Sargeant v HE & FG Campbell Agricultural Machinery Repairs

By summons filed on 9 November 2015, Raymond Sargeant, the plaintiff, applies for leave to appeal against the decision of Stafford LCM in the Local Court at Tenterfield to dismiss his application to set aside a default judgment entered against him in the amount of $68,412.08 in favour of HE & FE Campbell Agricultural Machinery Repairs, the first defendant (the business name).

Hugh Campbell, the second defendant, and Fiona Campbell, the third defendant, are parties to the proceedings in this Court although they were not parties to the proceedings in the Local Court.

To avoid confusion, I propose to refer to parties by name rather than describing them as plaintiff or defendant since the plaintiff in the Local Court was the first defendant in this Court and the defendant in the Local Court was the plaintiff in this Court.

The order dismissing Mr Sargeant’s application to set aside the default judgment is interlocutory: Carr v Finance Corporation of Australia Ltd (No. 1) (1981) 147 CLR 246, at 248 per Gibbs CJ and 256-257 per Mason J. This Court’s jurisdiction derives from s 40 of the Local Court Act which provides that a party to proceedings in the Local Court who is dissatisfied with an interlocutory order of the Local Court may, with leave, appeal to this Court.

The grounds of challenge set out in the summons are:

It is necessary to set out such facts as were established by the evidence in the Local Court.

On 22 December 2014, HE & FE Campbell Agricultural Machinery Repairs commenced proceedings against Mr Sargeant in the Local Court at Tenterfield by filing a statement of claim. The amount claimed was in the order of $65,000. Additional amounts were claimed for interest and costs.

The pleading began with the words, “The plaintiff relies on the following facts and assertions.” There followed a table with three columns listing the date of invoice, invoice number and invoice amount. Eight invoices were listed; the largest of these, A5256, was alleged to be dated 2 May 2014 and was in the sum of $53,773.50. Accordingly, the lion’s share of the amount outstanding was attributable to this invoice.

There followed an allegation, “The defendant has paid $6,150.00 to date”, after which there was a table which set out the calculations of interest under s 100 of the Civil Procedure Act 2005 (NSW).

Mr Sargeant admitted in his affidavit in support of the application to set aside default judgment that he was served with the statement of claim and that he did not file a defence within the time provided for by the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or at all. He also admitted that he had seen a solicitor to obtain legal advice after he received the statement of claim. The solicitor had told him to obtain particulars as to his defence and provide them to the solicitor. He had failed to do so. Mr Sargeant expected that he would be notified of a court date and did not appreciate that he had to put on a defence or risk default judgment. It was not suggested that HE & FE Campbell Agricultural Machinery Repairs had engendered this expectation.

In February 2015 HE & FE Campbell Agricultural Machinery Repairs filed a notice of motion for default judgment. It served the motion on Mr Sargeant, who admitted that he received it. Mr Sargeant did nothing to oppose the motion, which was dealt with in chambers without a hearing by the Registrar.

The affidavit in support of the motion for default judgment was sworn by Fiona Campbell on 10 February 2015. The deponent described her occupation as “business partner”. She deposed:

A table setting out the calculation of interest was included, as were amounts for costs and service.

The Registrar of the Local Court at Tenterfield entered default judgment against Mr Sargeant on 12 February 2015 in the sum of $68,412.08, as claimed.

In June 2015 Mr Sargeant received a letter from the Sheriff regarding the execution of a writ issued for the levy of property as a result of the default judgment. Mr Sargeant instructed a solicitor and sought advice on how to set aside the default judgment against him.

A notice of motion to set aside the default judgment was prepared by Mr Sargeant’s solicitor and dated 23 July 2015. It did not specify which part of the UCPR was being relied upon. The relevant rules were UCPR r 36.15 and UCPR r 36.16.

It was not filed for some time. It was accepted by Mr Reynolds, who appeared on behalf of HE & FE Campbell Agricultural Machinery Repairs and Mr and Mrs Campbell, that the delay in filing was as a result of difficulties occasioned with the postal service and on-line filing and was not the fault of Mr Sargeant.

