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" 2. His Honour should have held that such application was to be determined on the basis of the fundamental duty of the Court to do justice between the parties" 13 Mr Killalea, for the applicant, referred the Court to the case of Evans v Bartlam (1937) AC 437, in particular at 480 and 489, and submitted that the primary judge placed too high a requirement on what is required for a defendant to have a judgment set aside in circumstances such as the present. 14 The question for this Court is whether leave should be granted to appeal, on the basis that there is an appeal that has some prospect of success because of an error made by the primary judge, and the interests of justice require that leave should be granted. 15 I should say at the outset that it seems to me that, right up to the time when the application to set aside the judgment was dismissed, the claimant appeared to be proceeding on the basis that there was no need for a defence to be put on until the request for further particulars had been answered. I have to say that, in my view, the Statement of Claim was pleaded with adequate particularity and that the request that was made for particulars was one to which the defendant was not entitled to have an answer before putting on a defence or, indeed, probably at all. 16 In those circumstances, it seems to me that the application which the claimant made to have the judgment set aside should have been accompanied by a proposed defence, and the failure to have a proposed defence put to the Judge hearing the application was a significant deficiency in the application that was made. 17 The deficiency could possibly have been overcome by the Judge setting aside the judgment on condition that a defence be put on within seven days; but it also had the consequence that there were important allegations in the statement of claim that were not addressed at all, even in the affidavit that was put on. There was no addressing in the affidavit of the very significant allegations in the statement of claim of deliberate falsifications in relation to the recording of the transactions so as to disguise the nature of the payments. In any defence, that certainly would have to be addressed. 18 It may be that, if that question had been squarely addressed and if there had been a verified defence available asserting in relation to some or even all of the transactions that the money was applied for the purposes of the school, that might possibly have been a sufficient indication of a defence on the merits to justify setting aside the judgment. However, in the light of the deficiencies that I have identified, I do not think it can be said that the result to which the District Court Judge came was an incorrect result, even if it may be the case that he placed too high a standard on the defence on the merits that had to be shown. 19 For those reasons I think this application for leave to appeal should be dismissed. 20 There is some suggestion in the papers that the applicant has a cross-claim. There is no reason why that cross-claim cannot be pursued in separate proceedings; and if the cross-claim has sufficient substance, it could even support an application for some kind of stay of the execution of the judgment obtained in these proceedings. 21 The dismissal of this application will not, as a matter of absolute necessity, preclude a future application. However, I imagine that such a future application would have no chance of success whatsoever, unless it was supported by very clear and specific evidence as to the application of particular money and proof that that money was actually used for the benefit of the school. 22 The order that I propose is, application for leave to appeal be dismissed with costs. 23 IPP JA: I agree with Hodgson JA. I simply add the following. The allegation of falsification of cheque butts and ledger books formed a very powerful part of the opponent's case. For the claimant to disclose a case on the merits, in my view that allegation had to be dealt with in the claimant's affidavit. The allegation that she made, however, was, in effect, nothing more than a general denial, albeit that she asserted that all payments were used properly for the legitimate purposes of the preschool. In my view, his Honour was entitled to come to the conclusion that he did by reason of the claimant's omission to explain how it came about that she wrote up the cheque butts and the ledgers as she did, but drew the cheques on the basis that they were payable to "cash". 24 HODGSON JA: The order of the Court is, application for leave dismissed with costs. ********** Last Modified: 12/18/2003 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.