New South Wales Supreme Court CITATION : GE Commercial Finance Australia Limited v Lynette Meredith & Anor [2009] NSWSC 327 HEARING DATE(S) : 27/03/09 JUDGMENT DATE : 29 April 2009 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J The orders of the Court are as follows: 1. Set aside orders 1, 2, 3, 4, and 5 of the orders entered in proceedings 50168/07 on 7 April 2008; DECISION : 2. Order that the applicant pay the respondents' costs: (i) of and occasioned by the vacated hearing fixed for 7 April 2008; (ii) incurred on the hearing on 27 April 2009 of the notice of motion filed on 8 April 2009; (iii) stand the proceedings over to the Commercial List for directions on 18 May 2009. CATCHWORDS : Practice and Procedure - UCPR - Power to make orders setting aside judgment following entry - Whether orders were given 'in the absence of a party' who attends at the commencement of the hearing and elects to withdraw LEGISLATION CITED : Real Property Act 1900 Uniform Civil Procedure Rules 2005 (NSW) CATEGORY : Procedural and other rulings Jeogla Pty Limited v Australian and New Zealand Banking Group Limited [1999] NSWSC 563 CASES CITED : State Bank of New South Wales v Chia [2000] NSWSC 552 Upton v Tasmanian Perpetual Trustees Limited (2007) 158 FCR 118 GE Commercial Finance Australia Limited (Plaintiff) PARTIES : Lynette Meredith (First Defendant) Indo-Australian Commodities Pty Limited (Second Defendant) FILE NUMBER(S) : SC 50168/07 COUNSEL : Mr S Aspinall (Plaintiff) Mr J Lo Schiavo (First Defendant) SOLICITORS : Henry Davis York (Plaintiff) Forbes Smith & Co (First Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Wednesday 29 April 2009 50168/07 GE Commercial Finance Australia Limited v Lynette Meredith & Anor JUDGMENT The notice of motion 1 By notice of motion filed on 8 April 2009 the defendant in proceedings 50168 seeks orders for the setting aside of a judgment obtained by the plaintiff in proceedings 50158 of 2007. 2 The material judgment was given by McDougall J and reads as follows: 1. The plaintiff sues the defendant for an amount quantified as at today's date at $511,923.62. The claim arises under a mortgage. It represents the shortfall occurring upon exercise of a power of sale together with interest. 2. On 1 May 2001 the defendant as borrower/mortgagor entered into a loan agreement with GIO Finance Australia Ltd. She borrowed the amount of $1.8 million to enable her to acquire an hotel at St. Peters. It has been admitted on the pleadings that GIO Finance Ltd has assigned its interest in the loan agreement and the mortgage to the plaintiff. The transfer of the mortgage has been duly registered. 3. The defendant fell into arrears under the mortgage. On 24 August 2004 the plaintiff made demand for a sum a little over $33,000 being arrears of the interest. The defendant did not comply with that demand. The plaintiff appointed agents to take possession of the hotel, and in due course gave notice under s 57(2)(b) of the Real Property Act 1900 and, upon the defendant's failure to comply with that notice, the plaintiff exercised its power of sale. 4. Most of the facts to which I have referred are admitted on the pleadings. To the extent that they may not be admitted they are proved by the affidavit of Ian Brian Thorpe sworn 25 January 2007 and in the exhibits to that affidavit (which exhibits have been marked PX1). 5. The real issue in the proceedings related to the defendant's cross-claim. In effect, she asserts, the plaintiff had exercised its power of sale otherwise in good faith. The defendant would say that the plaintiff did not exercise reasonable care to obtain the best price that it could for the hotel and that it sacrificed her interests. 6. The hearing has proceeded in the absence of the defendant. An application for adjournment was made, and refused. It was renewed, and again refused. The defendant withdrew and, as I have said, the hearing proceeded in her absence. 7. I am satisfied that the plaintiff has made good its case against the defendant. I am satisfied, on the basis of certificates given under the loan agreement and mortgage that by the terms of those documents are prima facie evidence of what they state, that the amount due to the plaintiff as at today date is $511,923.62. Thus, apart from the matters raised in the cross-claim, I am satisfied that the plaintiff is entitled to judgment in that sum. 8. The defendant's cross-claim was not pressed today, in the sense that, as I have said, she withdrew once her applications for adjournment had been refused. There is thus no material put before the Court which could support the cross-claim. It is therefore unnecessary to consider whether the plaintiff's conduct, in the exercise of its power of sale, met the requisite legal standard (as to which see Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118). 9. It is also unnecessary to consider whether in any event the defendant could have obtained relief on her cross-claim in the absence of any offer by her to pay whatever sum might be found to be due by her to the plaintiff upon the taking of accounts between her and the plaintiff (which in substance is what would occur if the cross-claim were to be ventilated). It is also unnecessary to consider the relevance of the defendant's ability (if any) to pay any sum that might be found to be due. 10. In the circumstances, I direct entry of judgment in favour of the plaintiff against the defendant in the sum of $511, 923.62. I direct that the judgment take effect from today and that it carry interest from today at the daily rate of $116.85. 