Supreme Court New South Wales Medium Neutral Citation: Bay Bon Investments Pty Ltd v Damevski & Ors [2012] NSWSC 1408 Hearing dates: 7 November 2012 Decision date: 07 November 2012 Jurisdiction: Equity Division - Duty List Before: White J Decision: Refer to paras [13], [14] and [16]-[21] of judgment. Catchwords: PRACTICE AND PROCEDURE - application to set aside default judgment - parents entered loan agreement and became liable for default of son - clearly arguable defence based on principles in Amadio or under Contracts Review Act - satisfactory explanation for failure to defend COSTS - usual rule displaced because of successful parties' prior default - cost of application should be costs in the proceedings Legislation Cited: Contracts Review Act 1980 (NSW) Cases Cited: Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 Category: Interlocutory applications Parties: Bay Bon Investments Pty Ltd (Plaintiff) Borce Damevski (1st Defendant) Valentina Damevski (2nd Defendant) Dragan Damevski (3rd Defendant) Veca Damevski (4th Defendant) Representation: Counsel: L Young (Plaintiff) P Folino-Gallo (3rd & 4th Defendants) Solicitors: Elliott May Lawyers (Plaintiff) Sydney Law Practice (3rd & 4th Defendants) File Number(s): 2012/84564 Judgment 1HIS HONOUR: This is an application under Pt 36, r 16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) for an order setting aside declarations and orders made by Macready AsJ on 28 September 2012. The application is brought by the third and fourth defendants and concerns the orders which affect them. The third and fourth defendants were duly served with a statement of claim in these proceedings and with the notice of motion brought by the plaintiff on 13 September 2012, in which the plaintiff moved for judgment in default of appearance. 2The third and fourth defendants entered into a loan agreement on 20 April 2011 with the plaintiff. The plaintiff is the lender. Other parties to the loan agreement are the first and second defendants. The first defendant is the third and fourth defendants' son. I am told that the second defendant is the first defendant's wife. 3The loan was for a principal amount of $100,000, although only $77,500 was advanced, the balance being moneys advanced by way of prepayment of three months of interest and the payment of loan establishment costs. The loan was said to be for business and investment purposes. Interest following default is payable at the rate of 7.5 per cent per month and is being capitalised monthly. 4 The evidence on this application is given by the fourth defendant. She deposes that the third defendant, her husband, had a stroke in 1999 and is partially paralysed, and as a result has been seriously incapacitated and that he is wholly dependent upon the fourth defendant for his care and needs. The effect of the fourth defendant's evidence is that she and her husband signed the loan agreement at the request of their son. She deposes that in April her son came to see her and her husband at his home, that they had a conversation in Macedonian in which he said that he needed his parents to sign some documents which would need to be witnessed by a JP, and that there was a lady down the road who would come to witness the signing of the documents. That took place. The documents were in English. The fourth defendant deposes that the documents were not read and explained to either her or her husband, either in English or Macedonian, by any person before they were signed. Her evidence is that she has very limited education, that her husband also had very limited education and little understanding of written English. Although her affidavit does not make it entirely clear, I think it is clear enough that the fourth defendant says that none of the moneys advanced were paid to her or her husband. She says on 23 October her son apologised in relation to the signing of the documents. He told her that he had borrowed money and had not been able to pay it back. 5The statement of claim was filed in March 2012. According to the fourth defendant, she received it in May 2012. She asked her son about the document and, on her evidence, he said that the documents concerned "the land". She understood that the documents which had been signed in April 2011 related to a property at Erskine Park, which is registered in the name of her, her husband and her son. According to her, neither she nor her husband paid any money for the purchase of the property, and her son had always looked after the property and paid all the rates for it in substance. I infer that although she and her husband are on the title, she regards the property as her son's. 6In any event, neither the third nor the fourth defendant did anything about taking legal advice following service of the statement of claim. She and the fourth defendant were served with the notice of motion filed by the plaintiff seeking judgment in these proceedings in September 2012. The process server recommended they see a solicitor. She did not understand the contents of the document. Again, she asked her son about them and, on her evidence, was told that, again, they were to do with the land and that her son was handling it. The evidence is that her son said: "Mum it is to do with the land at Erskine Park. It is my problem not yours. Don't worry about it". 7The evidence read on this application shows a clearly arguable defence to the plaintiff's claim for relief. If the fourth defendant's version of events is correct, there would be a clearly arguable case that the loan agreement, so far as it affected the third and fourth defendants, might be liable to be set aside on the principles in Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 or under the Contracts Review Act 1980 (NSW). 8If the fourth defendant's evidence is accepted, it would clearly be open to the Court to find that her son took advantage of her and her husband's vulnerability in having her sign the document whereby they not only assumed a personal responsibility for the debt, but provided security over their house for the debt. 9On her evidence, the lender did nothing to bring the effect of the document to their attention, and the third and fourth defendants did not have any independent advice in relation to the transaction. 10The next question is whether or not there is an adequate explanation for judgment having gone by default. In my view, the third and fourth defendants' vulnerability, which on their case led them to sign the loan agreement, also led them to allow the judgment to go by default. They did so in reliance on the assurance from their son that he would take care of the matter, and it was not something for them to worry about. 11In Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 Hope JA, with whom Glass JA agreed, said (at 506) in reference to a corresponding rule: "A court exercising jurisdiction under this subrule has to look at the whole of the relevant circumstances and decide whether or not sufficient cause has been shown. The existence of a bona fide ground of defence and an adequate explanation for the failure to defend and any delay are the most relevant matters to consider, but there may be other matters: see, for example, Reinehr Industrial Lease and Finance Pty Ltd v Jordan (Court of Appeal, 4 June 1974, unreported) noted Ritchie's Supreme Court Procedure (NSW) Practice Decisions 8505. A refusal of relief to an applicant is not automatically justified because he has failed to establish one relevant matter, such as an adequate explanation for the failure to defend or for delay; such a failure must be considered in the light of all the circumstances. The absence of an adequate explanation, particularly if it is coupled with prejudice, may justify the denial of relief, but only when considered with the other relevant circumstances of the case, bearing in mind what Lord Wright said in Evans v Bartlam [1937] AC 473 at 489: '... if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.'" 12The explanation for the failure to defend is not wholly satisfactory, although it is I think sufficient. In any event, considered with the arguable merits of the defence, I am satisfied that it would not be just if the default judgment were allowed to stand. The consequences of default judgment for the defendants are extremely serious. Judgment has been given against them for the amount of $100,000 plus pre-judgment and post-judgment interest, in accordance with the terms of the loan agreement, together with the orders for the judicial sale of the family home and an order for possession. The judgment debt as at 21 August 2012 with interest calculated in accordance with the terms of the loan agreement had increased to $275,244.40. No comparable prejudice to the plaintiff is demonstrated if the judgment is set aside. 13For these reasons, I order that the declaration and orders of Macready AsJ made on 28 September 2012 be set aside. I will hear the parties on costs. Prima facie the third and fourth defendants should pay the plaintiff's costs of the application before Macready AsJ, notwithstanding the setting aside of the orders, but I will hear the parties on that and as to the costs of the present application and as to the directions to be given for the filing and service of a defence and any other matters relating to the progress of the proceedings. [Counsel addressed on costs.] 14I order that the third and fourth defendants pay the plaintiff's costs of the notice of motion filed 13 September 2012 on the ordinary basis. This order is without prejudice to the plaintiff's right to seek a further order at final hearing based on what is asserted to be its contractual entitlement that the third and fourth defendants pay its costs of the proceedings on the indemnity basis. 15In relation to the costs of the present application, some cost had to be incurred in any event, namely, the cost of the preparation of the supporting affidavits. On the other hand, the hearing of the application today was unsuccessfully opposed by the plaintiff. Prima facie costs of the application should follow the event, but in circumstances where some costs would have had to be incurred in any event by reason of the third and fourth defendants' prior default, I think that a different costs order is warranted. In my view the costs of this application should be costs in the proceedings, so that if the third and fourth defendants are ultimately successful they obtain the costs because they should never have been sued. On the other hand, if they are unsuccessful they should pay the costs of this application because they should not have attempted to set aside the default judgment. 16Accordingly, I order that the costs of the notice of motion of 29 October 2012 be costs in the proceedings. 17I order that by 21 November 2012 the third and fourth defendants file and serve their defences to the statement of claim and any cross-claim. 18I order that any reply and defence to the cross-claim be filed and served by 12 December 2012. 19I stand the proceedings over to the Registrar's list on 13 December 2012. 20I direct that the plaintiff's notice of motion filed on 13 September 2012, which concerns also the first and second defendants, also be returnable on that date before the registrar. 21Exhibits 1 and 2 can be returned. 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. Decision last updated: 22 November 2012