New South Wales Supreme Court CITATION : ANZ Banking Group Pty Ltd v Stonestreet & Anor [2000] NSWSC 589 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 12347/99 HEARING DATE(S) : 19 June 2000 JUDGMENT DATE : 12 July 2000 Australia New Zealand Banking Group Pty Limited (Plaintiff) PARTIES : Ronald Stonestreet (Frist Defendant) Rosemary Frances Stonestreet (Second Defendant) JUDGMENT OF : Master Harrison Mr J Priestley COUNSEL : (Plaintiff) Ms R Sofroniou Kemp Strang (Plaintiff) SOLICITORS : Jackson Smith (Defendants) CATCHWORDS : Set aside default judgment LEGISLATION CITED : Supreme Court Rules - Part 40 r 9(2) Evans v Bartlan (1937) AC 473 Vacuum Oil Pty Limited v Stockdale (1942) 42 SR 239 Cuttle v Brand (1947) 64 WN 96 CASES CITED : Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503 Cohen v McWilliam (195) 39 NSWLR 476 Grice v Grice [1930] StRQd 261 Watt v Barnett (1878) QB 183 CGU Workers Compensation (Vic) Ltd v Carousel Bar Pty Limited (1999) 151 FLR 270 DECISION : See para 34 12 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON WEDNESDAY, 12 JULY 2000 12347/99 - AUSTRALIA NEW ZEALAND BANKING GROUP PTY LIMITED v RONALD STONESTREET & ANOR JUDGMENT (Set aside default judgment) 1 MASTER: By notice of motion filed 22 May 2000 the defendants seek firstly, an order that judgment dated 16 December 1999 be set aside pursuant to Part 40 r 9(2) of the Supreme Court Rules (SCR); secondly, that the proceedings be transferred to the Equity division; thirdly, that the matter be listed for directions; and fourthly, liberty to apply on 48 hours notice. The defendants relied on two affidavits of Rosemary Frances Stonestreet sworn 18 May 2000, the affidavits of Ronald Norman Stonestreet sworn 22 May 2000, John Christopher Gazecki sworn 9 June 2000 and Les Pettit sworn 9 June 2000. The plaintiff relied on two affidavits of Ronald Matthews sworn 13 October 1999 and 19 October 1999, the affidavit of Alan James Campbell sworn 26 October 1999, two affidavits of Kate Therese Bailey sworn 7 December 1999 and the affidavits of Mark Hancock sworn 8 December 1999,Michael William Joseph sworn 16 June 2000 and Les Pettit sworn 16 June 2000. 2 On 14 December 1999 default judgment was obtained against the defendants in the sum of $790,790.70 plus costs. 3 On 14 January 1993 the defendants guaranteed debts of Kretilex Pty Limited. Kretilex is the owner of Lot 1, Woodwash Road, Lake Cargelligo (the property) that was fitted out for use as the abattoir. The second named defendant Rosemary Frances Stonestreet was a director of Kretilex. The first named defendant was not. Between December 1994 and July 1997 the property was leased by an abattoir company Sheepmeats Australia Pty Limited (Sheepmeats). In July 1997 Sheepmeats vacated the property, during the time that Sheepmeats occupied the property. The first named defendant was employed by Sheepmeats as a stock co-ordinator. 4 By statement of claim the plaintiff alleges that on 19 August 1997 Kretilex received two advances and was provided an overdraft facility pursuant to a third agreement of 30 October 1997. It is alleged by agreement in writing between the plaintiff and defendants, the defendants guaranteed the loans of the company. The company defaulted in making payments due under the agreements. Notices of demand were served on the defendants. The plaintiff obtained judgment in the sum of $768,942.82 plus interest. The Law 5 Part 40 r 9(2) of the SCR provides: "(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." 6 From the cases of Evans v Bartlam (1937) AC 473, Vacuum Oil Pty Limited v Stockdale (1942) 42 SR 239, Cuttle v Brand (1947) 64 WN 96, Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503 clear principles emerge: Bona fide defence on the merits, an adequate explanation of delay as matters relevant to, but the latter not finally determinant of, the exercise of the discretion which is conferred upon a court in determining whether or not to set aside a judgment. 7 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) 39 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." 8 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. Explanation for delay 9 On 3 November 1999 Deputy Registrar Howe made an order for substituted service. Deputy Registrar Howe ordered that personal service of the statement of claim on the first defendant and on the second defendant be dispensed with. In lieu of personal service it was ordered that the statement of claim be served on the first defendant and the second defendant by posting a sealed copy of it to the first defendant and the second defendant by registered post to Post Office Box 73, Lake Cargelligo NSW 2672. Service was effected in accordance with these orders on 11 November 1999. 10 It is common ground that the statement of claims were not collected from the post office box and were returned to the sender, the plaintiff's solicitor. The second defendant has deposed that she never received the statement of claim. She was not cross examined. 11 Prior to Deputy Registrar Howe making an order for substituted service, there was evidence on file to show that Ronald Mathews, a licensed commercial sub-agent had made numerous inquiries to locate the defendants. On 7 October 1999 the process server had been told that Mrs Stonestreet worked at the meatworks with her sons and that the family owned it. After attempting service at the former residential address of the defendants, on the same day at approximately 3.20 pm he attended the address of Lake Cargelligo Abattoirs, Lake Cargelligo and spoke to several employees. He spoke to a female secretary and asked her if Ronald Stonestreet was available. She relied "No". He then asked "Do you know of his whereabouts?" She was told by a male employee not to say anything more and "to tell him nothing". He then asked "Is Ronald Stonestreet in gaol?" to which she replied "Yes, I can't say anything more I'll get into trouble." 