Mearns v. Willoughby Community Preschool Inc. [2003] NSWCA 382

New South Wales Court of Appeal

CITATION : Mearns v. Willoughby Community Preschool Inc. [2003] NSWCA 382 HEARING DATE(S) : 17 December 2003 JUDGMENT DATE : 17 December 2003

JUDGMENT OF : Hodgson JA at 1; Ipp JA at 23 DECISION : Appeal dismissed with costs.

CATCHWORDS : PROCEDURE - APPEAL - Refusal to set aside default judgment - Requirement of defences on the merits. CASES CITED : Evans v. Bartlam (1937) AC 437 PARTIES : Robyn Haydn Mearns - claimant Willoughby Community Preschool Inc. - opponent FILE NUMBER(S) : CA 40921/03 COUNSEL : Mr. R. Killalea for claimant Mr. L.J. Aitken for opponent SOLICITORS : The claimant is acting on her own behalf Allens Arthur Robinson, Sydney for opponent

LOWER COURT District Court JURISDICTION : LOWER COURT DC2901/03 FILE NUMBER(S) : LOWER COURT Bowden ADCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40921/03 DC 2901/03

HODGSON JA IPP JA

Wednesday 17 December 2003 MEARNS V. WILLOUGHBY COMMUNITY PRESCHOOL INC. Judgment

1 HODGSON JA: On 11 September 2003, Acting Judge Bowden dismissed an application by Robyn Haydn Mearns to set aside a default judgment obtained against her by Willoughby Community Preschool. Ms Mearns has applied for leave to appeal to this Court from that decision. 2 The claim of the preschool was made in a statement of liquidated claim filed on 27 June 2003. It alleged employment of Ms Mearns by the school between 1981 and 28 September 2001. It alleged that Ms Mearns had drawn cheques on school accounts and applied those cheques for her own benefit rather than the benefit of the school. 3 The Statement of Claim included detailed schedules identifying all the cheques in question, giving in each case a cheque number, amount of cheque, date cheque presented, purported payee noted on the cheque butt, actual payee recorded on the cheque and the purpose of payment as noted on the cheque butt or allocation sheet and, in some cases, purpose of payment as noted in the relevant ledger. In many cases the payee recorded on the cheque was "cash", with the purported payee recorded on the cheque butt being various suppliers of goods that may have been appropriate for acquisition for the school. The total amount of the cheques was $356,835.50. 4 As well as alleging that the payments made pursuant to the cheques were used to acquire goods and services not necessary or used in the running of the preschool and that they were used for the personal use of Ms Mearns, the statement of claim specifically alleged that the payments were disguised by falsely recording fictitious payees and by falsely completing cheque butts and other entries to disguise cash cheques as being cheques made out to legitimate payees. 5 The solicitors acting for Ms Mearns wrote to the solicitor acting for the plaintiff on 28 July 2003, advising that counsel had been briefed to draw a defence and asserting that due to the complex and extensive nature of the allegations, they would require an additional fourteen days to respond; and also stating that they assumed the plaintiff's solicitors would not enter a judgment without reasonable notice to their client. The plaintiff's solicitor responded on 30 July 2003 asserting that the defendant had adequate time to prepare a defence, and advising that the plaintiff's solicitor intended to enter judgment on 13 August 2003 without further notice if a defence was not filed prior to that date. 6 On 5 August 2003 a letter seeking better particulars of the statement of claim was prepared by the defendant's solicitors, but it appears that it may not have been sent to the plaintiff's solicitor at that time due to a misunderstanding. A copy of it was forwarded on 21 August 2003. However, the plaintiff's solicitors responded by advising that they had attempted to obtain default judgment on 14 August, and although judgment had not been entered at that time because of some procedural difficulty, they were proceeding to obtain default judgment. 7 An application to set aside that default judgment came before Acting Judge Bowden on 5 September 2003. He was satisfied on that day that an explanation had been given in relation to the delay. However, he noted a requirement that the defendant also show some defence on the merits. He noted that at that stage there was no proposed defence, and only an affidavit from the solicitor asserting instructions that the defendant had not obtained funds for herself from the preschool, and referring to criminal charges that had been brought against the defendant. 8 His Honour asked the question whether he should dismiss the notice of motion or give the defendant an opportunity to bring forward material to support a defence, and he adjourned the notice of motion to 11 September to give that opportunity to the defendant. 9 On that day the defendant relied on an affidavit she had sworn on 9 September, which in substance asserted that all expenditure was appropriate and necessary for the running of the preschool. The affidavit dealt with certain particular allegations concerning a life insurance policy in her name, but otherwise did not deal with any specific item in the statement of claim. It made no answer to the allegations concerning the disguising of the payments by falsely recording fictitious payees and falsely completing records to disguise the nature of the payments. No draft defence was submitted. 10 On that day Acting Judge Bowden delivered a judgment referring to the defendant's affidavit, and indicating that in his view the defence was precisely the sort of defence that the Rules say shall not be pleaded to a matter commenced by way of liquidated statement of claim. He went on to say that what the defendant had to do was a matter of showing the prima facie defence on the merits, but that in doing so: the defendant is required to put some factual statements before the Court that would deal with what are very specific allegations and claims that have been made here. That has not been done. 11 On that basis his Honour dismissed the notice of motion with costs. 12 The applicant seeks leave to appeal on the following grounds: 1. His Honour erred in determining an application to set aside a default judgment on the basis that: "the applicant is required to .... establish that there is a bona fide defence on the merits" and " .. it is a matter of showing a prima facie defence on the merits"