Supreme Court New South Wales Medium Neutral Citation: Lee v Dow [2016] NSWSC 1404 Hearing dates: 8 September 2016 Date of orders: 05 October 2016 Decision date: 05 October 2016 Jurisdiction: Common Law Before: Garling J Decision: (1) Notice of Motion filed 5 August 2016 is dismissed. (2) Plaintiff is to pay the defendant's costs of the Motion. Catchwords: PROCEDURE – civil – Notice of Motion seeking stay of Local Court judgment refusing to set aside default judgment – where application seeking leave to appeal Local Court judgment has been made to the Supreme Court – whether appeal is reasonably arguable – whether balance of convenience favours the grant of a stay Legislation Cited: Local Court Act 2007 Uniform Civil Procedure Rules 2005 Cases Cited: Not Applicable Texts Cited: Not Applicable Category: Procedural and other rulings Parties: Honor Lee (Plaintiff) Kathleen Dow (Defendant) Representation: Counsel: K Foley (P) P Glissan (D) File Number(s): 2016/236665 Publication restriction: Not Applicable Judgment 1. On 10 July 2015, the defendant in the present proceedings, Kathleen Dow, obtained a default judgment against the plaintiff in these proceedings, Honor Lee, in the Local Court at Wagga Wagga in the sum of $42,984.69 plus costs. 2. In short compass, that judgment was based upon a claim that Mrs Dow had brought in the Wagga Wagga Local Court arising from a loan of $30,000 that she had made to Ms Lee in 2011. Ms Lee did not dispute that the loan was made, that she had made repayments on it up until 31 August 2012, and that she had not made any repayments since that time. 3. In mid-2016, Ms Lee made application in the Wagga Wagga Local Court to set aside the default judgment. That application was heard by Kennedy LCM on 8 July 2016. For the reasons which she expressed orally, Kennedy LCM dismissed Ms Lee's application to set aside the default judgment. 4. On 5 August 2016, Ms Lee commenced proceedings in this Court by way of Summons seeking leave to appeal against Kennedy LCM's decision. Ms Lee also sought, by Notice of Motion filed on that day, an order staying execution of the default judgment until the determination of the appeal against Kennedy LCM's decision. 5. On 31 August 2016, the Notice of Motion came before Rothman J. His Honour stood over the hearing of the Motion to 8 September 2016 so that the transcript of Kennedy LCM's reasons could be made available to the Court. His Honour granted a stay until that date. 6. On 8 September 2016, the Notice of Motion came before me in the Duty List. The transcript of Kennedy LCM's reasons was provided. 7. For the reasons which follow, I am unpersuaded that a stay of the judgment ought to be granted. The Notice of Motion of 5 August 2016 will be dismissed with costs. The Local Court Decision 1. In considering the relief sought in Ms Lee's Notice of Motion, it is convenient first to note Kennedy LCM's reasons for refusing to set aside the default judgment. 2. The Magistrate identified that the application made was to set aside the default judgment pursuant to r 36.16(2) of the Uniform Civil Procedure Rules 2005 ("UCPR"). That provision confers a discretionary power upon a court to set aside or vary a default judgment after it has been entered 3. It is accepted that her Honour correctly identified the test to be applied in exercising her discretionary power. As her Honour identified, she first needed to be satisfied that there was an adequate explanation for the failure to lodge a defence and for the delay in bringing proceedings to set aside the default judgment. Secondly, her Honour needed to be satisfied that the plaintiff had available to her a bona fide, or reasonably arguable, defence to the principal claim. 4. As to the first part of the test, her Honour was satisfied that there was an adequate explanation for Ms Lee's failure to file a defence, and for the delay in bringing proceedings to set aside the default judgment. That explanation was that a firm of solicitors had failed to keep Ms Lee adequately informed of what was occurring in the proceedings. Neither party submitted in this Court that her Honour's conclusion in this regard was open to challenge. 5. As to the second part of the test, her Honour noted that it was not her task to determine the merits of Ms Lee's defence, but rather to determine whether, if the evidence ultimately led in the proceedings established the matters set out in the defence, it would constitute a reasonably arguable defence. No criticism is made in these proceedings of her Honour's expression of this part of the test. Her Honour addressed the second part of the test by considering the terms of the defence which Ms Lee would file, if she were permitted to defend the proceedings. 6. Her Honour identified each of the matters which Ms Lee intended to rely upon in her defence. The first was that Mrs Dow's husband was not, but should have been, a party to the principal proceedings because Mrs Dow and her husband jointly loaned Ms Lee the money. Ms Lee submitted to the Magistrate that the default judgment ought to be set aside because Mr Dow was not a party to the principal proceedings. 7. The second matter which Ms Lee raised by way of a defence in the proceedings was that, although the loan agreement provided for repayment of principal and interest over a five year period in regular instalments, there was an additional term in the contract, which the Magistrate summarised was to the following effect: "…in the event that [Ms Lee] became ill or suffered some other misadventure such as something happening to her, 'then it would be okay' ". 1. Ms Lee submitted that her understanding of the expression, "then it would be okay", was that if she became sick or was unable to repay the loan, then Mr and Mrs Dow would relieve her of her obligation to repay the loan. 2. Her Honour took the view that neither of these defences was reasonably arguable. Her Honour concluded that the absence from the proceedings of Mr Dow as a party to the loan, in circumstances where the fact of the loan was not in dispute and the fact of non-repayment was not in dispute, did not constitute a reasonably arguable defence to the proceedings. 3. Her Honour also rejected Ms Lee's contention that it was a term of the loan agreement that Ms Lee was not obliged to repay the loan if she fell ill or suffered some other misadventure. Her Honour concluded that, even if this term was found to be a part of the agreement, it would not constitute a reasonably arguable defence. 4. Accordingly, her Honour dismissed the application. 5. During the hearing of that application, Ms Lee sought to rely upon the evidence of a Ms Preston about what was discussed at a meeting after the default had occurred. Her Honour expressed the view that, even accepting Ms Preston's evidence, it did not alter in any fundamental way the agreement between the parties. Application for Interlocutory Relief 1. As earlier indicated, this judgment deals with an application for interlocutory relief by way of a stay of the existing judgment in the Local Court. 2. The exercise of the power requires this Court to be satisfied essentially of two matters. The first is that the application for leave to appeal to this Court is reasonably arguable, and the second is that the balance of convenience favours the grant of a stay. Ultimately, the Court has to be satisfied that it is in the interests of justice to grant the orders sought. The Prospects of an Appeal to this Court 1. As Kennedy LCM's judgment is an interlocutory one, an appeal can only be made to this Court with leave: Local Court Act 2007 s 40. As well, the provisions of ss 39 and 40 of the Local Court Act restrict any appeal from the Local Court to questions of law or, with leave, to questions of mixed law and fact. A party has no capacity to appeal from the Local Court to the Supreme Court purely on a question of fact. 2. Mr Glissan of counsel, who appeared pro bono for Ms Lee, submitted that the Court would be satisfied that an appeal against Kennedy LCM's judgment had reasonable prospects of success. Mr Glissan drew attention principally to one issue. He submitted that one of the defences advanced in the Local Court was that the original loan agreement had been varied by events which occurred in 2014, such that the agreed terms for repayment of the debt were, in effect, suspended during a period of time when Ms Lee was unable to work. Mr Glissan then made this submission: "So, my submission is that, as inelegant as it is, in paragraph 2 of the annexure to the proposed Defence, there is a plea to vary the contract which would be on its face, arguable. It might be met with some argument about consideration, but it's on its face arguable, and the defendant/applicant in this Court ought to have [had] her day in court. She may turn out to lose the case, but she ought to be allowed to raise that defence. … Arguably, it amounts to a variation of the contract. … It's a variation that suspends her obligation as long as she is unable to pay it." 1. It is appropriate to set out the paragraph in the Defence to which counsel referred. It is in the following form: "2. At a meeting on 15 August 2014, attended by the defendant, Mr Robert Dow and the defendant's counsellor, Ms Robyn Preston, and subsequently attended by the plaintiff, it was agreed between the parties that due to the [plaintiff's] accident on 20 April 2013, and the injuries she suffered, and as a direct result, her inability to work and continue repayments, that she had as long as she liked to pay it off." 1. The Magistrate was correct, and no criticism of her Honour was made in this respect by Mr Glissan, not to rule upon whether, on the material before her, this defence was in fact established. Rather, the issue was whether it was a reasonably arguable defence. Her Honour was not persuaded that it was. It seems to me that the question of whether or not a pleading of a defence is or is not reasonably arguable, assuming it is established by the evidence, is either a question of law or a question of mixed fact and law. As such, there is no legislative bar to the appeal brought by Ms Lee. 2. However, I am of the view that the appeal to this Court is not reasonably arguable. Ms Lee's argument to the Magistrate was that the original loan agreement was varied some years after it was initially made. There was no pleading, evidence or suggestion that the variation of the contract occurred in circumstances where it was supported by consideration. Consideration for a variation of a contract is essential before the terms of the variation can become part of a contract, the terms of which have already been agreed. If the variation is effected by means of a Deed, then consideration may not be necessary. However, that is not the form of the variation alleged here. As well, the term proposed as a variation is vague, ill‑defined and quite uncertain. Did the variation amount to a forgiveness of the whole debt, or only that part of it which would fall for repayment if Ms Lee was unable to make payments? What would happen if Ms Lee realised her other assets and was able to repay the loan? What was said to happen to the accrual of interest whilst repayments were suspended? These questions are thrown up by the terms of the alleged variation. They are not answered by the pleading. In those circumstances, the term alleged, either orally or in the pleading of the defence, was too uncertain to be regarded as a concluded variation of the existing agreement. 3. Accordingly, the term the subject of the variation could not have constituted a legally enforceable term of the contract. 4. I can detect no error in the decision of the Magistrate that she was not satisfied that there was a reasonably arguable defence. Accordingly, I am not satisfied that the application for leave to appeal to this Court is reasonably arguable. Balance of Convenience 1. In the event that I am wrong and the plaintiff, Ms Lee, has a reasonably arguable case on appeal to this Court, it is necessary to consider, having regard to all of the circumstances, whether the balance of convenience favours the grant of a stay. 2. As noted above, the default judgment was entered in 2015, arising out of a failure to repay monies on and from 31 August 2012. 3. Ms Lee submitted that the balance of convenience fell in her favour for a combination of reasons. The first is that on 20 April 2013, the plaintiff suffered significant personal injury when she was involved in an accident which she alleges was the fault of Mr Robert Dow, the husband of Mrs Dow. Ms Lee has commenced proceedings in the District Court of NSW claiming damages for personal injury which she says were occasioned when she was repairing a fence on her property. She was being assisted by Mr Dow, who was driving a tractor. Ms Lee alleges, and Mr Dow denies, that he reversed the tractor, knocked over the fence on which they were working, and caused the plaintiff to become caught in barbed wire and dragged head-first into an adjoining creek. The plaintiff claims that, as a consequence of this accident, she sustained injuries to her right hand, requiring the amputation of part of a finger, as well as a fracture of the left pubic bone and injuries to her shoulder and back. Ms Lee alleges that she has been unable to work as a consequence of these injuries. 4. In cross-examination, Ms Lee agreed that she was employed at the time of her accident in a business near Wagga Wagga selling second-hand building materials. She spent six weeks off work after the accident and returned to work in about June 2013. She remained there until October 2013, when she then left that employment. She has not worked since. 5. At the time of leaving her employment she received a payment which, before deductions for taxation, amounted to approximately $23,000. Her evidence was that about $10,000 had been deducted by way of income tax payments, and that although she might have been entitled to reclaim that amount from the Australian Taxation Office, she had not yet done so. 6. Ms Lee agreed that she owned a property comprising about 60 acres, located within the boundaries of the city of Wagga Wagga. She said that the city was built around her property, although part of the land was a floodplain for Lake Albert. It was suggested to Ms Lee that the local Council had indicated that there were about 20 house blocks which could be subdivided from the land and which were not subject to flooding. Ms Lee agreed that the land was zoned residential and rural, but claimed that the Council had not given any indication that any part of the land could be subdivided. 7. Ms Lee agreed that, in addition to owning that property (which was subject to a mortgage to a finance provider), she also owned 11 head of cattle which were being grazed on the property and which were valued at between $750 and $1,250 per head. She had purchased these cattle at about the time she ceased employment. 8. She agreed that the Valuer General's valuation of the property was $200,000 and that it provided her with significant equity over and above the amount owed by her to the mortgagee. 9. Ms Lee said in evidence that she had a particular reason for not wishing to sell the property, thereby putting herself in a position where she might repay the debt. It was difficult to understand the reason. It is fair to say that it is one personal to Ms Lee, but one that would not be sufficient to outweigh any legal obligation she may have to repay her debts. 10. As well, as the solicitor for Mrs Dow submitted, it would be entirely possible, without trespassing upon that reason, for Ms Lee to sell a part of her land, or agree to assign part of it, to Mrs Dow in payment of her debt. 11. Thus the position is that Mrs Dow has a judgment for a significant sum of money which has stood for many years. Ms Lee did not dispute in the Local Court that there was an agreement for a loan, including terms as to interest, but sought to argue that the contract had been varied in effect so as to suspend payments during any period of disability. Ms Lee has not demonstrated that she is presently under any physical disability with respect to obtaining employment. 12. Ms Lee has some liquid assets, but these are insufficient to pay the whole debt. She has other assets which are more than sufficient to pay the entirety of the debt. 13. There was no evidence or suggestion that Mrs Dow would not be able to repay to Ms Lee any monies in the event that Ms Lee is ultimately successful in this Court, and then successful in the Local Court in having the judgment set aside and being allowed in to defend. There is no reason to doubt Mrs Dow's capacity to repay any monies she may collect by reference to her judgment. 14. In all of the circumstances, I have not been persuaded that the balance of convenience favours Ms Lee. 15. Ms Lee is capable of making a payment by reference to her assets, which is the equivalent of, or else a substantial proportion of, the judgment debt. She does not desire to pay the judgment debt, and seeks to resist it. In those circumstances, I am not satisfied that the balance of convenience favours Mrs Dow being restrained from executing the judgment that she has. Conclusion 1. I have concluded that there is no reasonably arguable case in this Court, as the matter presently stands, sufficient to warrant interlocutory relief. 2. I am not persuaded that the balance of convenience would justify a stay of the judgment of the Local Court. The Notice of Motion is dismissed. 3. There is no reason why the ordinary order for costs ought not follow. The plaintiff/applicant is to pay the defendant/respondent's costs. Orders 1. I make the following orders: 1. Notice of Motion filed 5 August 2016 is dismissed. 2. Plaintiff is to pay the defendant's costs of the Motion. ********** 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: 05 October 2016