12 The process server spoke to the male person and said "I need to see Rosemary Stonestreet. Is she here?" He replied, "What do you want her for?" Mr Matthews said, "I just need to see her". Mr Matthews then attended the office where he said to a female office girl, "I need to see Rosemary Stonestreet. Is she here?" The female replied, "I don't want to get into trouble." The male person whom he had previously spoken to came into the office and said to the female office girl, "Don't tell him anything." The male employee then got very upset with the secretary and Mr Matthew was asked to leave and he did so. In the light of the conversation I accept that the first defendant may not have been present at the meatworks on that day. 13 Mr Matthews conducted inquiries with the neighbours of the former residential address of the defendants but no information was known regarding the defendant. He also called at the address of "Coranga Downs" Coolabah Road, Cobar and found entry onto the proper denied as there were heavily padlocked gates. He made inquiries of the neighbours and was advised that no one lived at "Coranga Downs". Mr Matthew also made inquiries at the local police station at Lake Cargelligo and with other local residents and businesses in the area and found that nobody wanted to get involved and provide information regarding the defendant and he was told that "the Stonestreet's are trouble". He was also advised that many people in the area were in fear of Ronald Stonestreet. 14 There was evidence from the postmaster Mr Pettit at Cargelligo that PO Box 73 was still active. On 28 August 1998 the plaintiff's solicitor had a conversation with Ronald Stonestreet, the first named defendant. Mr Stonestreet when asked where he lived replied "I'm not going to tell you that. You can send everything you need to send to the post office box". On 2 September 1998 Mr Stonestreet telephoned the plaintiff's solicitor to say that he had not received the documents. 15 On 5 November 1999, the statement of claim and the order for substituted service were forwarded to the defendants. As previously stated service of the statement of claim was deemed to be effected on 11 November 1999. 16 The second named defendant deposed that she left the region in March 1997. She would sometimes request friends to check the post office box on behalf of the company. At no stage did she ever receive the statement of claim nor was it brought to her attention that the statement of claim had arrived at the post office. 17 The first defendant did not put on any evidence as to whether or not he received the notice from the post office stating there was registered mail to collect. However, all postal articles including the cards and the mail that was placed into PO Box 73 between 9 November and 21 December 1999 were collected. Collection took place on a regular basis. The statements of claim were not collected as they had to be signed for as they were registered post. 18 The existence of the statement of claim came to the second named defendant's notice when she was served with a copy of a bankruptcy notice dated 14 April 2000. On 17 April 2000, the defendant's solicitor requested a copy of the statement of claim to this court. On 3 May 2000, the first named defendant received a copy of the statement of claim from her solicitors by facsimile. On 22 May 2000 the notice of motion to set aside the default judgment was filed. The defendants acted expeditiously to set the default judgment aside once they had been served with the bankruptcy notice. 19 The plaintiff referred to Grice v Grice [1930] StRQd 261 and Watt v Barnett (1878) QB 183 and the defendants referred to CGU Workers Compensation (Vic) Ltd v Carousel Bar Pty Limited (1999) 151 FLR 270. 20 Carousel Bar is a recent decision concerning the service of a statutory demand. There was no order for substituted service made. The statutory demand was served at the prior registered address of the company and returned to sender. As this case does not involve an order for substituted service it is not of assistance. 21 Grice concerned an order for substituted service in a matrimonial causes application. In Grice, Macrossan SPJ referred to the decision of Watt. At 363 His Honour held that; "…the Chief Justice having made an order for substituted service under O. X., r 16, and O. XCIII., r. 8, which enabled the plaintiff to serve the defendant with the original writ in Queensland by that method, and the plaintiff having complied with the terms of that order as to substituted service on the defendant in Queensland, O. CXIII., r. 8, provides that service so effected in accordance with any such order shall have the same operation as personal service. Watt v Barnett . Henchman J. had then, in my opinion, complete jurisdiction to make such order on the summons referred, as he, in the exercise of his discretion under O. XV., r. 12, deemed proper. I have no doubt, provided he exercised his direction judicially…" 22 In Grice personal service was deemed to have been effected. 23 In Watt the plaintiff obtained an order for substituted service and the defendant applied to have the order set aside on the basis that he had no knowledge of the action. Cockburn CJ held that an order for substituted service is not finally binding and conclusive, if the court is satisfied that through that order injustice will be done if the defendant is not let in to defend, he never having had knowledge of the action. This in my view, is the applicable law. 24 As previously stated, it is not known whether the first defendant collected the notice informing him that there was registered mail to collect and decided not to do so. It is odd that other mail was collected during the six week period when the statements of claim were available for collection but the statements of claim were not so collected. He had previously refused to divulge his address for service. The second named defendant avoided service at the meatworks. The order for substituted service is not binding and conclusive and I have a discretion to set the order aside. In the exercise of my discretion, I would not set the order for substituted service aside. In the circumstances set out above, Mr Stonestreet has not provided evidence. 25 The first defendant has not put on any evidence as to whether he knew of the existence of the statement of claim and whether he collected mail from PO Box 73. Defence 26 No defence has been put before the court. In other words, there is no pleading which would show that the defendants have a bona fide defence. The defendants give identical evidence in relation to the circumstances giving rise to the signing of the two agreements dated 19 August 1997. In relation to the agreement of 19 August 1997, according to the defendants a conversation occurred between a bank manager, Jeff Cowan and themselves where he said that Kretilex owed the bank a lot of money and the bank would call in on the debts unless he rolled them into one. He said that the defendants would have to get a fully drawn account for $480,000 at 9.2% per annum, but to get the $100,000 overdraft Kretilex would have to take out a second fully drawn account of $200,000 to cover Sheepmeats' debt and the bank would not give the defendant the $100,000 if they did not take on Sheepmeats' debt. 27 The defendants could not understand why the company had to take on Sheepmeats' debt, but the company was in dire straits because of the $480,000 debt to the bank and the extra money the defendants needed to refurbish the abattoir before Mentarree would take on the lease. The defendants had made several attempts to refinance with other financial institutions but no one would take on an abattoir because there was little confidence in the industry. 28 Jeff Cowan handed the defendants some documents and said that it was bank policy that they could not sign the document there and the defendant would have to get them witnessed by a solicitor. Jeff Cowan then gave the defendants the documents and said that they were the fully drawn account No 1 for $480,000 and the fully drawn account No 2 for $200,000 and to get them signed. 29 According to the defendants they consulted a solicitor who said that they got people like them in all the time since the bank's new policy that you cannot sign documents at the bank. The defendants said that Jeff had explained that. The solicitor asked if they were happy with everything and they said that they were as happy as they could be going into more debt. They signed the documents and the solicitor witnessed them. According to the defendants at no time did either Jeff Cowan or the solicitor explain the contents of the documents. All they knew was that they had to sign them to roll over the existing debts of the company with the bank and to get the overdraft for the company. They say that they were never aware that by signing any of the documents they were placing their personal assets at risk. 30 The defendants denied any knowledge of the third agreement dated 30 October 1997 which they purportedly signed. 31 This evidence may give rise to a defence. Some of the evidence may give rise to a cross claim against a solicitor. As previously stated, there is no pleaded defence. The first named defendant may wish to raise that the guarantee was unconscionable as he did not have an interest in the meatworks. The defendants may wish to seek to have the agreement set aside under the Contract Review Act or upon some other grounds. It is not for the court to determine what the pleaded defence should be and whether it is an arguable or bona fide one. After careful consideration I have come to the view the defendants have not discharged their onus of proof. The explanation for delay is not satisfactory but even if it was no defence on its merits has been shown. 32 The plaintiff has sought to bankrupt the defendants. It is this action which has brought about the defendants' application to have the default judgment set aside. To set aside this default judgment will bring about an end to the bankruptcy proceedings and occasion prejudice to the plaintiff. In order to do justice to the parties the judgment should be allowed to stand. I dismiss the motion. 33 Costs are discretionary. They should follow the event. The defendants are to pay the plaintiff's costs. 34 The orders I make are: (1) The notice of motion filed 22 May 2000 is dismissed. (2) The defendants are to pay the plaintiff's costs. ********** Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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