11. The mortgage obliges the defendant to pay the plaintiff's costs of the enforcement action on a solicitor and client basis. Accordingly, I order the defendant to pay the plaintiff's costs of the proceedings on the solicitor and client basis. 12. I direct entry of judgment for the cross-defendant against the cross-claimant on the cross-claim. I order the cross-claimant to pay the cross-defendant's costs of the cross-claim on the solicitor and client basis. 13. I direct that exhibits PX1 to PX3 remain with the papers. Power to make the orders 3 The UCPR deals in division 4 with the setting aside and variation of judgments. 4 Relevantly rule 36.16 sets out the powers of the Court to set aside or vary a judgment or order after it has been entered. In that regard sub- rule 2 is in the following terms: (2) The court may set aside or vary a judgment or order after it has been entered if: (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, 5 In the circumstances a question has been debated at the Bar table as to whether or not the fact that initially the defendant was represented before McDougall J means that the judgment in fact entered is to be regarded [within the meaning of section 16 (2) (b)] as having been made or given in the absence of the defendant. 6 In my view the answer to the above question is in the affirmative. 7 It follows that the Court has power to make the orders sought. Dealing with the merits of the application 8 The short reasons given by McDougall J and set out above made clear that on the state of the pleadings, the essential issue in the proceedings related to the cross claim. 9 That cross-claim relevantly included the following: 5. The First Cross-Defendant by itself, its servants or agents arranged for the Hotel to be listed for sale by public auction on 25 November 2004 ("the auction"). Particulars · The selling agent was Manenti Quinlan & Associates Pty Limited, Mr Jerry Quinlan acting as the agent on the sale. · Mallesons Stephen Jaques prepared the draft contract for sale for the purposes of the auction. 6. On 24 November the Cross-Claimant together with Merro Holdings Pty Limited as vendor exchanged a contract for sale of the Hotel for the sale of the land, the improvements, all fixtures and inclusions to Indo-Australian Commodities Pty Limited for the price of $2.9million ("Indo-Australian sale"). Particulars · The Cross-Claimant will rely upon the terms of the contract as if fully reproduced herein. · At the time of sale Merro Holdings Pty Limited as the owner of the business conducted from the Hotel. · The completion date required under the contract was 42 days after the contract date. · The solicitors for the vendor in respect of the contract was Mr Peter La Fontaine of La Fontaine Solicitors. 7. It was an implied term of mortgage 7592431 that the mortgagee would not unreasonably withhold consent to a sale by the mortgagor of the mortgaged property. 8. On 24 November 2004 at approximately 6.30pm the Cross-Claimant's solicitor, La Fontaine Solicitors, advised the First Cross-Defendant's solicitors of the Indo-Australian sale and requested that the First Cross-Defendant postpone the auction of the Hotel. Particulars On 24 November 2004 at approximately 6.30pm a 17 page facsimile transmission under cover of a letter from La Fontaine Solicitors in their capacity as the solicitor for the Cross-Claimant as mortgagor was sent to Mallesons Stephen Jaques in their capacity as the solicitor for the First Cross-Defendant as mortgagee, advising of the Indo-Australian sale and requesting that the First Cross-Defendant cancel or postpone the auction of the property which was set down for 10.30am on 25 November 2004 and requesting that the mortgagee's solicitor advise of a discharge figure in respect of the Cross-Defendant's said mortgage. · The Cross-Claimant will rely upon the facsimile letter of La Fontaine Solicitors dated 24 November 2004, together with accompanying documents, when produced, as if fully reproduced herein. · Mr John Doran, a secretary at La Fontaine Solicitors, received a phone call from a secretary at Malleson Stephen Jaques shortly after the facsimile transmission to say that two of the 17 pages had not fully printed and requesting Mr John Doran fax the omitted documents again, which he did. 9. On 25 November 2004 Mr Peter La Fontaine, solicitor, in his capacity as the solicitor for the Cross-Claimant as mortgagor attended at the auction venue before the auction of the Hotel and spoke to Mr David Price, solicitor from Mallesons Stephen Jaques Solicitors, the solicitor for the First Cross-Defendant and Mr Chris Khoo, a risk manager of the Cross-Defendant wherein Mr La Fontaine: (i) handed to Mr David price a copy of the first two pages of La Fontaine Solicitors' facsimile transmission letter of 24 November 2004 and the front page of the said exchanged contract for sale signed by the purchaser, Indo-Australian Commodities Pty Limited; (ii) advised that the mortgagor had exchanged contracts for sale of the Hotel at a price of $2.9 million with Indo-Australian Commodities Pty Limited and that the Cross-Defendant's auction could not go ahead; and (iii) requested that the First Cross-Defendant postpone the auction or if the auction was not postponed the mortgagee sale of the Hotel should be passed in. 10. Notwithstanding the requests on behalf of the Cross-Claimant referred to in paragraphs 8 and 9 above, the First Cross-Defendant submitted the Hotel for sale by public auction whereupon it was sold under the fall of the hammer on behalf of the vendor, GE Commercial Finance Australia Pty Limited as mortgagee exercising power of sale to the Second and Third Cross-Defendants as purchasers for the price of $2.235million ("the mortgagee sale"). 11. The Mortgagee sale proceeded in circumstances such that the First Cross-Defendant was in breach of the duties referred to in paragraph 4 above, it wilfully and recklessly dealt with the Hotel property in such manner that the interests of the Cross-Claimant as mortgagor were sacrificed and such that the First Cross-Defendant did not act in good faith to its mortgagor. Particulars of Circumstances (i) On the day of the sale an article appeared in "The Daily Telegraph" that the estate agent in charge of the sale, Jerry Quinlan, said he expected that a $3 million price tag was reasonable for the location considering it was one of a dying breed of truly traditional pubs in the Metropolitan area. (ii) At the time of the mortgagee sale, the mortgagee was on notice that the mortgagor had obtained a purchaser for $2.9 million, by a valid sale, which would satisfy the whole of the indebtedness to the Cross-Defendant as first registered mortgagee. (iii) The sale at $2.9 million to Indo-Australian Commodities Pty Limited was unconditional requiring completion within 42 days. (iv) The mortgagee sale to the Second and Third Cross-Defendants required completion on the later of: (a) six weeks after the date of the contract; and (b) five days after the day the vendor gives notice to the purchaser that any caveat registered on the title, whether before or after the date of the contract, has been withdrawn or lapsed or the vendor holds a withdrawal of caveat in registered form. (v) The mortgagee was not entitled to unreasonably withhold consent to the Indo-Australian sale. (vi) The mortgagee sale would knowingly result in a price obtained for the Hotel which was $665,000 less than the price obtained by the mortgagor on the Indo-Australian sale. (vii) The mortgagee's duty of good faith to the mortgagor required the mortgagee to pass the property in at the auction sale and/or obtain the best price available in all the circumstances, including if necessary by negotiating with Indo-Australian Commodities Pty Limited and/or the Second and Third Cross-Defendants. 10 A reasonably extensive discussion of a mortgagees duties to take reasonable care in exercising a power of sale is given in State Bank of New South Wales v Chia [2000] NSWSC 552 at 889 -879 and does not require to be repeated: cf Jeogla Pty Ltd v Australian and New Zealand Banking Group Limited [1999] NSWSC 563 at 397 – 494; Upton v Tasmanian Perpetual (supra) at 14 – 22. 11 In my view Ms Meredith is shown to have had a serious [as opposed to a specious] case provided that the matters within the further amended cross claim were able to be properly presented and supported by appropriate evidence. Discretionary factors 12 Plainly the exercise of the relevant discretion will always depend upon the instant specific circumstances with which the Court is faced on an application of the type presently pursued. 13 Dealing very specifically with the events during the few days before the hearing before McDougall the situation was as follows: i. In October 2007 the matter was set down for hearing beginning on Monday 7 April 2008 with a four day estimate. That hearing had been confirmed in March 2008. ii. On Friday 4 April 2008, the Applicant's solicitor indicated by fax that the Applicant proposed to seek an adjournment of the hearing and, at the commencement of the hearing on 7 April 2008, Mr Levy (solicitor for the Applicant) made that application. It was in the following terms: LEVY: Your Honour, the application is on the basis that we have been attempting over the last few months to obtain counsel on certain terms as to finance. We had understood as late as Thursday afternoon last week that a counsel who had been in the matter in the very early stages in the drafting of the pleadings may well take the matter and accept a brief on the basis that certain financial arrangements were in place and in fact a caveat over the plaintiff's home had been offered to that counsel. However, late on Thursday afternoon he declined to take the brief and left the various documents for us to pick up. During Friday I searched among other counsel whom I have used from time to time to find one who might be available for this week and who would accept the financial arrangements proferred by my client and her husband, and her husband is in Court. That was not available. On my instructions if the adjournment is granted, as we would request it, money could be available within about two months to instruct counsel. There is also a strong possibility that we could seek financial assistance from the Bar Association which may be available within two or three weeks if that application is successful. … My submission is that notwithstanding the financial problems that might accrue to the plaintiff in this