Stephens and Anor v Glega Pty Limited trading as Robinia Homes and Anor

1. [1]

   JOHNSON J: By Notice of Motion filed 2 February 2022, the Defendants, Glega Pty Limited and Liza See, apply under Rule 36.15 Uniform Civil Procedure Rules 2005 (“UCPR”) to set aside a default judgment entered against them on 7 April 2021 in proceedings commenced by the Plaintiffs, Jason James Parker Stephens and Scott Alec Harman.

Hearing of the Notice of Motion

1. [2]

   The hearing of the Notice of Motion proceeded before me, as Common Law Duty Judge, on 9 February 2022. Mr Batley of counsel appeared for the Defendants and Mr McMahon of counsel appeared for the Plaintiffs.

2. [3]

   In support of the application, Mr Batley read the affidavit of Patrick John Latham, solicitor, sworn 2 February 2022.

3. [4]

   Mr McMahon read three affidavits of Elijah Whittaker, solicitor, dated 13 December 2021, 4 February 2022 and 7 February 2022.

4. [5]

   In advance of the hearing, counsel for the Defendants furnished written submissions (MFI1), as did counsel for the Plaintiffs (MFI2). Counsel spoke to the written submissions at the hearing, at the conclusion of which the Court reserved its decision and stayed the enforcement of the default judgment until further order of the Court.

Factual Background

1. [6]

   The proceedings arise out of a building dispute between the Plaintiffs and the Defendants concerning a contract for construction of residential premises at 3 and 3a Coolabah Close, Fletcher, under a home building contract entered into on about 18 September 2018.

2. [7]

   The First Defendant conducted a business including construction of residential premises, and traded under the business name Robinia Homes. The Second Defendant was the sole director and shareholder of the First Defendant.

3. [8]

   The Plaintiffs allege that the premises have been constructed without the necessary council approval, relevant certification or a construction certificate. The Plaintiffs allege that, during the construction of the premises, the Plaintiffs required production of a construction certificate and the name of the certifier, but no such certificate was forthcoming.

4. [9]

   On 23 December 2020, the Plaintiffs filed a Statement of Claim in this Court which sought the following relief against the First and Second Defendants:

5. [10]

   I observe that, at the time when the Statement of Claim was filed, the Plaintiffs were represented by a different firm of solicitors to those who represented the Plaintiffs at the time of the hearing of the Notice of Motion. The present solicitors for the Plaintiffs commenced to appear for them on 12 May 2021, after default judgment had been given on 7 April 2021.

6. [11]

   The Statement of Claim pleaded and particularised the claims made against the First and Second Defendants.

7. [12]

   It will be observed that the Statement of Claim asserted that the claim was for “liquidated damages”. As will be seen, it was conceded by counsel for the Plaintiffs on the present application that the Plaintiffs’ claim was for unliquidated, and not liquidated, damages. Regrettably, this error was not detected at an early stage in the proceedings, nor did the Registrar who gave default judgment detect this problem with the application. I will return to this aspect later in the judgment.

8. [13]

   On 9 February 2021, the proceedings were mentioned before the Common Law Registrar. A solicitor appeared for the Plaintiffs and the Second Defendant appeared for herself. An order was made for personal service to be dispensed with, and with service of the Second Defendant to be effected by email. The proceedings were stood over to 30 March 2021 before the Common Law Registrar.

9. [14]

   On 6 April 2021, the solicitors then acting for the Plaintiffs filed a Notice of Motion seeking default judgment for a liquidated claim in the amount of $962,069.00 together with an order that the First and Second Defendants pay the Plaintiffs’ costs. The Notice of Motion was supported by an affidavit of Jason James Parker Stephens dated 17 March 2021 which stated, amongst other things, that neither the First or Second Defendants had filed an appearance or had filed a Defence in the proceedings and that more than 28 days had passed since the Defendants had been served with the Statement of Claim.

10. [15]

    On 7 April 2021, default judgment was given in favour of the Plaintiff against the Defendants in “the sum of $962,069.47 inclusive of costs”.

11. [16]

    On 12 May 2021, Notice of Change of Solicitor was filed on behalf of the Plaintiffs and the firm now appearing for the Plaintiffs commenced to act for them.

12. [17]

    On 15 June 2021, based upon the default judgment, the Court issued a Writ for Levy over Property with respect to a property located at Thornton, with a similar Writ issued as well with respect to a property at Butterwick. Efforts by Sheriff officers to execute these Writs were unsuccessful.

13. [18]

    On 30 July 2021, the solicitors for the Plaintiffs filed a Notice of Motion seeking an examination order with respect to the Second Defendant. Thereafter, an examination hearing of the Second Defendant took place on 16 November 2021 and 7 December 2021. The examination hearing was scheduled to continue on 21 December 2021, but was adjourned in circumstances where a solicitor was then appearing for the Second Defendant.

14. [19]

    In late December 2021 and January 2022, the solicitors now acting for the Defendants took steps to ascertain what had happened in the proceedings. The resumed hearing of the examination before the Registrar, scheduled to take place on 3 February 2022, was stood over to 8 April 2022 with the First Defendant being ordered to pay the costs of the Plaintiffs in the sum of $3,000.00. The Court was informed that those costs were paid on 7 February 2022.

15. [20]

    It was against this background that the present Notice of Motion proceeded to hearing on 9 February 2022.

16. [21]

    As will be apparent from the above chronology, the Second Defendant was not legally represented until 21 December 2021. Prior to that date, neither Defendant had filed a Notice of Appearance nor had a Defence been filed for either of the Defendants. The Second Defendant had appeared in person before the Registrar on 9 February 2021 and had appeared again on various days for examination hearings, but that had been the extent of her engagement in the proceedings.

Application to Set Aside Default Judgment

1. [22]

   Rule 16.6(1) UCPR provides as follows:

2. [23]

   In Arnold v Forsythe [2012] NSWCA 18, Sackville AJA (McColl and Young JJA agreeing) referred to authorities concerning the term “debt or liquidated claim” (at [44]-[47]):

3. [24]

   There is little doubt that the drafter of the Statement of Claim in this case intended to plead a claim for liquidated damages. The pleading specified the amount of the claim, something that is not permitted in a claim for unliquidated damages: Rule 14.13(1) UCPR. However, the specification of the precise amount does not convert what is otherwise a claim for unliquidated damages into a liquidated claim: Arnold v Forsythe at [48].

4. [25]

   Counsel for the Plaintiffs conceded (correctly) that the claim in this case was not a liquidated claim. Nor was it a claim for unliquidated damages under rule 14.13(2) UCPR as mentioned in rule 16.6(1) UCPR.

5. [26]

   It was accepted that, if default judgment was to be sought, application should have been made under Rule 16.7 UCPR. Rule 16.7(1) states:

6. [27]

   The present application is made under Rule 36.15 UCPR which states:

7. [28]

   In ACN 057 690 034 Pty Limited v Wykrota [2020] NSWSC 1430 (“Wykrota”), Rees J summarised (at [6]-[7]) the principles with respect to setting aside a judgment obtained irregularly:

8. [29]

   In Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No. 2) (2009) 78 NSWLR 190; [2009] NSWCA 387, the Court (Allsop P, Campbell JA and Handley AJA) said at [16]-[17]:

9. [30]

   In Arnold v Forsythe, after considering the nature of the claim in that case, Sackville AJA concluded at [59]:

Overview of Submissions of Parties

1. [31]

   The hearing of the Notice of Motion proceeded upon the basis that there was a conceded irregularity in that, as this was not a liquidated claim, default judgment under Rule 16.6 UCPR should not have been given.

2. [32]

   Mr Batley, for the Defendants, relied upon Arnold v Forsythe at [59] in contending that, as the pleaded claim could not support a default judgment, the judgment was given irregularly and ought be set aside.

3. [33]

   Mr McMahon, for the Plaintiffs, emphasised the discretionary nature of the power in Rule 36.15(1) UCPR with the power to be exercised “on sufficient cause being shown”. He argued that, in the circumstances of this case, the Defendants had not shown sufficient cause so that the Notice of Motion ought be dismissed.

Submissions for the Defendants

1. [34]

   Mr Batley submitted that the established irregularity in this case was substantial so that sufficient cause was shown as to why the default judgment should be set aside under Rule 36.15 UCPR. He submitted that, unlike the case where default judgment is regularly obtained, there is not a usual practice requiring a defendant to give evidence of a bona fide defence on the merits or an explanation of the default and an explanation of any delay in seeking to have the default judgment set aside under Rule 36.15 UCPR.

2. [35]

   Mr Batley submitted that the Plaintiffs’ concern with respect to the two dwellings constructed by the First Defendant related to the lack of relevant certification, but it is not alleged that the dwellings are, in themselves, defective. The damages claim for $862,000.00 appears to be based on the cost of demolition of the dwellings, and the building of new dwellings on the same plans with the necessary certification in place.

3. [36]

   With respect to the claims pleaded in the Statement of Claim, Mr Batley submitted that there were a number of deficiencies which were relevant when considering the present application. He submitted, amongst other things, that the Statement of Claim does not, in terms, claim that the premises have been constructed without the necessary council approval, relevant certification or a construction certificate or without development approval.

4. [37]

   Mr Batley noted reliance by the Plaintiffs upon the report dated 23 November 2020, of a quantity surveyor, Martin Sadlier, which included an opinion that the cost of obtaining relevant certification was $60,797.00 including GST. Counsel submitted that, at this stage, there is no evidence about the viability or cost of obtaining necessary certification of the existing dwellings. He observed, however, that this may suggest that, if viable, the cost of certifying the existing buildings is likely to be closer to $60,000.00 rather than $900,000.00, this being the approximate quantum of the default judgment ordered in this case.

5. [38]

   Counsel for the Defendants submitted that there is no pleaded case that the dwellings are uninhabitable or that the damages from the alleged breaches of contract, negligence or contraventions of the Australian Consumer Law should be calculated by reference to worthless buildings that must be demolished and rebuilt. It was submitted that the negligence claims did not plead the material facts necessary for a cause of action in negligence. The alleged “risk of harm” which must be pleaded was not identified at all: Garzo v Liverpool/Campbelltown Christian School Limited [2011] NSWSC 292 at [60].

6. [39]

   It was submitted that, in a claim of economic loss caused by negligence, vulnerability of the Plaintiff is an essential element which must be pleaded: CJD Equipment Pty Ltd v A & C Constructions Pty Ltd [2009] NSWSC 1362 at [245]. There was no such pleading in this case.

7. [40]

   Mr Batley submitted that it is a novel claim in negligence to allege that a director of a company has a duty of care to take all reasonable steps to ensure that the company performs its contractual obligations, and that there were no pleaded material facts as required by s.5D(1) Civil Liability Act 2002.

8. [41]

   Counsel submitted that the misleading or deceptive conduct claim against the Second Defendant is vague and embarrassing because it does not articulate an alleged connection between the making of the progress payments and any identifiable loss or damage. Nor were the essential elements of equitable unconscionability pleaded in the Statement of Claim, with counsel relying upon the recital of the elements of this cause of action in Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [146].

9. [42]

   It was submitted that the failure of the Plaintiffs to identify the relevant alleged loss or damage meant that the question of causation in the breach of contract claims, the negligence claims and the Australian Consumer Law claims cannot be resolved.

10. [43]

    Mr Batley submitted that it would be unsafe, and not accord with the dictates of justice, to allow the default judgment in this case to stand.

11. [44]

    Further, it was submitted that it would be unsafe and not accord with the dictates of justice for the Court to set aside the judgment as to quantum only and to leave in place the verdict for the Plaintiffs with damages to be assessed. In this respect, Mr Batley relied upon:

12. [45]

    Counsel for the Defendants submitted that the irregularity in this case should not be regarded as inconsequential, insignificant or causally unrelated to the making of the order: Wykrota at [7].

13. [46]

    It was submitted for the Defendants that the application to set aside the default judgment had been brought before the Court promptly after the Second Defendant had retained legal representation, and that the application had been prosecuted with due dispatch.

14. [47]

    Counsel submitted that, given the clear irregularity, it would be unsafe for the default judgment to stand when there is no pleaded case which identifies damage which goes to the extent of the quantification.

Submissions for the Plaintiffs

1. [48]

   Whilst acknowledging that the default judgment was made irregularly in this case, Mr McMahon submitted that the Defendants had failed to show sufficient cause for the default judgment to be set aside in whole or in part. He submitted that the Defendants had failed to put forward any defence on the merits or any satisfactory explanation for the failure to file a defence.

2. [49]

   Relying upon Wykrota, Mr McMahon submitted that the irregularity in this case was insignificant and inconsequential, so that the Court should not exercise discretion to set aside the default judgment.

3. [50]

   With respect to submissions for the Defendants which criticised the pleaded case in the Statement of Claim, Mr McMahon submitted that the Defendants have no real defence to the claim, with there being no production of the relevant construction certificate.

4. [51]

   It was submitted that criticisms of the pleadings were limited to issues of quantum. If the Court was minded to set aside the default judgment, it was argued that the Court should allow default judgment with respect to liability to stand, but set aside the quantum, thereby allowing the matter to go forward by way of hearing as to assessment of damages only: Peters v Magistrate Pat O’Shane and Ors [2006] NSWSC 1329.

5. [52]

   This approach would constitute a form of default judgment made under Rule 16.7 UCPR. On this approach, Mr McMahon submitted that the real issues in the proceedings could be determined in a just, quick and cheap fashion, and in the interests of justice in accordance with ss.56 and 58 Civil Procedure Act 2005.

Decision

1. [53]

   The focus of Rule 36.15 UCPR is on the judgment which is attacked upon the ground of irregularity: Perpetual Trustees Australia Ltd v Heperu Pty Ltd (No. 2) at [16]-[17] (see [29] above). The inappropriate use of Rule 16.6(1) UCPR, where the claim is for unliquidated damages, is a fundamental irregularity: Arnold v Forsythe at [59] (see [30] above).

2. [54]

   Where a judgment has been entered irregularly, the Court is not obliged to enquire whether or not there is a good defence on the merits, although it remains necessary for the moving party to show “sufficient cause” for the judgment to be set aside: Wykrota at [6] (see [28] above).

3. [55]

   There was a clear irregularity in this case so that default judgment should never have been granted for a liquidated sum. The Statement of Claim pleads several alternative causes of action against the Defendants and, in particular, the Second Defendant. The fact that the Statement of Claim asserted that it was a liquidated claim is not to the point. On the face of the claim itself, the causes of action gave rise to a claim for unliquidated damages.

4. [56]

   The use of the liquidated claim default judgment procedure meant that the judgment entered was entirely cryptic. There was, of course, no identification of the particular cause of action which gave rise to the default judgment.

5. [57]

   The affidavit in support of the application for default judgment was limited in its content. Mr Batley accepted that the affidavit of Mr Stephens satisfied the formal requirements where default judgment is sought. That aspect does not assist the Plaintiffs as an application for default judgment in a liquidated claim was simply inappropriate.

6. [58]

   The report of Mr Sadlier was not before the Registrar who entered default judgment. Given the basic formal requirements on an application for default judgment in a liquidated claim, it would not be expected that material of that sort would be placed before the Court. However, the report of Mr Sadlier is said to play a part in the quantification of the Plaintiffs’ claim in the proceedings. As Mr Batley has noted, however, there is at least an element of uncertainty arising from the report as to whether the suggested deficit flowing from the absence of the construction certificate may be remedied for a sum in the order of $60,000.00 as opposed to the sum ultimately awarded by default judgment exceeding $900,000.00.

7. [59]

   I note that both counsel referred, in passing, in submissions to provisions in Part 6 of the Environmental Planning and Assessment Act 1978 (T16–17, 23 9 February 2022). I do not consider that the position of the Plaintiffs or the Defendants is advanced by references to these provisions.

8. [60]

   I do not consider that the irregularity in this case can be characterised as inconsequential, insignificant or causally unrelated to the making of the judgment or order: Wykrota at [7] (see [28] above). The irregularity here arose from the use of the default judgment procedure with respect to what was clearly an unliquidated claim dressed up as a liquidated claim.

9. [61]

   The irregularity is compounded by the uncertainty as to the cause of action alleged in the Statement of Claim which is said to found the quantum of the default judgment itself. The foundation for the quantum of default judgment is, in effect, speculative in nature.

10. [62]

    I do not consider that the present application can be determined on the basis that the Defendants have no defence to the claim against them. In the circumstances of this case, the Court is not obliged to enquire whether or not there is a good defence on the merits: Wykrota at [6] (see [28] above).

11. [63]

    Mr McMahon sought to characterise the position as one where, in effect, the Defendants were doomed to suffer judgment in the matter in circumstances where no construction certificate has been furnished nor has it been suggested by the Defendants that such a certificate exists.

12. [64]

    However, the causes of action pleaded against the Defendants in the Statement of Claim go beyond that bare allegation. There is force in the submissions of Mr Batley that aspects of the causes of action which are pleaded in the Statement of Claim are deficient as to pleadings and particulars. I do not accept that the Plaintiffs are bound to succeed in their claim and that the Defendants are doomed to fail.

13. [65]

    It is relevant to the application that the Defendants have not filed a Defence in the proceedings and that the Second Defendant’s participation has been limited in the manner described earlier in this judgment. That said, the Second Defendant did appear on 9 February 2021, and did attend on occasions for the purpose of examination hearings.

14. [66]

    Her involvement in the proceedings has all the hallmarks of a litigant who had not taken legal advice and was not taking steps to progress the litigation meaningfully. It may be said that, in this sense, the Defendants have not sought to facilitate the just, quick and cheap resolution of the real issues in the proceedings for the purpose of s.56 Civil Procedure Act 2005.

15. [67]

    What seems clear, however, is that, belatedly, the Second Defendant sought and obtained legal advice in December 2021, with prompt action being taken thereafter by her legal representatives to set aside the default judgment. The unsatisfactory and inadequate involvement of the Second Defendant in the proceedings to date does not assist her on this application. However, the irregularity involved in the granting of the default judgment is fundamental and that point has now been taken, albeit belatedly.

16. [68]

    In my view, it would be contrary to the interests of justice to allow the default judgment as to quantum to stand. That judgment should not have been entered in the first place and there is a fragile foundation for the suggestion that any aware of damages in this case would be in the order of the figure contained in the default judgment.

17. [69]

    I have considered the Plaintiffs’ alternative submission that the default judgment as to quantum ought be set aside, but the judgment as to liability should stand effectively as default judgment under Rule 16.7 UCPR. The difficulty with this approach is that the Statement of Claim itself appears deficient in certain respects so that it would be speculative to allow the judgment on liability to stand in circumstances where no foundational cause of action, from the various alternative claims, may be identified with clarity. It was not submitted that the Court could, on the present application, in effect select which cause of action should give rise to a finding of liability for the purpose of the judgment on liability remaining in place. It would be speculative and highly unsatisfactory for this Court, on the material which is available, to attempt to identify an appropriate cause of action in relation to which the judgment as to liability could stand.

18. [70]

    I am satisfied that a clear and serious irregularity occurred in this case and that sufficient cause has been shown by the Defendants for the default judgment to be set aside in its entirety: Arnold v Forsyth at [59] (see [30] above).

19. [71]

    What is clear, however, is that the future of this litigation must involve the parties engaging for the purpose of the just, quick and cheap resolution of the real issues in dispute in accordance with their duties under s.56 Civil Procedure Act 2005. The Plaintiffs did not assist their cause with a misguided attempt to classify their claim as a liquidated claim, with that error now being identified and operating to their detriment. At the same time, the Defendants will now be required to address the issues in these proceedings promptly and effectively so that the litigation moves forward in accordance with relevant principles for the conduct and determination of civil proceedings.

Costs

1. [72]

   Costs are in the discretion of the Court: s.98(1)(a) Civil Procedure Act 2005. The Court has full power to determine by whom, to whom and to what extent costs are to be paid: s.98(1)(b).

2. [73]

   In the event that the default judgment was set aside, Mr Batley accepted that it was appropriate for the Defendants to be ordered to pay the costs of the Plaintiffs thrown away by reason of their failure to enter an appearance and file a Defence. He submitted, appropriately, that these costs should not include the costs of the Examination Summons which have already been addressed by an order of the Registrar on 3 February 2022, with those costs having been paid.

3. [74]

   If this point was reached, Mr McMahon submitted that such an order as to costs should be made, but that the costs ought be payable forthwith and before any further step could be taken by the Defendants in the proceedings. Mr Batley submitted that such an order may operate as a barrier to progress in the litigation and argued that it ought not be made.

4. [75]

   Having regard to the point that has been reached in these proceedings, I am satisfied that it is appropriate that an order be made for the Defendants to pay the costs of the Plaintiffs thrown away by reason of their failure to enter an appearance and file a Defence. I do not consider it appropriate to make an order that those costs are to be payable before any further step is taken by the Defendants in the proceedings. In the present context, such an order may be counterproductive to the progress of the litigation.

5. [76]

   In the event that the default judgment is set aside, Mr Batley submitted that the Plaintiff should pay the costs of the Notice of Motion given that they have actively opposed that order. Alternatively, Mr Batley submitted that each party should pay their own costs of the Notice of Motion.

6. [77]

   Mr McMahon submitted that no costs order should be made against the Plaintiffs and that, if the Notice of Motion otherwise succeeded, each party should pay their own costs of the Notice of Motion.

7. [78]

   The ordinary rule is that costs should follow the event: Rule 42.1 UCPR. Costs nevertheless remain discretionary, with the Court to consider the appropriate order to be made in the circumstances of the case.

8. [79]

   The resistance by the Plaintiffs to the application to set aside the default judgment did not involve an argument that there had been no irregularity. A frank concession was made on that aspect at the present hearing. The resistance to the Notice of Motion was based upon other aspects as considered in this judgment.

9. [80]

   In my view, the appropriate costs outcome of the Notice of Motion is that there should be no order as to costs of the application, so that each party should pay their own costs of the Notice of Motion. I do not consider that any more favourable costs order should be made for the Defendants having regard to their history of inaction, over an extended period, since these proceedings have been on foot.

10. [81]

    At the hearing, I indicated that the parties would have an opportunity, if they see fit, to seek a different costs order after seeing the Court’s reasons. Although the costs orders to be made flow from the Court’s consideration of the submissions made by the parties, I will allow the parties that opportunity in the orders to be made.

Conclusion

1. [82]

   At the conclusion of the hearing, the parties requested the Court to allow an opportunity for consideration of the Court’s judgment, so that appropriate procedural orders could be fashioned, and hopefully agreed, to progress the litigation. This is an appropriate way forward given the unfortunate history of this litigation.

2. [83]

   I will allow the parties to propose case management orders which the Court will consider making in Chambers.

3. [84]

   I make the following orders: