Commonwealth Bank of Australia Limited v Sky Empire Pty Ltd

[2006] VSC 193

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 6454 of 2005

COMMONWEALTH BANK OF AUSTRALIA LIMITED	Plaintiff
v
SKY EMPIRE PROPRIETARY LIMITED AND ORS	Defendants

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JUDGE:	Kellam J
WHERE HELD:	Melbourne
DATE OF HEARING:	19 May 2006
DATE OF JUDGMENT:	31 May 2006
CASE MAY BE CITED AS:	CBA v Sky Empire Pty Ltd and Ors
MEDIUM NEUTRAL CITATION:	[2006] VSC 193

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PRACTICE COURT – Appeal from Master – Judgment in default of service of defence – Affidavit in support of entry of judgment failing to prove default of service – Judgment irregular – Appeal dismissed. 

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S.J. Maiden	Gadens
For the Defendants	Mr P. Condliffe	Ryan Carlisle Thomas

HIS HONOUR:

1. I have before me an appeal from Master Evans who on 4 May 2006 ordered that a judgment entered in default of defence against each of the defendants be set aside. 

1. A brief history of the background of the appeal is that the plaintiff bank issued a writ on 7 June 2005 against the defendants claiming repayment under a series of loans made to them and secured by a mortgage to the bank.  An appearance was filed on 10 June 2005 by each of the defendants in a personal capacity.  A defence and counterclaim was filed by the defendants on 8 July 2005.  A reading of the defence and counterclaim makes it clear that it was drafted without the benefit of legal advice. 

1. On 27 July 2005, the appearances, defence and counterclaims filed on behalf of the defendants were set aside by order of the Master and further orders were made giving dates for appearance and filing of the defences.  Each of the defendants filed defences within the time ordered.  An extension for the filing of defences was granted by the Master, and on 5 October 2005 an amended defence and counterclaim was filed on behalf of the defendants. 

1. On 26 October 2005, the plaintiff issued a summons seeking to strike out each defendant’s defence and counterclaim on the grounds that no cause of action was disclosed. 

1. On 16 November 2005, the Senior Master struck out each defendant’s defence and counterclaim but granted leave for the filing of an amended defence and counterclaim in each case.  Once again, and this time through solicitors, each of the defendants filed a further amended defence and counterclaim in December 2005.  On 21 December 2005 the plaintiff once again issued a summons seeking to strike out each defence and counterclaim on the grounds that no cause of action was disclosed. 

1. On 2 January 2006, the defendants’ then solicitors filed notice of ceasing to act and on 27 January 2006 the defendants’ present solicitor, Ryan Carlisle and Thomas, filed notice of change of practitioner.

1. On 8 February 2006, the Senior Master struck out each defendant’s defence and counterclaim but granted leave to file and serve further amended defences and counterclaims on or by 4.00pm on 8 March 2006. 

1. In the event, and in circumstances to which I refer further below, the defendants’ defence and counterclaim were not filed and served by 4.00pm on 8 March 2006.

1. A solicitor employed by the solicitors for the plaintiff, Shaun Langhorne, filed a default judgment against each of the defendants.  He has deposed that it was filed at 9.30am on 10 March 2006.  The document is dated 10 March 2006 but has a date stamp as the entry of judgment being 15 March 2006 and payment of the fee is recorded as being received at 15.41 on 15 March 2006.  Mr Langhorne, in addition, filed an affidavit in support of entry of judgment sworn by him on 10 March 2006.  That affidavit similarly is stamped by the Registry as being received at 2.44pm on 15 March 2006.  Paragraph 4 of his affidavit states as follows:

“As at the date of swearing this my affidavit I have not received a defence or counterclaim from any of the defendants.”

1. On 31 March 2006, the defendants issued a summons to set aside the default judgment.  The solicitor for the defendants filed affidavits sworn by himself (and other members of his staff) which in summary depose as follows: That after the orders of Master Mahony of 8 February 2006 he conferred with counsel and with the defendants.  On 6 March 2006 he received by e-mail from counsel the amended defences and counterclaims to file with the Court.  Regrettably he did not file or serve those documents on 6 or 7 March 2006.  Endeavours were made to file the documents at the Registry on 8 March 2006 but the Registry declined to accept the filing because amendments had not been highlighted to distinguish them from the original pleadings.  Immediate attempts were made to be in touch with the counsel who drafted the amended statement of claim but to no avail.  These attempts were made prior to the Registry closing for business on 8 March 2006.  The next morning counsel was contacted and he took the view that as the pleading was a completely new pleading it need not be highlighted.  In any event it was then decided that the whole pleading should be highlighted and it was filed in the Registry on 9 March 2006.

1. It would appear that the staff member at the Registry, in refusing to accept the filing of the amended pleading, was relying upon Rule 36.05(4) which requires that each amendment to a pleading shall be made in such a way “as to distinguish the amendment from the original pleading and from any previous amendment to the original”.  The power of the Prothonotary to refuse to accept a document for filing if it is not prepared in accordance with the Rules or an order of the Court is undoubted.  (See Rule 27.06(2)(a).)  However, in this case, the effect of that refusal, and of course the effect of the plaintiff’s solicitors leaving the filing of the amended defence to the last minute is that it was not filed in accordance with the orders of Senior Master Mahony.  Rather, it was filed on 9 March 2006.  The document bears the stamp of the Registry showing it was filed at 11.08am on 9 March 2006.  The amended defence and counterclaim were served on the plaintiff’s solicitors on the morning of 10 March 2006. 

1. On 10 March 2006, the solicitors for the plaintiff wrote to the defendants stating:

“We refer to the above matter and to your letter marked ‘by hand’ dated 10 March 2006 received late this morning purporting to enclose by way of service your clients’ Further Amended Defences and Counterclaim.

We note that pursuant to the orders of Senior Master Mahony made on 9 February 2006, leave for service expired on Wednesday 8 March 2006 at 4.00pm.  Accordingly we do not consider your letter dated 10 March 2006 enclosing the above documents to be valid service. 

Prior to receipt of your letter late this morning, we had taken steps to protect and enforce our client’s rights by filing an application for default judgment in default of defence which we are presently awaiting return from the Court.

Unless we receive notification that an application will be made to extend the time for service, or set aside any default judgment obtained and tender payment of our costs, we will seek our client’s further instructions regarding the enforcement of the default judgment.”

1. It must be conceded that the issue of when the default judgment was filed is of some concern.  The Court records show receipt of the default judgment and payment of the relevant fee to have been on 15 March 2006.  I understand that the resources of the Registry are severely stretched and that from time to time and by reason of the large volume of work, documents are stamped on the rear at the time of receipt and then other matters relevant to consideration of the document and filing are undertaken when the Registry staff have time.  The Court records however are in conflict with a later affidavit sworn by the solicitor (and relied upon in the appeal before me) for the plaintiff who deposes that he filed the default judgment and accompanying affidavit at the Prothonotary’s office personally at 9.30am on 10 March 2006 and was told that the Court file could not be found and that the order would be made when the file could be found.  These circumstances demonstrate that it is imperative that documents being filed be stamped with the date and time of receipt. 

1. In any event, it was in these very unsatisfactory circumstances that the application came before the Master to set aside the default judgment on 4 May 2006.  The Master ordered that the judgment entered on 15 March 2006 (thus relying upon the date endorsed on the Court document by the Registry) be set aside. 

1. The first issue to be determined is whether the judgment was regular.  The Court may set aside any judgment in accordance with Rule 21.07.  Rule 21.02 provides that where any defendant being required to serve a defence does not do so within the time limited, the plaintiff may enter judgment.  Rule 21.03 provides that judgment shall not be entered “unless an affidavit proving the default is filed”.  It is apparent that failure to prove the defendants’ service of the defence within the time limited would be irregular.  In my view the affidavit sworn by the plaintiff’s solicitor on 10 March 2006 stating he had “not received a defence or counterclaim” is not proof of failure to serve.  Evidence that a solicitor in the employ of a large firm of solicitors has not “received” a document required to be served is merely evidence that the document has not come into the possession of that individual.  It is not proof of the default as required under Rule 21.02.  Furthermore, the irregularity is not a mere technicality.  The Rules require, and the Court (and the other parties), are entitled to have “proof of the default” before taking a step which so drastically affects the rights of a litigant, as in this case the entry of judgment for possession of land. 

1. However, Mr Maiden argues further that even if the judgment was obtained irregularly the defendants should be required to prove that they have an arguable defence on the merits.  In this regard he relies upon an unreported decision of Chernov J (as he then was) in Australia and New Zealand Banking Group Limited v Kostovski handed down on 2 July 1997.  At p.5 of the unreported decision his Honour said:

“I am by no means certain that the irregularity in this case brought about the result that the judgment was irregularly obtained.  But even if that were to be the case, it is no longer the law (assuming that it ever was the law) that merely because the judgment was irregularly obtained, the defendant is entitled as of right to have that judgment set aside.  Rule 2.01 and, arguably, the Court’s inherent jurisdiction, empower the Court to disregard an irregularity such as that arising for consideration here if the justice of the situation warrants it.  It is not essential that the Court first make an actual order that the irregularity be corrected before it can proceed to examine the substance of the matter.  It can, in appropriate circumstances disregard the irregularity.  This conclusion is supported by what Ormiston and O’Bryan JJ said in National Australia Bank Limited v Meehan (unreported, 4 February 1994) and by the decision of the Court of Appeal in Metroinvest Anstolt v Commercial Union Acceptance Co PLC [1985] 2 All ER 318.”

1. It should be noted that the irregularity with which Chernov J was concerned related to a writ which had been issued in the County Court but which mistakenly bore the title “In the Supreme Court of Victoria at Melbourne”. 

1. Likewise, in National Australia Bank Limited v Meehan, Ormiston and O’Bryan JJ, sitting as the Appeal Division of the Court, considered an application for leave to appeal from the judgment of a single judge in the Practice Court dismissing an appeal from the Master in relation to a default judgment for possession notwithstanding that there was an irregularity in the form of the copy writ served upon the defendant.  That irregularity was constituted by the absence on the copy writ of the identifying number assigned to it by the Court.  O’Bryan J took the view that the absence of the number was no more than a technical defect which did not produce an irregular judgment.  Likewise, Ormiston J said that the irregularity in that case was of a kind where the effect of non‑compliance was not such as to justify the Court setting aside the judgment entered. 

1. In each of the above cases the irregularity was minor and of no consequence.  However, the Court must insist upon proper proof of default being placed before it, and in my view the failure in this case to do so is a far more significant irregularity.  The proof of non-service of pleadings in accordance with the rules goes to the very heart of the entry of a default judgment.  It must be strictly and properly proved.  If it is not so proved the entry of judgment is irregular. Whilst it is true that  Rule 2.01 and, arguably, the Court’s inherent jurisdiction, empower the Court to disregard an irregularity if the justice of the situation warrants it, I do not conclude in all the circumstances of the matter before me that an irregularity of the nature of that under consideration  which goes to the heart of proof of default should be so disregarded.

1. In the circumstances, it appears to me that the appeal against the decision of the Master should be dismissed with costs.  I dismiss the plaintiff’s summons and order that the cost of this application be paid by the plaintiff.  I will make appropriate directions for the further conduct of the action upon hearing from counsel.

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