Mr Sargeant swore an affidavit in support of his notice of motion. The affidavit was not dated. He deposed to the matters set out above, including that: he had been served with the statement of claim; that he believed he would receive a court date; that he did not read the statement of claim properly; and did not appreciate that he was required to put on a defence. He saw a solicitor but did not provide the particulars he was advised to give; he ignored the motion for default judgment; and it was only when he received the letter from the Sheriff that he realised that orders had been made against him personally. After this explanation of what had occurred, he deposed as follows:

Mr O’Brien, who appeared on behalf of Mr Sargeant in this Court, accepted that, although Mr Sargeant used the word “Plaintiff” in paragraph [10] above, he ought be taken to have meant “Defendant”. On this basis, Mr O’Brien accepted that the issue regarding the business name’s lack of legal personality was not raised before the Magistrate.

Mr Sargeant’s notice of motion was ultimately returnable before the Local Court on 14 October 2015 for hearing. Mr Bassett appeared for HE & FE Campbell Agricultural Machinery Repairs; Ms Burnheim appeared for Mr Sargeant. They indicated that the matter was ready for hearing. The matter stood in the list while other matters were dealt with.

At the commencement of the hearing, the Magistrate raised with Ms Burnheim the fact that Mr Sargeant’s affidavit was not dated and said, “it is not properly sworn if it is not dated”. Ms Burnheim apologised and said that it was forwarded to the court on 23 July 2015. Ms Burnheim offered to have Mr Sargeant reswear the affidavit that day, to which her Honour asked (rhetorically) whether it was “a bit late”.

Ms Burnheim explained the difficulties she had experienced in endeavouring to file the documents (the notice of motion and affidavit). She then said:

Ms Burnheim continued to try to make submissions. The Magistrate observed that the annexure said to be attached to the affidavit (the ASIC search of Mr Sargeant’s company) was missing and that the invoices on which HE & FE Campbell Agricultural Machinery Repairs had sued had not been tendered by Mr Sargeant. Ms Burnheim said:

At this point (although her Honour had interrupted Ms Burnheim mid-sentence) the Magistrate proceeded to give an ex tempore judgment. Her Honour recited the reasons for the delay and continued:

Her Honour then referred to ss 56, 57 and 58 of the Civil Procedure Act 2005 (NSW) and said:

Her Honour continued:

The principles for the grant of leave were summarised in Michail v Mount Druitt and Area Community Legal Centre Inc [2015] NSWCA 396 by Leeming JA and Emmett AJA at [49] as follows:

Although dismissal of an application to set aside a default judgment is interlocutory, the finality of its practical effect is a factor in favour of the grant of leave, since there may be significant injustice if leave is not granted: see Hassoun v Wesfarmers General Insurance Ltd t/as Lumley General [2016] NSWCA 76 at [22] per Ward JA, Sackville and Barrett AJJA.

The question whether leave ought be granted is closely associated with the substance of the appeal and the question of injustice. Accordingly I propose to consider the grounds before addressing the question of leave.

Rule 36.15 of the UCPR relevantly provides:

Rule 36.16 of the UCPR relevantly provides:

The grounds of appeal set out in the summons are reproduced at the commencement of these reasons. Because I consider that the third ground has been made out, it is not necessary to deal with the first two grounds of appeal, which largely concern matters of procedure and natural justice. It is sufficient to say that the Magistrate was entitled to proceed to hear the matter on the evidence before her. Procedural fairness did not require her to give Mr Sargeant an opportunity to reswear his affidavit so that it could be dated with the day of the hearing or so that it could annex the company search. However, for the reasons that follow, these matters were not apt to affect the outcome of Mr Sargeant’s notice of motion had the correct principles been applied.

The third ground of appeal can be distilled into two categories of complaints: the first formal and the second substantive. The formal complaints are that the default judgment ought be set aside under UCPR r 36.15 on the ground that the statement of claim is irregular because it does not plead a cause of action and the named plaintiff is not a person and therefore cannot commence or conduct proceedings. The substantive complaints are that the Magistrate erred in refusing to set aside the default judgment because she applied the wrong principle and did not act in accordance with UCPR r 36.16.

These will be considered in turn. I propose to consider the ground that the HE & FE Campbell Agricultural Machinery Repairs was not a proper person last as it was not raised before the Magistrate.

The statement of claim did not plead a cause of action. It did not comply with UCPR, r 14.7. Nor did the draftsperson seek to plead facts in short form, as provided for in UCPR, r 14.12. Ms Burnheim adequately raised those matters before the Magistrate. Her Honour did not address the argument in the reasons.

It was held in Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; 78 NSWLR 20 that deficiencies in a pleading could constitute an irregularity in giving the judgment and could thereby attract the Court’s power in UCPR r 36.15 to set aside the judgment: at [75] per Gzell J (Beazley P and Macfarlan JJA agreeing). In Arnold v Forsythe [2012] NSWCA 18, the appellant argued that if a plaintiff obtains default judgment on the basis of a statement of claim that omits material facts necessary to support the pleaded cause of action, the judgment is given irregularly and is thus susceptible to being set aside pursuant to UCPR r 36.15. It was not necessary for the Court of Appeal to decide this point, but Sackville AJA (McColl and Young JJA agreeing) said, at [84]:

Mr Reynolds’ answer to the ground relating to the inadequacy of the statement of claim was that Mr Sargeant must have been able to discern the case he had to meet because he set out in his affidavit his defences to the claim. I do not regard the detail in Mr Sargeant’s affidavit as pertinent to overcome the well-founded objections to the statement of claim. The statement of claim was embarrassing and inadequate. It failed to identify a cause of action; if the claim was for breach of contract, it failed to identify the parties to the contract, or the term breached. Its omissions were sufficient to empower the Magistrate to set aside default judgment pursuant to UCPR r 36.15.

Mr O’Brien accepted that Mr Sargeant was obliged to demonstrate that the Magistrate’s discretion miscarried in the sense referred to in the following oft-cited passage from House v The King (1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ:

A default judgment which has been regularly obtained will generally not be set aside unless the defendant files an affidavit which demonstrates a prima facie defence on the merits and an explanation of why a defence was not filed to the statement of claim within the requisite time. The reason for this requirement is that the defendant needs to show that there is utility in setting aside the default judgment (because there is a bona fide defence on the merits) and to explain why the default judgment was entered in order to have the Court’s discretion exercised favourably: see the authorities referred to in Dai v Zhu [2013] NSWCA 412 at [83]-[93] per Sackville AJA (Barrett and Leeming JJA agreeing) and in Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [43]-[46] per McColl JA.

The demonstration of a bona fide defence on the merits requires the defendant “to show that the defence is asserted bona fide and that there is an arguable or triable issue”: Dai v Zhu at [92] per Sackville AJA. Justice Hodgson said in Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 at [52]:

The ultimate issue for the Magistrate was whether it was in the interests of justice (viewed in the light of the matters referred to in ss 56, 57, 58 and 59 of the Civil Procedure Act 2005 (NSW)) to allow the party seeking to set aside the default judgment to defend the proceedings on the merits.

Mr Sargeant relied on his own affidavit. It was not dated. No objection was taken to it and he was not required for cross-examination. The lack of date was a formal irregularity which did not prevent its being used: UCPR r 35.1. Substantial compliance with the form prescribed for an affidavit was sufficient: s 80 of the Interpretation Act 1987 (NSW). The absence of a date did not go to weight since there was nothing of substance in the affidavit which made the date of its swearing relevant.

Mr Sargeant explained the delay and apologised to the court for his inaction, which had led to the entry of default judgment.

He then gave unchallenged evidence that he operated his business through a company, RPS Total Assessments & Driver Training Pty Ltd (paragraphs [10] and [11] of his affidavit). An ASIC search of Mr Sargeant’s company was referred to in the body of the affidavit but was not, in fact, annexed. Nonetheless, there was no objection to the sentence referring to the annexure. That the wrong defendant had been sued constituted a defence which, if established, would defeat the whole of the claim. As long as it was propounded bona fide, it would ordinarily warrant an order setting aside the default judgment.

