Crawford Giles and Associates Pty Limited v Spencer Grove Estate Pty Limited and James Edward Spencer

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.

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.

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.

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.

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.

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.

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.

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.

In his affidavit of 13 April 2015, the second defendant said (commencing at para. 7):

In his affidavit of 24 August 2015, the second defendant further stated:

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):

He subsequently said (at T23 L25-34):

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.

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):

Rule 36.16 of the rules is in the following terms:

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.

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.

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).

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:

Section 60 of the Act is in the following terms:

Section 5 of the Act defines the word property in the following terms:

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.

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.

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).

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.

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.

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”.

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.

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.

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.

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.

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.

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.

The additional material provided by the second defendant does not cause me to depart from the conclusions I have reached.

I make the following orders: