Bendigo & Adelaide Bank Ltd v Charatsis - [2015] SADC 1

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BENDIGO & ADELAIDE BANK LTD v CHARATSIS
[2015] SADC 1
Decision of His Honour Judge Barrett
13 January 2015
PROCEDURE - JUDGMENTS AND ORDERS - AMENDING, VARYING AND SETTING ASIDE - ACTIONS TO REVIEW OR SET ASIDE JUDGMENT
The defendant seeks to set aside judgment for a liquidated sum entered against him in default of his appearance at trial. The discretion to set aside judgment is exercised by reference to his explanation for his non-appearance, the merits of his case and the prejudice he will suffer if the application is not granted.
HELD: The defendant is not able to demonstrate a reasonable explanation for his non-appearance, that his case has any merits or that he will suffer a disproportionate prejudice. Application dismissed.
Ferragamo v Duffy 31 May 1991 - BC9100421, considered.

CONSUMER CREDIT - CREDIT PROTECTION - REGULATED CONTRACTS AND REGULATED MORTGAGES - ENFORCEMENT AND TERMINATION

BENDIGO & ADELAIDE BANK LTD v CHARATSIS
[2015] SADC 1

This is an interlocutory application pursuant to Rule 230 of the District Court Rules to set aside a default judgment I entered against the defendant on 17 March 2014 when he failed to appear in court on the day appointed for the trial of this matter.
The power to set aside a default judgment is discretionary. In the exercise of the discretion to grant the application I should have regard to three principal criteria:
1. The reason for the default.
2.The presence or absence of the defendant having a bona fide defence to the plaintiff’s claim, or to put it another way, does the defendant have a triable issue to be determined.
3.The weighing up of the prejudices to be suffered by each party in the event of an adverse ruling.[1]
[1] Ferragamo v Duffy delivered 31 May 1991 - BC9100421 (unreported) per Debelle J.
Issues on the application
The defendant has the burden of persuading me to exercise my discretion in his favour by reference to the three above criteria.
Background
The defendant is a 58 year old legal practitioner who, in 2008, borrowed approximately $35,000 from the plaintiff by way of a personal loan. The defendant defaulted in paying instalments off the loan. In March 2011 the plaintiff commenced proceedings against the defendant. On 9 September 2011 the proceedings were compromised at a settlement conference. The compromise was evidenced by a handwritten agreement signed by both parties. The essential terms of the agreement were that from 11 October 2011 the defendant would pay instalments of $330 per month until the debt was paid. In default of payment, the defendant would consent to judgment in favour of the plaintiff for the plaintiff’s claim.
The defendant initially made the agreed payments, although not all on time. He paid the instalments for six months between October 2011 and March 2012. He then made no payments for four months between April and July 2012. He resumed making payments for the four months between August and November 2012. He has made no payments since November 2012.
The defendant does not dispute the debt, nor does he dispute that he has made defaults in payment as alleged by the plaintiff. Instead, his defence appears to take three forms as follows:
1.The plaintiff should have extended the time within which the defendant should repay the loan. In failing to do so the plaintiff has behaved unconscionably within the meaning of the Australian Securities & Investments Commission Act 2001 (Cth) and or the hardship provisions of the National Consumer Credit Protection Act 2009 (Cth), or the Consumer Credit Code. The hardship provisions of the last two Acts call for the extension of time in certain circumstances (see paragraphs 3 and 4 of the Third Defence, Trial Book page 9). The defendant’s hardship arises from a depressive illness he has suffered for a number of years.
2.The plaintiff has failed to produce a Deed of Settlement following the execution of the handwritten agreement. The defendant asserts that at the time of entering into the compromise agreement the plaintiff’s solicitor said that the plaintiff would produce a deed which would make provision for the defendant to ‘redeem’ in the event of not meeting the monthly payments (paragraph 7, Third Defence, Trial Book page 9).
3.The plaintiff has breached an oral agreement to vary the handwritten agreement by now seeking to recover the three payments due between March and May 2013 when it agreed to a moratorium during those months. The plaintiff had agreed to review in June 2013 the defendant’s ability to pay (paragraph 5, Third Defence, Trial Book page 9).
The third defence just referred to arises from a telephone call made by an employee of the plaintiff to the defendant in February 2013. Sometime in 2012, when the defendant was defaulting on payments, he made a complaint to the Financial Ombudsman Service. The plaintiff’s employee rang the defendant and sought to resolve the complaint. The defendant says that the parties agreed on the telephone that in exchange for the defendant withdrawing the complaint to the Ombudsman, the plaintiff would grant him a moratorium on three payments from March to May 2013 inclusive, and thereafter, in June 2013, the plaintiff would contact him to assess his ability to recommence payments. The plaintiff’s employee reduced that discussion to writing in a letter to the defendant dated 21 March 2013 inviting the defendant to sign an acceptance of the agreement as a resolution of the complaint to the Ombudsman. The defendant did not sign the acceptance but he did not proceed with the complaint to the Ombudsman.
The defendant says that when the plaintiff’s employee spoke to him in June there was no assessment of his ability to resume payments. Instead there was a demand that he resume payments. The defendant says that he was in no position to resume payments.
In September 2013 the plaintiff resumed its proceedings against the defendant by filing a second statement of claim. That statement of claim seeks enforcement of the compromise agreement. The matter was set down for trial on 17 March 2014. The certificate of readiness for trial was signed by the plaintiff’s solicitors on 16 December 2013. It was not signed by the defendant (Trial Book page 16).
It appears the defendant was proposing to represent himself at the trial. He appears to have prepared and filed his own documents.
Events leading up to the trial date
The defendant gave evidence on the application to set aside the judgment. He had filed five affidavits altogether, the last two of which were in support of the interlocutory application to set aside the judgment. The fourth affidavit was sworn on 17 July 2014. That affidavit relates to the events leading up to the trial date. The fifth affidavit was sworn on 22 October 2014 and relates to what might be described as the merits of the defendant’s case.
On 31 October 2014, the day of the hearing of the interlocutory application to set aside the judgment, I granted the plaintiff’s request to cross examine the defendant. I so ruled because I believed that fairness to the plaintiff required Mr Thomas to be able to cross examine the defendant on the affidavits he had sworn and on matters relating to the application. Mr Thomas did cross examine the defendant. The defendant was represented by Mr Evans.
It appears that the plaintiff does not dispute some aspects of the defendant’s affidavits and his evidence. There is no dispute that, for some years, the defendant has suffered from a depressive illness, and he may have been suffering from that illness in the three or so months leading up to the trial date. The defendant says his marriage of 30 years broke down on Christmas Day 2013 and he left the matrimonial home in North Adelaide. Between Christmas Day and 17 March 2014 he was homeless, relying on family and friends for temporary accommodation. His wife remained in the former matrimonial home. I can accept that these events would have been particularly distressing for someone liable to depression.
In addition, the defendant’s first mortgagee was taking steps to take possession of the North Adelaide house. Although the reasons for that were not explained, I assume the defendant was in arrears of mortgage payments. The defendant says in the affidavit sworn on 17 July 2014 that an order for possession of the house expired on 4 March 2014. I accept that these events would have added to the defendant’s distress.
The trial was due to begin on Monday 17 March 2014. On 5 December 2013 the defendant had filed an application seeking the vacation of the trial date on the grounds of his depressive illness. The defendant had failed to execute the certificate of readiness for trial. Master Blumberg dispensed with the requirement for the defendant to execute the certificate of readiness but he declined to vacate the trial date on the grounds that the defendant’s medical condition in December 2013 did not necessarily mean he would be unfit to take part in the trial set for March 2014.
At about 12.15pm on Friday 14 March 2014, the defendant filed an affidavit in which he said he was incapacitated from representing himself. The affidavit provided few details of that incapacity. I take it that the affidavit was really filed in support of the earlier application to vacate the trial date. No fresh application was filed. The defendant annexed to the affidavit a brief letter of the same date from his psychiatrist Dr Arthur Loukas, saying that the defendant was incapacitated from working and in representing himself in court.
The defendant did not serve the affidavit on the plaintiff’s solicitors until about 8.00pm on Sunday 16 March, the day before the trial. In his evidence the defendant gave no explanation for why he did not serve the affidavit on Friday 14 March. He had filed the affidavit at 12.15pm.
The defendant did not appear in court on 17 March and I entered judgment in default of his appearance. In cross examination the defendant acknowledged that he did appear in this Court, on Thursday 13 March before Judge Brebner, on his own application to have lifted a caveat on his house which had been lodged by another financier. On that occasion he told the judge he was not going to pursue the application to lift the caveat for personal reasons.
The defendant does not suggest that he was unable to appear in court on 17 March, as he had done on 13 March. He says instead that he would have been unable to represent himself at the trial.
The defendant says that about a week and a half after 17 March he rang the court to find out what had happened to his trial. He says he was told about the default judgment. He agrees that he may have made that inquiry around 27 March. He took no action to set aside the judgment until 17 July, when he filed the application to have the judgment set aside.[2]
[2] The application is dated 14 July but was filed on 17 July.
It appears that on 4 July 2014 the plaintiff served on the defendant a bankruptcy notice pursuant to a Federal Court order for substituted service. The defendant says that the plaintiff is the only one of his creditors to file a bankruptcy notice.
As I have already mentioned, the three criteria for deciding whether the discretion should be exercised to set aside the judgment are:
1.     The explanation for the non appearance at trial.
2.     The merits of the defendant’s substantive case, and
3.     The prejudice the defendant will suffer if the order is not made.
The plaintiff responds to those criteria as follows:
1.The defendant has given no satisfactory explanation for his non appearance.
2.His defence has no merit, and
3.He will not suffer a prejudice that outweighs that which will be suffered by the plaintiff if judgment is set aside.
I now discuss those three criteria.
Explanation for non appearance
The defendant really has no reasonable explanation for his non appearance on 17 March. As a legal practitioner he must have known he should attend, and he must have known the likely consequences of his failure to attend. I say that despite recognising that his depressive illness would have made it more difficult for him to function normally. However, the illness did not prevent him appearing in court four days earlier, and it did not prevent him preparing an affidavit testifying to his condition. He had consulted his psychiatrist and obtained a letter which he annexed to the affidavit.
While I find that there is no reasonable explanation for the defendant’s non appearance on 17 March, I do not overlook the possibility that I might have been persuaded to adjourn the trial if he had appeared and sought an adjournment on the basis of his psychiatric condition. It is by no means certain I would have done so however. There would have had to be more extensive inquiry into the history of the proceedings and of the defendant’s personal circumstances than is now possible. It might have been necessary to hear more from the psychiatrist. It is not now possible to reconstruct the circumstances that would have informed the decision to proceed with the trial or to adjourn it.
For the present, I find that there was in my view no reasonable explanation for the defendant’s non appearance. I do not accept that his psychiatric illness is a sufficient explanation.
The merits of the defence
I turn to consider the merits of the defendant’s defence to the plaintiff’s claim. In Ferragamo v Duffy ibid, Debelle J observed that the power to set aside a default judgment is discretionary. His Honour said:
The reasons for the default, the reasons for the delay in applying to set aside the judgment, and a bona fide intention of defending the action are among the considerations to which a court will have regard on an application to set aside a default judgment. (Authorities omitted). Primary among the considerations is that the defendant is able to demonstrate that prima facie he has a good defence on the merits. (Authorities omitted). Generally speaking, where a defendant has an apparently good defence, he should not be refused the opportunity of defending, even though a lengthy interval of time has elapsed, provided that no irreparable prejudice is thereby done to the plaintiff. (Authorities omitted).
As I have already indicated, the defendant does not dispute his debt to the plaintiff nor does he dispute default in paying instalments. His defence takes the three forms I have described. I paraphrase them again:
1.The plaintiff has breached a statutory duty of conscionability by not extending the time in which to pay the instalments.
2.The plaintiff has failed to provide a promised deed after the execution of the settlement agreement.
3.The plaintiff has failed to review the instalment plan after the three month moratorium in early 2013.
In my view none of these defences has any merit. I explain why. I discuss each defence in turn.
The defendant alleges that the plaintiff has breached statutory obligations of conscionability. I will not detail the individual statutory provisions dealing with hardship because each has as its premise a process of negotiation between the parties about the hardship suffered by the debtor, an explanation by the debtor of the need for an extension of time to pay, an agreed plan for repayment and compliance by the debtor with the plan. It is significant that the present proceedings are based upon an agreed compromise between the parties. The parties agreed upon a plan for payments and they reduced that agreement to writing at a settlement conference. The defendant is a legal practitioner. He agreed in October 2011 to a program of repayments but he eventually failed to comply with the agreement.
He lodged a complaint to the Ombudsman but settled that complaint upon the plaintiff agreeing to a three month moratorium in early 2013. Even if the plaintiff had agreed to a review in 2013, it is by no means clear that any review, short of forgiving the debt, would have enabled the defendant to resume payments. Subsequent events make it clear that he was in no position to pay instalments. I find that the defendant has no meritorious defence to the plaintiff’s claim under this heading.
The defendant’s second defence is that the plaintiff has failed to produce a deed promised at the settlement conference following the execution of the settlement agreement. There is no reason to hold that the settlement agreement was not binding on the parties until the production of the deed, assuming that such a deed was promised. The defendant does not suggest the plaintiff indicated when such a deed would be prepared. In pursuance of the settlement agreement, the defendant made the agreed payments for six months. There is no reason to believe that any deed produced in, say, those six months, would have included terms more favourable to the defendant than the agreement. I find this head of the defence lacks merit.
Finally, the defendant asserts that the plaintiff failed to review his ability to pay after the three month moratorium in early 2013. Assuming that assertion is correct, it is not clear that a review would have resulted in a further moratorium, whether partial or complete. It is reasonably clear that at any review in June 2013 the defendant would not have been able to pay any instalments thereafter. He has paid none. This head of defence also lacks merit.
In my view the lack of merit in the defendant’s case is the most important criterion in determining the application to set aside the judgment. However, I will turn to consider the question of prejudice to the defendant if the application is refused.
Prejudice
Each party will suffer some prejudice in the outcome of the application. The plaintiff has received no payments in reduction of its loan to the defendant since November 2012. If the application is granted, any avenues of recovery will be delayed. The plaintiff has already been put to expense in the litigation and will be put to further expense if the proceedings are delayed. It is unclear how much of its costs will be recoverable in the event of its success in the proceedings.
There was some delay in the defendant making his application to set aside the judgment. He did not lodge his application until four months after the default judgment was entered, and then he only did so after he was served with a bankruptcy notice.
On behalf of the defendant, Mr Evans submitted that the defendant is liable to suffer much greater prejudice than the plaintiff. The plaintiff’s loss will only be financial, but if the judgment stands, the bankruptcy notice will be likely to end in the defendant being declared bankrupt. If that happens the defendant’s entitlement to practise law will be in jeopardy.
I do not believe I am entitled to have regard to what I described as secondary consequences of the refusal of the application. I think I can only take account of the consequence that if the judgment stands the defendant will be denied the opportunity to defend the action. However, if I am wrong about that, and if I should have regard to the secondary consequences, the fact remains that I have concluded that the defendant’s case is without merit. That conclusion is I think the critical one on this application. If I were to grant the application I would be permitting the defendant to pursue what I consider to be an unmeritorious case. In those circumstances the plaintiff would be unreasonably exposed to the possibility, in fact I think the likelihood, of financial loss.
Conclusion

It is not possible to be unsympathetic to the difficulties the defendant faced at the time set for his trial. I accept that his illness was exacerbated by stressors in the months leading up to the trial. I accept it must have been difficult to face the prospect that he may have been forced to represent himself. However, I am not satisfied that I am justified in setting aside the default judgment. I am not satisfied that the defendant’s explanations for his non appearance, the merits of his case or the prejudice that he will suffer are such that the discretion should be exercised in his favour.
Order
I dismiss the application to set aside the default judgment.
I will hear the parties as to costs.