Mr Sargeant also disputed the amounts in the invoices, including the invoice for the largest sum, A5256, and referred to a potential cross-claim (for the use of a fork lift owned by his company).

In summary, as a result of Mr Sargeant’s affidavit, there was unchallenged evidence of: his explanation for the delay; a complete defence to the claim; an additional partial defence to the claim; and a potential cross-claim.

The Magistrate’s approach is to be adjudged by reference to her Honour’s reasons. It is generally inappropriate to consider exchanges between bar and bench to identify error since such exchanges are no substitute for reasons and may simply be regarded as a means of testing propositions, rather than amounting to reasons for a considered view arrived at on the basis of evidence and submissions. Nonetheless in the present case, the exchanges, as well as the reasons, reveal that her Honour was unduly focussed on peripheral, formal matters (such as whether the affidavit was dated and whether the company search was attached) at the expense of the substance of the application and (of principal significance) whether there was evidence of a bona fide defence.

Moreover, the Magistrate’s reasons reveal that her Honour misapplied the principles set out above. Rather than considering whether the plaintiff had adduced evidence of a bona fide defence (which he undoubtedly had), her Honour appears to have imposed a different standard: namely whether, disregarding his affidavit evidence, Mr Sargeant had proved his defence by adducing business records (by the tender of invoices, a company search and any other relevant documents). Although her Honour acknowledged that she did not “have to have a mini trial”, she concluded that all she had was “an assertion, an undated affidavit and this is a case with nothing to support that”.

Mr Sargeant’s affidavit constituted unchallenged evidence. It did not need anything to “support” it since it constituted evidence in its own right. In circumstances where no objection was taken to it on the basis that it was undated, her Honour ought not to have rejected it (and, indeed, made no ruling that it had been rejected), or disregarded the evidence which it comprised. Her Honour’s erroneous assessment of the affidavit as constituting no more than unsupported assertions caused her Honour’s discretion to miscarry.

Although no draft defence was annexed to Mr Sargeant’s affidavit, his affidavit gave at least as much particularity as a draft defence could be expected to have included. Moreover, it constituted evidence, rather than mere allegations in a draft pleading and was therefore entitled to greater weight.

In my view, Mr Sargeant has established that the discretion miscarried as a result of a flawed process (referred to above). Moreover, he has also established that the result of the application was so unreasonable and plainly unjust that I can infer that there was a failure properly to exercise the discretion conferred on the Magistrate under UCPR r 36.16.

Accordingly, I am persuaded that the order dismissing the application to set aside the default judgment must be set aside on the basis that her Honour’s discretion miscarried.

For completeness, I propose to address the ground (which was not raised in the Local Court) that the named plaintiff in the statement of claim was not a person.

There was no allegation in the statement of claim that HE & FE Campbell Agricultural Machinery Repairs was a corporation; indeed, it is common ground that it was not. No ACN number was specified. Indeed Mrs Campbell, in her affidavit in support of the application for default judgment, corrected the description of her status from “director” (which would have been apposite had the plaintiff been a company) to “partner”. The pleading was, accordingly, irregular since the named plaintiff was not a person and therefore could not be a party.

UCPR r 7.1 makes provision for those by whom proceedings may be commenced and carried on. Only persons may commence and carry on proceedings. “Person” and “party” are defined in s 21 of the Interpretation Act 1987 (NSW) to include “an individual, a corporation and a body corporate or politic”. A business name (such as HE & FE Campbell Agricultural Machinery Repairs) is not a person and, accordingly, a business name cannot be a plaintiff. Division 5 of the UCPR provides for business names. UCPR r 7.19 provides that:

UCPR r 7.20 provides that proceedings may be commenced against a person conducting a business under an unregistered business name by naming an unregistered business name as a defendant. However, in a defence to such proceedings the actual person must enter an appearance and file a defence in his or her own name: UCPR r 7.21. Once the plaintiff has ascertained the real name of the person who is conducting the business, the plaintiff is to amend documents in the proceedings to replace the business name with the defendant’s own name: UCPR r 7.22.

