Supreme Court New South Wales Medium Neutral Citation: Crawford Giles and Associates Pty Limited v Spencer Grove Estate Pty Limited and James Edward Spencer [2015] NSWSC 1396 Hearing dates: 17 September 2015 Date of orders: 23 September 2015 Decision date: 23 September 2015 Jurisdiction: Common Law Before: Bellew J Decision: 1. The notice of motion filed by the second defendant on 29 July 2015 is dismissed. 2. The second defendant is to pay the plaintiff's costs as agreed or assessed. Catchwords: PRACTICE AND PROCEDURE – Application to set aside default judgment – Where sequestration order had been made against the applicant – Where trustee appointed – Where applicant brought present application after sequestration order was made - Whether applicant had standing to bring the application – Whether bona fide defence made out – Whether delay in bringing the application had been explained – Application dismissed. Legislation Cited: Bankruptcy Act 1924 (Cth) Bankruptcy Act 1966 (Cth) Federal Court of Australia Act 1976 (Cth) Uniform Civil Procedures Rules 2005 Cases Cited: Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 Evans v Bartlam [1937] AC 473; [1937] 2 All ER 646 Ex parte Vigilant Finance (NSW) Pty Limited re Cameron Smith (1964) NSWR 1282 Lawteal Finance v Chrapacz [2010] NSWSC 73 Vacuum Oil Pty Co. Ltd v Stockdale (1942) 42 SR (NSW) 239 W R Henry and Son v Hodge [1963] VR 111 Category: Principal judgment Parties: Crawford Giles and Associates Pty Limited – Plaintiff/Respondent Spencer Grove Estate Pty Limited ACN 164670958 - First defendant James Edward Spencer – Second defendant/Applicant Representation: Counsel: Mr D Eardley – Plaintiff/Respondent In person – Second defendant/Applicant Solicitors: Legal Minds – Plaintiff/Respondent File Number(s): 2014/215365 Publication restriction: Nil Judgment INTRODUCTION 1. By notice of motion filed on 29 July 2015 the second defendant seeks (inter alia) an order that the proceedings commenced by the plaintiff be dismissed pursuant to r. 13.4 of the Uniform Civil Procedures Rules 2005 ("the Rules"). Notwithstanding the terms of that prayer for relief, the parties agreed that I should proceed on the basis that the second defendant (who appeared in the proceedings unrepresented) in fact seeks an order setting aside the default judgment which was entered against him on 7 October 2014. That order is opposed. 2. In support of the motion the second defendant relied upon his affidavits of 13 April 2005 and 24 August 2005. The plaintiff tendered a court book which became Exhibit A and which contained the entirety of the affidavit material upon which it relied. 3. In addition to the affidavit material, the second defendant gave oral evidence and was cross-examined by counsel for the plaintiff. I will return to aspects of his evidence in due course. THE FACTS 1. On 10 July 2013 the plaintiff entered into an agreement ("the agreement") to loan monies to the first defendant. The loan was secured by mortgages over various lots of real property located in Griffith, NSW. The second defendant executed (inter alia) a guarantee and indemnity under which he guaranteed the obligations of the first defendant pursuant to the agreement. 2. On March 10 2014 the first defendant defaulted under the terms of the agreement. On 17 March 2014 the first and second defendants were advised of the plaintiff's intention to exercise its right to possession of the properties over which the securities were held. The defendants engaged solicitors who sought particulars of the alleged default. In the course of subsequent correspondence, those solicitors indicated that the default would be remedied. This did not prove to be the case and accordingly on 22 July 2014 the plaintiff filed a statement of claim in this Court seeking orders for possession and damages against both the first and second defendants. On 18 August 2014, Mr Michael O'Neill, solicitor of O'Neill Partners, advised those acting for the plaintiff that he was instructed by the first and second defendants to accept service of documents. A Mr John Evans, a solicitor from that same firm, filed a notice of appearance in the matter on 2 September 2014. 3. No defence was ever filed on behalf of either defendant. On 8 September 2014, judgment for possession, and for the payment of a sum of $687,878.22, was entered in favour of the plaintiff against the first defendant. On 7 October 2014 default judgment was entered in favour of the plaintiff against the second defendant in a sum of $709,917.94. 4. On 11 February 2015 a Bankruptcy Notice was served on the second defendant. That Notice was based upon the default judgment entered against him in these proceedings. On 28 April 2015 a Sequestration Order was made in respect of the estate of the second defendant by a Judge of the Federal Circuit Court. Terry Grant van der Velde and Jason Shane Cronan of SV Partners were appointed Trustees of the second defendant's estate. The Trustees have advised that they "neither oppose nor consent" to the present application. 5. On or about 5 May 2015 the second defendant brought an application in the Federal Circuit Court to annul his Bankruptcy. That application has been adjourned until 23 November 2015. THE EVIDENCE OF THE SECOND DEFENDANT 1. In his affidavit of 13 April 2015, the second defendant said (commencing at para. 7): 7. After service, I discussed the matter with my solicitors and I was advised by them that they were in negotiation with the Plaintiff (sic) solicitors and would attend to the matter. 8. I heard no more in the matter and my solicitors continued to act for me in a number of capacities in relation to other proceedings. 9. Subsequently, I was able to arrange for sales to be effected of te (sic) real estate security held by the Plaintiff. The real estate held by the Plaintiff as security for their loan is valuable and of sufficient value to completely repay moneys owing to the Plaintiff. 10. I was able to negotiate for my solicitors to act as agent for the Plaintiff in regard to the sales and realization of the security property held by the Plaintiff. 11. This led me to further believe that no judgment had been entered into against me or the First Defendant. In any event, no one ever advised me that this was the case. 12. Sales contracts were prepared for a number of buyers with respect to the real estate and knowing that my solicitors were also acting as agent for the Plaintiff and communicating with the Plaintiff and their solicitors, I had no further concerns. 13. In January 2015 I terminated the retainer of my solicitors in various matters. However, I communicated with the managing partner of that firm of solicitors and was happy for him to continue as agent on behalf of the Plaintiff and for myself in relation to settling sales of property. 14. It was not until 12 March 2015 when I received an email from the solicitors for the Plaintiff which advised that not only had a Judgment been obtained against the First Defendant and myself but that a bankruptcy notice had been issued. 1. In his affidavit of 24 August 2015, the second defendant further stated: 11. I have a bona fide defence to the action brought by Crawford Giles, the Plaintiff. At the time that I executed the various loan security documents, I was informed by my solicitor, whose associate witnessed my signature, that in the event of default, that the lender must first sell the security property and I would only be responsible for any shortfall balance, in the unlikely event that this might occur. As I knew the subject lots were worth in the order of $90,000.00 each I calculated that there was a satisfactory loan to value buffer of about 30%, or $30,000.00 per lot. There was no prospect of me facing a loss. On this basis, I was happy to provide my personal guarantee. 1. The second defendant was cross-examined by counsel for the plaintiff. He agreed (commencing at T16 L43) that he had instructed Mr Evans to act for him in the proceedings brought by the plaintiff. He conceded (at T17 L5) that he was obviously aware that a statement of claim had been served. However, he asserted (at T17 L13-14; T19 L10) that he had given his solicitor instructions to file a defence. When asked to articulate the nature of his defence the second defendant responded in the following terms (commencing at T17 L17): "Well because they've got the lots, they'd actually taken possession of the lots and I was working on selling the lots. O'Neill and Partners were given instructions to file a defence for this. They didn't turn up and I didn't find out 'til March 2015." 1. He subsequently said (at T23 L25-34): "Okay. My defence is that you have got the lots, you have taken the lots, right. You have 11 lots. There is 12. You sold one for 195,000 and some costs. There's 11 lots there to be sold. They need to be sold before you can realise the debt. They could have been sold but you have been very difficult. The other thing was I didn't know I had a judgment until I met Chris Serow that day. Didn't know I had a judgment. Not only that, I was talking to Chris Serow and I would have been down that bankruptcy day had I not believed, we were still in communication, we've always been in communication to try and sell these lots. O'Neill and Partners were in the mix as well but nobody mentioned this default judgment". 1. The second defendant said (commencing at T 17 L24) that it was not until March 2015 that he was made aware, for the first time, that judgment had been entered against him. He said (at T17 L39-45) that he learned of the judgment in a discussion with the plaintiff's solicitor. This was in circumstances where he had retained O'Neill Partners to act for him until January 2015. It follows that on the second defendant's account of events, a period of some five months elapsed between the time at which judgment was entered, and the time at which he became aware that this was so. For the first three months of that period he continued to be represented by the firm of solicitors to whom he is said to have given instructions to file a defence. 2. When asked why it was, having been made aware in March 2015 that judgment had been entered against him, that the present motion was not filed until 4 months later, the second defendant said (at T24 L19-23): "I have to explain that. I apologise for that your Honour because there were other court proceedings in the federal court, there was a bankruptcy and I got a bit confused with everything. It's very complicated you know. I was in another court proceedings for 18 months which was what Michael O'Neill was doing and I got the judge to give me leave in December so it's just all been a lot I've been trying to handle it myself, I've got no more money left to pay for solicitors". THE POWER TO SET ASIDE A DEFAULT JUDGMENT 1. Rule 36.16 of the rules is in the following terms: 36.16 Further power to set aside or vary judgment or order (cf SCR Part 40, rule 9) (1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment (other than a default judgment given in open court), or (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, or (c) in the case of proceedings for possession of land, it has been given or made in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the relevant hearing or of the application for the judgment or order. (3) In addition to its powers under subrules (1) and (2), the court may set aside or vary any judgment or order except so far as it: (a) determines any claim for relief, or determines any question (whether of fact or law or both) arising on any claim for relief, or (b) dismisses proceedings, or dismisses proceedings so far as concerns the whole or any part of any claim for relief. (3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) Within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered. (3C) Despite rule 1.12, the court may not extend the time limited by subrule (3A) or (3B). (4) Nothing in this rule affects any other power of the court to set aside or vary a judgment or order. GENERAL PRINCIPLES 1. In Lawteal Finance v Chrapacz [2010] NSWSC 73 Hislop J (commencing at [45]) set out, by reference to various authorities, a number of the principles relevant to an application to set aside a default judgment. Those principles include the following. 2. Firstly, and as a general rule, the Court requires evidence demonstrating, prima facie, that the defendant has a good defence on the merits, as well as an explanation of the circumstances in which judgment was entered: Ex parte Vigilant Finance (NSW) Pty Limited re Cameron Smith (1964) NSWR 1282 at 1285 per Herron CJ, citing Evans v Bartlam [1937] AC 473; [1937] 2 All ER 646; Vacuum Oil Pty Co. Ltd v Stockdale (1942) 42 SR (NSW) 239. 3. Secondly, the jurisdiction exercised by the Court on an application such as the present will be significantly affected by what are demonstrated to be the requirements of justice. The ultimate question is whether it appears that the interests of justice will be served by letting the defendant in to defend: Reinehr Industrial Lease and Finance Pty Limited v Jordan (NSWCA, 4 June 1974, unreported per Street CJ and Glass JA). CONSIDERATION 1. Counsel for the plaintiff raised a preliminary issue and argued that the second defendant had no standing to bring the present application given that he had now been declared bankrupt. Section 58(1) of the Bankruptcy Act 1966 (Cth) ("the Act") is in the following terms: Vesting of property upon bankruptcy--general rule (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee. 1. Section 60 of the Act is in the following terms: Stay of legal proceedings (1) The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit: (a) discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or (b) stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor: (i) in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or (ii) in consequence of his or her refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt; and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his or her refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody. (2) An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action. (3) If the trustee does not make such an election within 28 days after notice of the action is served upon him or her by a defendant or other party to the action, he or she shall be deemed to have abandoned the action. (4) Notwithstanding anything contained in this section, a bankrupt may continue, in his or her own name, an action commenced by him or her before he or she became a bankrupt in respect of: (a) any personal injury or wrong done to the bankrupt, his or her spouse or de facto partner or a member of his or her family; or (b) the death of his or her spouse or de facto partner or of a member of his or her family. Note: See also subsection 5(6). (4A) Notwithstanding paragraph (1)(b), this section does not empower the Court to stay any proceedings under a proceeds of crime law. (5) In this section, action means any civil proceeding, whether at law or in equity. 1. Section 5 of the Act defines the word property in the following terms: (1) In this Act, unless the contrary intention appears: … "property" means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. 1. In support of his position counsel for the plaintiff relied upon observations as to the scheme and purpose of the Act which were made by Kirby P (as his Honour then was) in Daemar v Industrial Commission of NSW (1988) 12 NSWLR 45 at 50. His Honour's observations were, given the context in which they were made, necessarily general and did not address the specific issue raised in the present case. 2. The issue was addressed in W R Henry and Son v Hodge [1963] VR 111 where an applicant sought to set aside a default judgment in circumstances where a Sequestration Order had been made against him on the basis of that same judgment. Adam J (commencing at 112) concluded that any right which the applicant may have had to have the judgment set aside vested in the Official Receiver by force of s. 60(1) of the Bankruptcy Act 1924 (the relevant provisions of which were, for present purposes, to the same effect as those contained in s. 58(1)(a) of the Act). His Honour conclude that in these circumstances the applicant had no standing to bring the application to have the judgment set aside. 3. The decision in Henry would support the plaintiff's position in the present case. However in Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124 the majority (Brennan CJ, Gaudron and McHugh JJ) concluded (at 136) that Henry was wrongly decided. In reaching that conclusion, their Honours questioned (at 134) whether a right to appeal against a money judgment entered in an action against a bankrupt was property of the bankrupt which vested in his or her trustee. Dawson and Toohey JJ, without referring to the decision in Henry, concluded that a right of appeal conferred by s. 24 of the Federal Court of Australia Act 1976 (Cth) was "property" within the meaning of s. 5 of the Act, and hence property which vested in the trustee pursuant to s. 58(1)(a). 4. I was not referred to the decisions in Henry or Cummings in the course of the hearing and have therefore not had the benefit of submissions from counsel in relation to them. However it is not necessary in the present case to determine the preliminary issue raised by the plaintiff. Even if it is assumed that the second defendant has the requisite standing to bring the present notice of motion, the application of the general principles to which I have referred in [16]-[18] above leads me to conclude, for a number of reasons, that the motion should be dismissed. 5. Firstly, the evidence does not, in my view, establish a good defence on the merits. The second defendant asserts that he was advised by his (then) solicitor that in the event of default, the security properties would be sold before any enforcement action was taken. Two observations may be made about that evidence. Firstly, there is nothing to that effect contained within the Guarantee and Indemnity which might have provided the basis for any such advice. Secondly, and in any event, the second defendant does not assert that any such advice was ever given to him by any person acting on behalf of the plaintiff. It is difficult, in these circumstances, to comprehend the defence which the second defendant articulated in the course of his evidence. 6. Secondly, the second defendant's evidence as to the failure to file a defence is not consistent. In his oral evidence before me, the second defendant asserted, more than once, that he had given instructions to O'Neill Partners to file a defence. His affidavit of 13 April 2015 makes no such assertion. It states only that he "discussed" the matter with his solicitors and was advised that they would "attend to the matter". 7. Thirdly, the second defendant's evidence is largely (if not completely) silent as to what occurred after he had given instructions to his solicitors to file a defence (or alternatively, after he had "discussed" the matter with them). According to para. 8 of his affidavit of 13 April 2015 the second defendant, having been told that his solicitors would "attend" to the matter, heard nothing more about it. If the second defendant had in fact provided instructions to file a defence (or if discussions had in fact taken place) it might reasonably be expected that there would be some evidence of further steps having been taken by his solicitors, or at the very least some evidence of discussions having taken place, as to the progress of the matter over the ensuing period. This is particularly so in circumstances where, according to the second defendant, he continued to instruct those same solicitors for four months after the Notice of Appearance had been filed. In these circumstances I do not accept the second defendant's evidence that he simply heard nothing more. 8. Fourthly, the second defendant has advanced no satisfactory explanation of why a period of four months elapsed between his being made aware of the judgment, and an application being brought to set it aside. At its highest, the effect of the explanation advanced is that the second defendant was "confused". Even when full weight is given to the fact that the second defendant was unrepresented for that period, there is no satisfactory explanation for the delay. Whilst delay is not determinative, it remains a relevant factor. In the present case the delay, and the lack of satisfactory explanation for it, are matters which tend against granting an application to set the judgment aside. 9. Fifthly, it must have been apparent to the second defendant, upon learning of judgment being entered against him, that his previous solicitors had not acted in accordance with his instructions to file a defence (or in accordance with the discussions which had taken place). In these circumstances it is, to say the least, curious that there is no evidence of the second defendant having approached his former solicitors to ascertain why his instructions were not followed. 10. Sixthly, in para. 21 of his affidavit of 13 April 2015, the second defendant asserted that he was not served with the Statement of Claim which commenced the proceedings. To the extent that the second defendant sought to rely upon this assertion in support of his application, it should be emphasised that in para. 6 of the same affidavit he expressly acknowledged that he was aware of the fact that the Statement of Claim had been served on his solicitors. 11. Quite apart from their individual significance, the combination of the factors to which I have referred above leaves me with considerable disquiet as to the general veracity and reliability of the second defendant's evidence. For all of these reasons, the second defendant has failed to satisfy me that he has, prima facie, a good defence on the merits. He has also failed to advance a satisfactory explanation of the circumstances in which judgment was entered, and for the delay which has been occasioned in bringing the present application. In these circumstances, I am not satisfied that the interests of justice will be served by granting the application. 12. Finally, I should note that on 21 September, after I had reserved judgment and without leave of the court, the second defendant provided a large amount of documentary material to my Associate relating to (inter alia) a complaint made by him to the Legal Services Commissioner against his former solicitors. At my direction, that material was provided to the solicitor for the plaintiff who was given the opportunity to make further submissions in relation to it. The solicitor for the plaintiff indicated that he did not wish to make any further submissions. 13. The additional material provided by the second defendant does not cause me to depart from the conclusions I have reached. ORDERS 1. I make the following orders: 1. The notice of motion filed by the second defendant on 29 July 2015 is dismissed. 2. The second defendant is to pay the plaintiff's costs as agreed or assessed. ********** 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: 23 September 2015