the affidavits of Danikka White sworn 16 February 2000 and John Kikilas sworn 1 February 2000. The plaintiff relied on the affidavits of Stephen John Moss sworn 25 January 2000 and 28 February 2000 and James Stephen Twigg sworn 27 January 2000 and 2 March 2000. All of the defendant's deponents were cross examined. 2 Default judgment was entered on 15 September, 1999. The notice of motion to set aside the default judgment was filed on 13 December, 1999. There has been a delay of nearly three months. 3 The statement of claim was filed on 8 July, 1999. It alleges that the plaintiff is the owner of a warehouse and office complex at Rozelle. The defendant was a boilermaker and engineer carrying on business under the name of Specialised Installation Services. It is alleged that in August, 1998 the Plaintiff and the defendant entered into an agreement whereby the defendant remove a refrigeration plant and the plaintiff would pay the defendant the sum of $38,000.00. On 14 August, 1998 during the course of the work and during the use of a oxy-acetylene torch to remove old pipes and the refrigeration equipment from the premises , a fire started which quickly spread through the premises. It is alleged that the defendant was negligent . The plaintiff claims damages of $800,000.00. The Law 4 The relevant parts of Part 40 r 9 of the Supreme Court 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." … (3) The Court may, on terms, set aside or vary an order - (a) where the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default, and whether or not the absent party had notice of motion for the order; or (b) where the notice of motion for the setting aside or variation is filed before entry of the order. (4) In addition to its powers under subrules (1), (2) and (3), the Court may, on terms, set aside or vary any order (whether or not part of a judgment) except so far as the order determine any claim for relief or determines any question (whether of fact or law or both) arising on any claim for relief and excepting an order for dismissal of proceedings or for dismissal of proceedings so far as concerns the whole or any part of any claim for relief." 5 The principles that the court should apply in determining whether or not to set aside a judgment regularly entered, as this one was, are set out in Evans v Bartlam (1937) AC 473 at 489 in which Lord Wright said that: "must show grounds why the discretion to set it aside should be exercised in his favour. The primary consideration is whether he has merits to which the court should pay heed. If the merits are shown, the court will not prima facie desire to let a judgment pass on which there has been no adjudication… The court should also have regard to the applicant's explanation why he neglected to appear after being served, though as a rule his fault (if any) in respect can be sufficiently punished by the terms as to costs or otherwise on which the court in its discretion is empowered by the rule to impose." 6 In Vacuum Oil Pty Limited v Stockdale (1942) 42 SR 239 Jordan CJ in delivering a judgment with which Davidson and Ropper JJ concurred, adopted the principles set out in Evans v Bartlam (at 243). He summarised the rule as requiring a defendant to show a good defence on the merits and also an explanation of his absence which shows that justice requires that in the circumstances that absence should be excused. In the course of his judgment he refers to absence (read delay) upon the part of a defendant and to the impact that that may have upon whether or not the defendant "had a bona fide defence which he was genuinely desirous of putting forward" (supra at 244). 7 In Cuttle v Brand (1947) 64 WN 96 at 97 Herron J (as he then was) considered the principles which should be applied in New South Wales. Herron J stated: "…No judge could, in exercising the discretion conferred on him, fail to consider both (a) whether any useful purpose could be served by setting aside the judgment and obviously no useful purpose would be served if there were no possible defence to the action, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained to which he could now set up some serious defence. But to say that these two matters must necessarily enter into the judge's consideration is quite a different thing from asserting that their proof is a condition precedent to the existence or exercise of the discretionary power to set aside a judgment signed in default of appearance." 8 In addition a further consideration to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995-96) 38 NSWLR 476 at 481: "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." 9 From these cases clear principles emerge: Bona fide defence on the merits, an explanation of delay as matters relevant to, but the latter not finally determinant of, the exercise of the discretion in determining whether or not to set aside a judgment. However, as Priestley JA said in Cohen it is a fundamental duty of the court to do justice between the parties. The plaintiff's explanation for delay 10 After some difficulties, at about 7.20 pm on 30 July, 1999 a process server, Steven Twigg personally served the defendant with the statement of claim outside the hotel on Pyrmont Bridge Road. There is a dispute as to the exact conversation that occurred between the process server and the defendant. In cross examination both adhered to their version of the conversation. The defendant's version is more unlikely. 11 After the defendant received the statement of claim he handed the document to his partner Danikka White. He requested that she forward the document to Primary Insurance Brokers of Australia Pty Limited. Ms White has deposed that she was given a copy of the statement of claim over the weekend. During the following week she photocopied the statement of claim and posted it together with a note to John Kikilas of Primary Insurance Brokers. On cross examination she gave evidence that she had a clear recollection that she had sent the statement of claim to the broker. 12 Mr. Kikilas the broker deposed that on 29 July, 1998 he arranged public liability insurance for the defendant with FAI General Insurance Limited, (FAI). He further deposed that in July 1999 he caused the statement of claim to be sent to FAI as he believed that FAI was handling the matter on behalf of the defendant. In cross examination he gave evidence that he could not recall the actual date he forwarded the statement of claim but had a recollection of doing so. Previously, a letter of demand addressed to the defendant had been forwarded via the same route to the insurer. The letter of 29 April 1999 and the statement of claim were not included in documents produced by Primary Insurance Brokers or FAI on subpoena. The defendant was co-operating with the loss adjustment investigators. When the defendant became aware that Mr Twigg was to serve a second legal document on him personally he thought that maybe something was not right. He expected that his insurer and its solicitor would be handling the matter. The plaintiff did not write to him to advise that as he had not filed a defence it was intending to apply for default judgment. On 30 November 1999 the defendant retained solicitors who wrote to the plaintiff's solicitors informing them he was presently seeking FAI's position. On 6 December 1999 the defendant's solicitors wrote to the plaintiff's solicitors informing them that the defendant's case is that he was not negligent and that he complied with all relevant safety procedures including the Australian Standard and sought consent to set aside the judgment. On 3 December 1999 the process server placed a notice to set down for trial in the defendant's mailbox. On 13 December 1999 this notice of motion was filed. 13 Even though the plaintiff may have told the process server that he did not have any assets, I accept that he forwarded both the notice of demand and the statement of claim to his broker. This accords with the evidence of Ms White and Mr Kikilas. His broker Mr Kikilas forwarded them to the insurer. It appears that on 13 May 1999 A R Connelly solicitor had written to the plaintiff's solicitors informing them that they acted for FAI in the matter and were in possession of a letter dated 14 April 1999 addressed to Mr McKenzie. I accept the defendant assumed that the broker and the insurer would take the necessary steps to defend the proceedings. When the defendant became aware that a further legal document, namely the notice to set down for trial was to be served upon him, he consulted a solicitor the next day. The solicitor acted expeditiously to have the default judgment set aside. It is my view that the defendant has provided a satisfactory explanation for the delay. The defence 14 The defendant deposed that the project included the removal of refrigeration equipment, compressors and pipe work. This process included decanting the NH(3) ammonia, declaring the system vacant and then removing the components by cutting with oxy-acetylene cutting equipment and grinding machine. On 14 August 1998 the defendant's team of workmen who were John Owen, Matt Poole and himself were working together in the upper project area of the site. John Owen was working in a safety cage approximately 2 to 3 metres below the ceiling using oxy-acetylene cutting equipment. The fire was caused by a tiny piece of molten slag which projected itself approximately 2 to 3 metres and which ignited the material in the ceiling above John Owen. John Owen used the fire extinguisher which was not able to extinguish the fire. The fire spread quickly causing an explosion and everyone was evacuated from the site. 15 The defendant stated that prior to commencing work in the area in which the fire started he ensured all necessary safety procedures had been carried out. In particular that a fire hose was used to dampen down the walls, floor and ceiling in the work area; that a fire extinguisher was placed in the cage at John Owen's feet; that Matt Poole was acting as fire watch, and had fire fighting equipment including a fire extinguisher and fire hose ready; that all combustible material was removed from the work area and that they used fire retardant blankets in and around the work area. 16 The defendant stated that in about September 1998 he was asked to attend the site to meet with a person said to be Tony Café of T C Forensic Pty Limited and Peter Thomas of Freemans Chartered Loss Adjusters. During this meeting both gentlemen questioned the defendant on his work practices and took photographs of the site. During this meeting the defendant had a conversation with Peter Thomas to the following effect. "Everything looks to be fine". The defendant replied "That's good news." During that meeting the defendant also spoke to Tony Café to the following effect. "Everything is OK here, you have nothing to worry about." The defendant replied "Thank you for confirming that." The defendant has given evidence that he ensured all necessary safety procedures had been carried out but a fire occurred when oxy-acetylene cutting equipment was being used and a tiny piece of molten slag ignited in the ceiling. No experts reports have been served but it appears that the loss adjuster's report may support the defendant's case. It is my view that the defendant has a bona fide defence. The defendant has not pointed to any actual prejudice it will suffer by the setting aside of the default judgment other than incurring the expense of defending the proceedings. As I am satisfied that the plaintiff has explained the delay and has a bona fide defence, the default judgment should be set aside. Terms 17 The plaintiff submitted that because the defendant has assets of a few thousand dollars at best, the basis upon which default judgment be set aside should be on terms that the defendant provide security for costs. The defendant gave evidence that he does not own any real property. He owns a motor vehicle but that is subject to a $15,000 loan. The plaintiff's solicitor estimates that to prepare its case and participate in a 3 day trial will cost between $67,180 and $80,680. At this stage the plaintiff is seeking security for costs up to the exchange of experts reports. 18 In Storey v John (NSWCA, unreported 8 December 1997) Cole JA (with whom Mason P and Hanley JA agreed) stated: "It is an unusual circumstances for a court to order that a defendant give security for costs. The authorities are referred to in the judgment of Twigg DCJ and it is unnecessary to repeat them. It is sufficient to say that it is a rare circumstance indeed that a court would order a defendant to provide security for costs for the simple reason that a plaintiff may commence proceedings but a defendant is dragged willingly or unwillingly into the litigation. In those circumstances, there is rarely justification for an order that a defendant should provide security for costs." 19 Even though the default judgment had been entered and the court has a discretion to set it aside on terms, it is my view that it is not appropriate to depart from the general rule. This case is not one of the rare cases where the defendant should lodge security for costs. 20 The plaintiff submitted that a term of setting aside the judgment should be that the defendant serve an experts report to substantiate his evidence that he took all appropriate security precautions. I have given this serious consideration and to so order would give a tactical advantage in that in normal circumstances it would be obliged to serve an experts report first. I do not think that this term is warranted. 21 Alternatively the plaintiff submitted that the defendant should be ordered to file a cross claim against FAI before judgment is set aside. The defendant's solicitors have foreshadowed that if FAI refused to indemnify the defendant, he will file a cross claim under s 6 against FAI. (Law Reform (Miscellaneous) Act). As the insurance position is not clear, it is not appropriate to make this order at this stage. 22 Costs are discretionary. It is my view that even though this application was hard fought by the plaintiff, the defendant has sought a indulgence of the court and he should be ordered to pay the plaintiff's costs. 23 The orders I make are: (1) The default judgment entered on 15 September 1999 is set aside. (2) The defendant is to file and serve a defence within 14 days. (3) The defendant is to pay the plaintiff's costs. ********** Last Modified: 09/25/2000 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.