matter, it would I submit be to some extent unfair to have the matter proceed today. It would prejudice obviously my client's case and her rights in regard to these proceedings. It is a matter also where during the process of filing documents the plaintiff's solicitors were granted extra time for filing of documents on several occasions. I don't think it was my friend's instructing solicitors but the predecessors who started off acting for the plaintiff in the matter. We are seeking notwithstanding the circumstances to that [ sic ] discretion that allowance be made on this occasion to the defendant. Thank you, your Honour. iii. The application to adjourn was refused. Mr Levy then sought to be excused and shortly thereafter the Applicant's husband, Mr Warner Meredith, sought leave to appear. Mr Meredith renewed the application for an adjournment. The transcript is as follows: MEREDITH: I would have to renew Mr Levy's application for an adjournment. One of the things Mr Levy never mentioned to you was that during the course of 2007 he himself was suffering from depression and had a fair time off Court. He has come back under medication and has been practising and he had, he has from time to time had the assistance of another lawyer by the name of Robert Kirby, who appeared on a number of occasions to do mentions for him and things like that but I suggest at this point of time under medication Mr Levy feels he was capable of doing things but a lot of the running around and that was left to me and the situation was we thought we had an agreement with that barrister. It was not quite the way it was framed. The agreement was we gave him a mortgage and a caveat but at the last minute he decided he wanted the money up front and that was it, but the situation that, you know, I mean, my wife, I mean you probably hear it every day but my wife is a genuine person she brought this case because she genuinely feels she has been put upon by this particular company. I am not going though the facts but there is a lot more to this than is written in the affidavit. I mean, we want to run the case and we need to have a barrister to run it and the situation is unfortunately when we found out even during [sic] Mr Levy got me to ring around, I work for a development company, they deal with barristers, I spoke to quite a few people to see if we could run it today, put the same arrangement to them but everyone by Friday's generally caught up on the Monday and going and doing other things. iv. His Honour said: HIS HONOUR: The difficulty is this matter, it was many months ago that the order was made setting the matter down for hearing today and that order was confirmed four weeks ago. There is absolutely no evidence before me of the negotiations with counsel and no basis on which I can assess whether counsel's withdrawal on Friday was unreasonable or contrary to expectations or whether, for example, it was by reason a condition that counsel had always insisted on and which was unable to be met. The interests of justice don't just require your wife's position to be taken into account; they include the interests of the plaintiff, which was entitled to think that its case would be heard on the day in question and which has no doubt spent considerable funds in getting it ready for hearing. I accept the plaintiff is a very large organisation and the offshoot of an even larger organization and well able to afford the cost of losing the hearing date but if we decided every case according to who could afford the adverse result and we would be living in a palm tree land. v. The adjournment was again refused and the following exchange took place between his Honour and Mr Meredith: MEREDITH: Where does that leave us? HIS HONOUR: It means if the plaintiff convinces me that its claim has been made out on the appropriate standard of proof, then I would direct the entry of judgment. MEREDITH: What shall we do? HIS HONOUR: There is a power under the Court rules for judgment and orders to be set aside in a number of circumstances. One of those circumstances is if the judgment or order is given in the absence of a party, I am not going to advise you what to do – MEREDITH: In that case – HIS HONOUR: If you wish to withdraw you are free to withdraw, if you wish to stay you are welcome to stay. MEREDITH: We will, in that circumstance we will withdraw. HIS HONOUR: I should say that it is not an absolute or unqualified – MEREDITH: I understand. HIS HONOUR: And you would have to persuade the Court that the absence was beyond your control or that there are good reasons why the orders should be set aside but I will say no more than that. 14 The complaint alleging the difficulties which Mr Levy was said to have had was clearly put by Mr Meredith from the Bar table as opposed to having been sworn to in an affidavit or by his ascending the witness box. That matter was not referred to at all by McDougall J in the short judgment which was delivered. As the transcript of the occasion when Mr Meredith was addressing his Honour reveals, in dealing at that later time [after Mr Levy had withdrawn] with the lack of evidence, his Honour concentrated upon the lack of evidence of negotiations with counsel. 15 Whilst his Honour was plainly not persuaded that there was any substance in the application to vacate the hearing date, it is equally clear that Mr Meredith was made aware by the Court of the power to set aside a judgment in certain circumstances, including that a judgment had been given in the absence of a party. 16 In any event the instant application requires to be determined upon the present evidence taking up as it were, that which Mr Meredith must have understood at the time when he was apprised of the court's power to later set aside a judgement. Delay 17 The respondent has relied upon the amount of time during which the applicant had failed to make the current application. Clearly enough that delay flies in the face of the well-established need for certainty in relation to the making of final orders. However that failure has to be considered in terms of the general merits, if any, shown by the applicant. Particulars 18 Another matter to be taken into account concerns the fact that by letter dated 27th February 2006 the applicant's solicitor sought particulars of a number of matters including the sale proceeds of the Hotel. No reply having been received to that letter, a follow-up letter was sent on 15 May 2007. 19 Mr Atkins, a partner of the respondent's solicitors, has deposed [in his affidavit made for the purposes of the instant application] that through various oversights the letter requesting particulars was not answered until 7 April 2008, being the very day of the final hearing. He has deposed that upon receipt of the original request for particulars his firm had sought instructions from the instructing officer of the plaintiff and had received instructions to answer the letter after his instructing officer had had an opportunity to review the finals. He has deposed that unfortunately, through apparent oversight, the matter was not taken any further at that time and the letter for particulars was not answered. 20 This was not a matter canvassed before McDougall J but was raised in the instant application. The matter is of some serious concern as it seems to me, even though some of the particulars sought are now said to have been provided in earlier evidence or pleadings. 21 The simple fact is that the particulars should have been provided much earlier. The general complaint of the applicant has been that had the very late answer to the particulars been provided much earlier, the defendant would have had an opportunity to add to its initial requests once it came to appreciate that the answers, whilst perhaps coping with the very words used in the claim for particulars, were ex facie, far too limited for the defendant purposes. Hence the very delay is said to have enured to the forensic disadvantage of the defendant. Prejudice 22 The respondent has submitted that it has expended time and costs in bankruptcy proceedings founded upon the judgment which will be wasted if the judgment is presently set aside. In answer the applicant has offered to pay the respondent's costs incurred on the day of adjournment on 7April and the costs of the day of hearing the instant application. The matter is one for the Court and is dealt with below. Decision 23 The circumstances are unusual. The merits of the cross claim have never been adjudicated upon. The degree of prejudice which the respondent contends it has suffered has to be fairly weighed against the general interests of justice in the circumstances. 24 The respondent has submitted that the evidence called by the applicant of an agreement reached with Mr Meredith's employer to pay fees incurred is of little substance. There is however some evidence now before the Court in that regard and it is plainly difficult for the Court to be certain as to the future funding of the litigation by the applicant. This is not an unusual experience and there are procedures to deal with that form of issue. 25 In all the circumstances the principled exercise of the Court's discretion is to set aside the subject judgment on the terms as to costs offered by the applicant. Reverting to the question of the courts power to set aside the judgment 26 Finally and reverting to the question of whether or not the Court presently has the power to set the judgment aside, the argument as to no power consists of the proposition that it cannot be said that in the instant circumstances, the judgment was entered in the absence of a party: This for the reason that the applicant [first by its solicitors and then by Mr Meredith] had appeared before the Court on the day of the hearing and cognizant of what was likely to occur elected to withdraw. 27 If the court's decision as to power be incorrect than it would seem at least arguable that it would be open to the applicant on appeal, to contend that the reference by the Court in referring Mr Meredith [apropos the Courts power to set aside judgments] to the fact that one of those circumstances would be if the judgment was given in the absence of a party, may have misled Mr Meredith. Orders 28 The orders of the court are as follows: 1 Set aside orders 1, 2, 3, 4, and 5 of the orders entered in proceedings 50168/07 on 7 April 2008; 2 Order that the applicant pay the respondents' costs: i. of and occasioned by the vacated hearing fixed for 7 April 2008;; ii. incurred on the hearing on 27 April 2009 of the notice of motion filed on 8 April 2009; iii. stand the proceedings over to the Commercial List for directions on 18 May 2009. ******** 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.