Brownlie v Thorne - [2004] WADC 202

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: BROWNLIE -v- THORNE [2004] WADC 202

CORAM: CHANEY DCJ

HEARD: 15 SEPTEMBER 2004

DELIVERED : 11 OCTOBER 2004

FILE NO/S: CIV 1599 of 2003

BETWEEN: PHILIPPA BROWNLIE
Plaintiff (Respondent)
AND
GORDON THORNE
Defendant (Appellant)

Catchwords:

Default judgment - Application to set aside - No credible defence

Legislation:

Nil

Result:

Application dismissed

Representation:

Counsel:

Plaintiff (Respondent) : Mr R E Keen
Defendant (Appellant) : In person

Solicitors:

Plaintiff (Respondent) : Robertson Hayles
Defendant (Appellant) : In person

Case(s) referred to in judgment(s):

Brownlie v Thorne [2004] WADC 82
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
Palmer v Prince [1980] WAR 61
Parker v Transfield Pty Ltd & Anor [2003] WASCA 382

Case(s) also cited:

Barton v Armstrong [1973] 2 NSWLR 598
Dabbs v Seaman (1925) 36 CLR 538
Magnacrete Ltd v DouglasHill (1988) 48 SASR 565
Winfield Development Ltd v City of Winnipeg [1989] 4 WWR 558

CHANEY DCJ: This is an appeal from a decision of a Deputy Registrar made on 13 May 2004 when he dismissed an application by the appellant to set aside a default judgment entered on 21 August 2003.
The writ in this action was issued on 24 July 2003, and served on 31 July 2003. On 21 August 2003, default judgment was entered, and on 10 September 2003, a writ of fieri facias issued. On 26 September 2003, Mr Thorne wrote to the respondent's solicitors indicating an intention to seek to set aside the default judgment. On 7 October 2003, the respondent's solicitors replied indicating that any application to set aside the judgment would be opposed. The bailiff sought to enforce the writ of fieri facias but was unsuccessful. On 3 March 2004, an application to set aside the judgment was filed. It was heard before the Deputy Registrar on 30 April 2004, and on 13 May 2004 the application was dismissed.

The nature of the claim

The claim arises on a covenant contained in a document described as a "Deed of Security of Agreement" entered into between the appellant and the respondent on 25 March 2002. That deed, which was annexed to an affidavit of Keith Gordon Sorenson, the respondent's solicitor, provided, inter alia, that the appellant pay to the respondent the sum of $100,000 by 25 March 2003. The default judgment was for that sum together with interest.
The appellant and the respondent formerly lived together, and they have a child. The deed was entered following the breakdown of their relationship and in order to facilitate their separation. It recites that they are the registered proprietors of a property known as 76 Dunedin Street, Mount Hawthorn. It also recites that Mr Thorne was the owner of a business known as Omega Steel Fabrications, and that the respondent is a "shareholder of Omega Steel Fabrications". The deed provided that the respondent was to transfer to the appellant her interest in the Mount Hawthorn property. The appellant covenanted to indemnify the respondent in relation to the mortgage over the property and any other liabilities relating to it, and to pay $35,000 to the respondent on transfer of the property, and a further $100,000 within 12 months. A charge was granted over the property by the appellant to the respondent to secure the $100,000 debt. There were then certain other provisions relating to other assets of the parties which have no particular significance to the present proceedings.
The property was duly transferred in accordance with the deed, and the initial payment of $35,000 was made. According to Mr Sorenson, the deed incorporated a resolution of the issues between the parties which substantially reflected the terms of a document submitted to him by Mr Thorne setting out the terms which Mr Thorne suggested should apply to the division of property between the parties on separation.
In an affidavit sworn 3 March 2004, the appellant outlined his defence to the claim. In that affidavit, Mr Thorne said that he commenced a relationship with Ms Brownlie in about 1989. The child was born of that relationship not long afterwards. In January 1990, Mr Thorne purchased the Mount Hawthorn property, and he said that Ms Brownlie made no financial contribution to the purchase. The property was put into joint names. His evidence as to the arrangement that led to the property being put in joint names was as follows:
"I said to her that I wished her to be in a position to effectively act as executor of the property so as to look after the best interests of our child in the event of my demise. Philippa said to me that she was agreeable to that arrangement and she signed documents to become one of the registered proprietors shown on the title, on those agreed terms."
In that affidavit he reiterated that the property was put into joint tenancy pursuant to the "verbal understanding" referred to above "concerning the making of provision for the wellbeing of our child in the event of my death". In a subsequent affidavit, sworn 20 May 2004, Mr Thorne said:
"I made Philippa Brownlie fully aware prior to the 14th Jan 1990 when I took possession of the house that I was making all the financial commitments and it was clearly understood that as consideration for this expense, Philippa would refrain from taking any legal action to exercise her rights as per the title deed. These financial arrangements under which Philippa Brownlie and I had agreed operated without question until she vacated the house on 28 March 2002."
Ms Brownlie, in an affidavit sworn 6 September 2004, denies that there was any agreement of the nature asserted by Mr Thorne.
In his affidavit of 3 March 2004, Mr Thorne says that as a result of a series of events in 2000, his business fell into "acute financial distress and he was unable to raise urgently needed working capital". He says that Ms Brownlie refused to sign any paperwork to allow him to draw on the equity available in the Mount Hawthorn property as security for loans to the business. The refusal apparently continued until late 2001 and "the need for capital grew more intense". Mr Thorne said that Ms Brownlie orally explained her actions "as wanting to sell the house and take half of the proceeds". She instructed solicitors, Messrs Robertson Hayles, to act for her. That firm wrote to Mr Thorne on 12 March 2002, saying that Ms Brownlie had approached the firm requesting advice as to a proposal Mr Thorne had put forward in relation to a property settlement. That was a reference to the document prepared by the appellant the contents of which substantially reflect the terms of the deed ultimately executed.
Mr Thorne deposes to the fact that around this time, the financial difficulties he was having with his bank were substantial, he was subject to demands from business creditors and the future of his business was in significant jeopardy. He says that he was facing bankruptcy. Because of his financial pressures, which he says were taking their toll on him psychologically, Mr Thorne signed the deed. By reason of those circumstances, Mr Thorne suggests that he executed the deed under duress, and that it is liable to be set aside. That is the basis upon which he says he has a defence to the claim.

Principles applicable to setting aside default judgment

An application to set aside a default judgment involves a need to explain the failure to comply with the rules and any delay in bringing the application. An applicant must also satisfy the court that there is a defence on the merits ‑ see Palmer v Prince [1980] WAR 61 at 62. Even where a good defence is disclosed, it is a matter of discretion as to whether the judgment should be set aside (ibid at 64 per Burt J). For an application to set aside a default judgment to succeed, the defendant must present a credible defence demonstrating that if the default judgment was set aside and the matter was argued on its merits, the defendant would have a real prospect of success ‑ Parker v Transfield Pty Ltd & Anor [2003] WASCA 382 per Malcolm CJ at [3].

Non‑compliance with the rules and delay

The question of non‑compliance and delay was dealt with by Deputy Registrar Hewitt in his reasons – see Brownlie v Thorne [2004] WADC 82 at [3]. He observed that the explanation for the failure to lodge a memorandum of appearance in time was extremely suspect, but was prepared to accept that the defendant did attempt to file an appearance at the court but, through some failure to follow proper procedures, failed in doing so. No challenge to that conclusion was made by the respondent on the appeal, and while I share the Deputy Registrar's reservations about the explanation, in the absence of any challenge in relation to that aspect of his findings, I proceed on the basis of the conclusion reached by the learned Deputy Registrar.
The learned Deputy Registrar did not deal, in his reasons, with the long delay between entry of judgment in August 2003, and the institution of the application to set aside the judgment in March 2004. As indicated above, the appellant had indicated an intention to have the judgment set aside as early as 26 September 2003, but took over five months to follow up that intention. By then enforcement proceedings had progressed, and undoubtedly the respondent had incurred expenses in endeavouring to enforce her judgment.
At the hearing of this appeal, no point was taken on the issue of delay by the respondent. It seems to me, however, that to the extent that the setting aside of the judgment is discretionary, the appellant's delay in commencing proceedings counts against the exercise of discretion in his favour. The explanation offered in the papers is that, on being served with the writ, Mr Thorne could not obtain a response to his phone calls from his then solicitors with the result that he then approached a different firm of solicitors. The latter firm agreed to act but required him "to first comply with its retainer agreement terms, as to certain payments for fees." He said that he only became able to comply with those terms in March 2004 due to continuing financial difficulties. Those assertions lack adequate detail, and in my view the substantial delay in the application to set aside the judgment militates against the exercise of discretion in Mr Thorne's favour.
The argument before me proceeded, however, principally in relation to the merits of any defence which Mr Thorne had identified.

Duress

Mr Thorne's proposed defence is that, by reason of the dire financial circumstances in which he found himself and his business at the relevant time, he was faced with no alternative but to agree to the respondent's demands that he pay her for her interest in the house. His objective, it would seem, was to be able to utilise the property as security for further borrowings to finance his ailing business.
The essence of any potential defence must be that Ms Brownlie had no beneficial interest in the Mount Hawthorn property. That is because, although no proper evidence of valuation was adduced, it would appear from the document prepared by Mr Thorne which was submitted to Ms Brownlie's solicitors, that he accepted the value of the Mount Hawthorn property at the relevant time as approximately $420,000 with an existing mortgage of $117,000, and a business loan owing of $57,000. Assuming those liabilities to be joint (which may not be a fair assumption to Ms Brownlie) there would appear to have been an equity of around $246,000. The total amount payable to Ms Brownlie pursuant to the deed of settlement for her half interest in the property, and indemnity in relation to the debts, was $135,000. To the extent that one can tell from the evidence, that amount is not very far off the value of a one half interest in the net equity in the property. If the business loan was not a liability of Ms Brownlie's, as I suspect it was not, then $135,000 is less than 50 per cent of the equity in the property.
It follows that, however much Mr Thorne might not have wished to purchase Ms Brownlie's interest, in the end he appears simply to have paid an agreed value for a one half interest in the property. The alternative open to Ms Brownlie, assuming her to have a beneficial interest in the property, would have been to seek a sale in lieu of partition of the property which would have realised for her a sum of money approximately the same as what she agreed to accept in the sale of her half interest to Mr Thorne.
In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, it was said by McHugh JA (with whom Samuels, Mahoney JJA agreed) that (at 46):
"The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate. Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress."
If Ms Brownlie simply refused to encumber her interest in the property to enable further borrowings for Mr Thorne's business, and thereby closed off Mr Thorne's options for further borrowings unless he purchased her interest, it cannot be said that that pressure was illegitimate. It must be borne in mind that the financial pressure being exerted by a bank and other creditors of Mr Thorne's business was independent of Ms Brownlie. Her refusal to utilise her own assets to alleviate the pressure brought by others on Mr Thorne cannot be categorised as unconscionable. In determining whether Mr Thorne has a defence to the action on the deed, the question becomes whether he can establish that she did not have any beneficial interest in the property, so that her refusal to allow further borrowings was unconscionable.
In my view, the evidence adduced by Mr Thorne simply does not establish that proposition. Much of Mr Thorne's evidence, and much of his submission, was directed to the fact that Ms Brownlie had made no financial contribution to the purchase of the house, and the payment of the mortgage. By itself that fact establishes little. She was the legal owner of a one half interest.
Accepting for the purposes of this application that, in the context of a breakdown of his relationship with the respondent, his serious financial circumstances, and his belief that the respondent was acting unreasonably, the appellant was under enormous psychological, emotional and financial pressure, that, of itself, would not provide him with a defence to the action on the deed. Those matters alone do not make the pressure exerted upon him illegitimate in the sense that reliance by the respondent on the resultant deed could be said to be unconscionable. If there is any element of unconscionability, it must arise because an absence of any entitlement on the part of the respondent to any value for her interest in the property.
In seeking to set aside summary judgment, a minute of proposed defence and counterclaim was filed. The basis upon which it was contended that the respondent had no beneficial interest in the house was by reason of an agreement which was pleaded in the following way:
"a.In about January 1990 the Plaintiff and the Defendant together commenced to occupy a dwelling, being the house property (hereinafter referred to as the Property) at 76 Dunedin Street Mount Hawthorn Western Australia;
b.they did so pursuant to a verbal agreement (hereinafter referred to as the agreement) entered into between them after the Plaintiff and the Defendant became aware that the Plaintiff expected to have a child of the Defendant's;
c.the agreement provided for them both to so dwell at the Property and otherwise to cooperate with one another in such matters of daily living as would advance the best interests of their infant son Daniel, born 3rd March 1990;
d.the agreement further provided for the Defendant to
i.pay for the purchase of the property by making payments as due and payable from time to time under a mortgage loan facility obtained by the Defendant to finance the purchase of the Property and
iipay for its upkeep and outgoings after acquisition and
iii.cause the Plaintiff to be registered as a proprietor of an equal legal interest in the Property as a joint tenant with the Defendant,
to the intent and for the sole purpose of the Defendant providing a source of a degree of financial security for the child Daniel in the event of the Defendant's death during Daniel's infancy, and
e.the Defendant performed the terms of the agreement which are referred to in sub‑paragraphs c. and d. hereof."
What is pleaded in the proposed defence goes beyond the evidence contained in Mr Thorne's affidavit, the relevant portions of which are set out earlier in these reasons. Apparently, before Deputy Registrar Hewitt it was argued by counsel for Mr Thorne that the evidence established some form of trusteeship on the part of the respondent in favour of her son. As the learned Deputy Registrar rightly observed, if such a trust existed, it would have been a breach of that trust to permit the equity in the home to be utilised to fund an apparently ailing business with a risk of dissipation of the trust assets.
In my view, the evidence of Mr Thorne falls well short of providing any basis for establishing any form of trust upon which it might be said that Ms Brownlie held the half interest in the land. As observed, the evidence does not establish the agreement which was sought to be pleaded by way of defence. There is no cogent evidence that the deed upon which Ms Brownlie sued was detrimental to Mr Thorne in the sense of depriving him of any property. Had the agreement not been made, the property would presumably have been eventually sold and the proceeds divided between the owners.
Mr Keen, who appeared for the respondent, also submitted that it is now too late to set aside the deed. Ms Brownlie's interest in the property has been transferred to Mr Thorne. The evidence reveals that subsequent to that transfer he utilised the property to refinance his existing borrowings, including the payment of the initial $35,000 to Ms Brownlie. Mr Thorne has had the benefit of the use of the premises for now over two years.
I am not satisfied that the appellant has established a credible defence. Even if I were satisfied, the delay in bringing the application, the delay in seeking to avoid the contract until after the $100,000 payment was due, and proceedings were commenced, and the difficulty in restoring the pre‑contractual position if the agreement were to be set aside, all militate against the exercise of any discretion, even if a credible defence were identified.
In all the circumstances, I am in entire agreement with the learned Deputy Registrar that the default judgment should not be set aside. Accordingly, the appeal will be dismissed.