Mr Sargeant accepted that the irregularity in the identity of the plaintiff was not raised before the Magistrate. Nonetheless, Mr O’Brien contended that it raised a question of law which could not have been met by the calling of evidence and, accordingly, ought be entertained and determined by this Court in accordance with recognised exceptions to the principle that a party is bound by the conduct of his or her case: see the summary in Mamo v Surace [2014] NSWCA 58; 86 NSWLR 275 at [76] per McColl JA, Ward JA and Tobias JJA agreeing.

Mr Reynolds contended that the business name’s lack of legal personality was not an “irregularity” within the meaning of UCPR r 36.15 and that there was no difficulty in construing it as meaning Mr and Mrs Campbell as owners of the business name and partners of the business. He relied on Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No. 2) [2009] NSWCA 387 in support of the proposition that a mistake in the identification of the correct defendant was not regarded as an “irregularity” within the meaning of UCPR r 36.15 at [15]-[18] where the Court of Appeal (Allsop P, Campbell JA and Handley AJA) held that the naming of the wrong defendant was not, in the circumstances of that case, an irregularity in the making of an order. The Court said at [18] that the irregularities occurred before the hearing of the matter. Mr Reynolds submitted that the lack of personality of the business name was in the same category.

Although Mr Sargeant did not articulate this objection to the judgment at the hearing in the Local Court, it was common ground that HE & FE Campbell Agricultural Machinery Repairs was not a person. It was also apparent from the pleading since no ACN and no reference to either “Pty Ltd” or “Ltd” such as would indicate corporate personality was given.

The Court of Appeal said in Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No. 2) at [17] that UCPR r 36.15 “applies with particular force” to default judgments.

The lack of legal personality of a named plaintiff is no mere technicality. It is a substantial “irregularity”. It is quite a different situation from that which arose in Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No. 2), where the wrong defendant was named but it, and the putative “correct” defendant, were both corporate persons.

The rules do not contemplate that a business name can be a plaintiff, and for good reason: a business names is not a person. Although there is provision for a plaintiff to name a business name as a defendant, this is a temporary measure only so as not to prejudice someone who does not know who stands behind an unregistered business name. The question for present purposes is whether this irregularity can be said to be one that has the effect that the default judgment was given irregularly within the meaning of UCPR r 36.15(1).

In my view, the default judgment in favour of HE & FE Campbell Agricultural Machinery Repairs was given irregularly since no judgment can be entered in favour of something (such as a business name) that has no legal personality. This was not a matter that depended on evidence. It could not be cured except by setting aside the default judgment and amending the statement of claim to substitute the names of the persons behind the business name. Accordingly, in my view, the named plaintiff’s lack of legal personality provides a separate ground for setting aside the default judgment. Although it was not raised in the Local Court, the principle that a plaintiff must be a person is so fundamental that the default judgment ought, subject to the question of this Court’s jurisdiction to make orders under s 41 of the Local Court Act (addressed below), be set aside.

For the reasons given above, I regard the present case as an appropriate one for the grant of leave. The interests of justice are, in my view, overwhelmingly in favour of a grant of leave. Several matters of principle (identified above) are involved. The manifest injustice in leaving the Magistrate’s order standing would be considerable.

For the reasons given above, leave to appeal ought be granted, the appeal allowed and the orders of the Magistrate dismissing Mr Sargeant’s application to set aside the default judgment ought be set aside. The further question arises whether I ought remit Mr Sargeant’s application to set aside the default judgment for determination by the Local Court according to law, or whether I ought make an order setting aside the default judgment.

The Court’s power derives from s 75A of the Supreme Court Act 1970 (NSW) and from s 41 of the Local Court Act. The Court’s power under s 75A has effect subject to s 41(1) which provides:

The question of the extent of the appellate court’s powers to make orders was considered by the Court of Appeal in the context of an appeal from the Land and Environment Court in Thaina Town (on Goulburn) Pty Ltd v City of Sydney Council [2007] NSWCA 300; 71 NSWLR 230. Chief Justice Spigelman (Mason P, Beazley JA, Giles JA and Ipp JA agreeing) said:

However, the Court of Appeal considered that, in the context of an appeal on a question of law from the Administrative Decisions Tribunal, it was not appropriate for the Court to do other than remit the matter to the tribunal once error had been established: B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187; 74 NSWLR 481 at [77] per Allsop P. Justice Basten addressed the question of statutory construction that was required to determine, by reference to the statute that conferred jurisdiction on the appellate court, the extent of its powers if an appeal was allowed. His Honour accepted that where an appeal lay on a question of law, the appellate court would be precluded from engaging in any review of the decision beyond the question of law identified: [139]. His Honour said, at [139]:

The present case involves a different problem. Although leave to appeal against an interlocutory decision of the Local Court under s 40(2) is required, leave may be granted on a question which is not solely a question of law, since the statute does not limit the right (with leave) to appeal on that basis. It follows that the considerations which led to the narrower construction of the powers of the appellate court in B & L Linings Pty Ltd v Chief Commissioner of State Revenue are not necessarily apposite in an appeal to this Court from the Local Court.

I respectfully adopt the approach taken by Beech-Jones J in Owners Strata Plan 4003 v Mustafa [2012] NSWSC 780 which is reflected in the following passage from his Honour’s reasons:

Both parties accepted that the appropriate order would depend on the basis on which the appeal was allowed. I understood it to be common ground that if additional findings of fact were to be made, it would be inappropriate for this Court to embark on that process but that if no such findings were to be made this Court could determine the matter for itself. Mr Reynolds contended that the matter ought be determined on the basis of the evidence in the Local Court. Mr O’Brien accepted this constraint.

The sole evidence before the Local Court was the uncontroverted affidavit evidence of Mr Sargeant. I consider that he has explained the delay and that he has put forward (and substantiated, by his affidavit) a bona fide defence (that he conducted his business through a company and not personally). Although these matters may well be described as “evaluative judgments”, I consider that the jurisdiction under s 41 of the Local Court Act permits me to make them in circumstances where I consider that the only proper exercise of the Magistrate’s discretion under UCPR r 36.16 was to set aside the default judgment. Indeed, one basis of my finding that the House v The King error was made out was that the exercise of her Honour’s discretion was so plainly unreasonable and unjust that the discretion must have miscarried.

Moreover, had I not considered that the only possible result was to set aside the default judgment under UCPR r 36.16, I would have considered that it ought be set aside as irregularly entered under UCPR r 36.15 on either of the two bases argued: the defective pleading and the lack of legal personality of the named plaintiff.

Mr Sargeant’s grounds did not include a complaint about the denial of natural justice occasioned by the Magistrate’s interruption of Ms Burnheim’s submissions, which was followed by the immediate delivery of an ex tempore judgment. Accordingly, it is not necessary to consider what effect this denial had. It is sufficient to say that, generally speaking, a judicial officer ought not interrupt a party who has not completed submissions and proceed to deliver judgment. Further, although Mr Bassett (who appeared for the business name in the Local Court) was not required to be heard (since the orders were in his client’s favour) it is generally advisable for a judicial officer to ask the other party whether he or she wishes to add something, even if the judicial officer makes it clear that he or she does not need to hear from the representative on particular topics. This allows for the potential correction of error before a decision is made. For example, in the present case, the business name’s representative could have said that no point was taken about the lack of date or lack of annexure to Mr Sargeant’s affidavit.

I have not heard from the parties on costs. Indeed, I indicated that I would make provision in the orders for applications for costs and submissions to be made in writing after publication of these reasons.

Mr Reynolds indicated that if the appeal were to be allowed, he was instructed to seek a certificate under s 6(1) of the Suitors’ Fund Act 1951. I am persuaded that it is appropriate to issue a certificate in the present case. Although the irregularities in the pleading (which led, in my view, to the judgment being irregularly given) were the responsibility of his clients, the conduct of the hearing by the Magistrate was not influenced in any material respect by their legal representative, since the debate was almost entirely between Ms Burnheim and the Magistrate. Almost no contribution to that exchange was made by Mr Bassett, who appeared for the business name.

For the foregoing reasons I make the following orders: