Exhibit Exhibition & Publishing Pty Ltd v Consolidated Business Media Pty Ltd - [2006] WASC 26

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: EXHIBIT EXHIBITION & PUBLISHING PTY LTD -v- CONSOLIDATED BUSINESS MEDIA PTY LTD & ANOR [2006] WASC 26

CORAM: MASTER NEWNES

HEARD: 6 FEBRUARY 2006

DELIVERED : 2 MARCH 2006

FILE NO/S: CIV 1336 of 2003

BETWEEN: EXHIBIT EXHIBITION & PUBLISHING PTY LTD
Plaintiff
AND
CONSOLIDATED BUSINESS MEDIA PTY LTD
First Defendant
JOHN RAYMOND WEBB
Second Defendant

Catchwords:

Practice and procedure - Judgment entered ex parte against bankrupt - No leave obtained by plaintiff under s 58(3) of Bankruptcy Act 1966 (Cth) - Whether judgment irregular - Whether judgment can be set aside under O 58 r 23 or in inherent jurisdiction of the Court or only on appeal - Whether defendant has unconditional right to have judgment set aside

Legislation:

Bankruptcy Act 1966 (Cth), s 5, s 27(1), s 58(3)

Rules of the Supreme Court 1971 (WA), O 2, O 8 r 7, O 13, O 13 r 10, O 14, O 14 r 12, O 22, O 22 r 10, O 30, O 30 r 3, O 34, O 34 r 3, O 42, O 43 r 16, O 54 r 3, O 58 r 23, O 59, O 59 r 7

Result:

Judgment set aside

Category: B

Representation:

Counsel:

Plaintiff:     Mr C C K Ko
First Defendant             :     No appearance
Second Defendant         :     Mr P K Walton for trustee in bankruptcy

Solicitors:

Plaintiff:     Brickhills
First Defendant             :     No appearance
Second Defendant         :     Jackson McDonald for trustee in bankruptcy

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

Anlaby v Praetorius (1888) 20 QBD 764
ANZ Banking Group Ltd v Computer Plus [1992] 1 VR 607
Australian Securities Commission v MacLeod (1994) 54 FCR 309
Cameron v Cole (1944) 68 CLR 571
Collie v Merlaw Nominees Pty Ltd [2003] VSC 424
Craig v Kanssen [1943] 1 KB 256
Cummings v Claremont Petroleum NL (1996) 185 CLR 124
Davies v Gertig (No 2) (2002) 83 SASR 521
Delmo v Merrigal Pty Ltd, unreported; SCt of Vic; 29 April 1988
Doran v Isaacs (1912) 12 SR (NSW) 699
Dunstan v Simmie & Co Pty Ltd [1978] VR 669
Electricity Commission of New South Wales v Yates (1991) 30 NSWLR 351
Fraser Property Developments Pty Ltd v Sommerfeld [2005] QCA 242
Gao v Official Trustee of Yu Jing Zhu [2002] VSC 285
Gertig v Davies [2003] SASC 86
Green v Schneller (2001) 164 FLR 82
Hamp‑Adams v Hall [1911] 2 KB 942
Jenkins v Visualeyes [2003] VSC 14
Onslow v Commissioners of Inland Revenue (1890) 25 QBD 465
Opie v Opie (1951) 84 CLR 362
R v Forbes; Ex parte Bevan (1972) 127 CLR 1
Re K Piper (Deceased) and the Testator's Family Maintenance and Guardianship of Infants Act 1916 (1960) 60 SR (NSW) 328
Re McMaster; Ex parte McMaster (1991) 33 FCR 70
Scott v Casualife Furniture International Ltd (Hong Kong) [2005] VSC 463
Sutherland v Zalakos, unreported; CA SCt of NSW; No 40633 of 1992; 8 October 1996

Case(s) also cited:

DJL v Central Authority (2000) 201 CLR 226
Evans v Bartlam [1937] AC 473
Forbes v The New South Wales Trotting Club (1977) 3 ACLR 145
Gemini Property Investments Pty Ltd v Woodards Investments Pty Ltd [2000] SASC 210
Grimshaw v Dunbar [1953] 1 QB 408
Monaco v Arnedo Pty Ltd (1994) 13 WAR 522
Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195
Re P R Clark Holdings Pty Ltd (1977) 2 ACLR 416
T M Burke Estates Pty Ltd v Noosa Shire Council (2001) 113 LGERA 368
Watson v Anderson (1976) 13 SASR 329
West Coast Transport Pty Ltd v Adams Group Services Pty Ltd [2001] TASSC 94

MASTER NEWNES: This is an application by the trustee in bankruptcy of the second defendant (the "Trustee") to set aside a judgment of the Court entered on 31 August 2005. The Trustee contends that the judgment should be set aside on three bases; namely, first, it was entered without the leave of the Federal Court under s 58(3) of the Bankruptcy Act 1966 (Cth) ("the Act"); secondly, no notice of the application for judgment was given to the Trustee, contrary to O 54 r 3 of the Rules of the Supreme Court1971 (WA); and thirdly, judgment has been entered for a liquidated sum whereas the plaintiff's claim was for unliquidated damages. Alternatively, the Trustee contends that, if the judgment was regularly entered, there is a good defence to the plaintiff's claim.
The proceedings by the plaintiff were commenced on 26 March 2003 claiming damages for breach of a deed dated 1 November 1999 made between the plaintiff, the first defendant, the second defendant and other parties. A statement of claim was filed on 19 May 2003. In the statement of claim, the plaintiff alleges that the defendants breached the deed in a number of respects and, by reason of those breaches, the plaintiff suffered loss and damage, including the loss of business, and potential business, and expenses and downtime. A defence to the claim was filed on behalf of the first and second defendants on 19 June 2003. On 18 June 2004 the plaintiff filed particulars of loss and damage. According to the particulars, the loss and damage suffered by the plaintiff, inclusive of interest up to 30 April 2004, was $2,395,904.
In July 2004 the solicitors for the defendants made an application for an order that they cease to be the solicitors for the defendants in the matter. That order was made on 12 August 2004, subject to compliance by the solicitors with O 8 r 7. Those requirements were met on 17 August 2004. Thereafter the defendants were not represented by solicitors.
Subsequently the second defendant became bankrupt. Mr Lyford was appointed as the trustee of the Estate of the second defendant on 17 August 2004.
On 18 February 2005 the solicitors for the plaintiff wrote to Mr Lyford asking whether, in his capacity as Trustee, Mr Lyford consented to judgment being entered for the plaintiff. After some further correspondence, on 7 June 2005 Mr Lyford wrote to the plaintiff's solicitors to say that he would not be defending the action. Mr Lyford went on to say that his decision not to defend the action on behalf of the bankrupt Estate should not be construed as an admission of liability by the Estate. He also expressed his understanding that the plaintiff would require leave of the Court before the action against the Estate could proceed. He asked the plaintiff's solicitors to advise whether the plaintiff had obtained leave or intended to seek it.
It does not appear that there was any further relevant correspondence between the parties before judgment was entered. On 22 August 2005, the plaintiff applied ex parte by motion for judgment. The judgment sought was against the first and second defendants in the sum of $2,238,456, plus interest in the sum of $157,448 and costs to be taxed. The affidavit in support of the application simply exhibited the correspondence with the Trustee. The papers did not state on what basis judgment was sought.
The matter came before Master Sanderson in chambers on 31 August 2005 and the plaintiff obtained judgment against the second defendant in terms of the motion. On the hearing of the motion for judgment, counsel for the plaintiff did not refer to the question of leave under s 58(3) of the Act.
The application to set aside the judgment was filed on 12 December 2005. In support of the application, an affidavit of the Trustee's solicitor was filed. In that affidavit the deponent says he has been informed by the second defendant and believes that the second defendant did not do any of the acts pleaded in the statement of claim as constituting the breaches of the agreement by him. The deponent has also annexed a document from the plaintiff's discovered documents, being an email dated 27 September 2002, on the basis of which he says he believes the defendant has an arguable defence to the claim. The deponent says that, in any event, the plaintiff has failed to mitigate its loss.
The Trustee's counsel said in the course of argument that the Trustee did not become aware that judgment had been entered until informed of it by the plaintiff's solicitors on 11 October 2005. It appears that, following that notification, the Trustee's solicitor inspected the plaintiff's discovered documents and obtained a copy of the email subsequently annexed to the affidavit of the Trustee's solicitor.
It was argued in support of the application that, leave of the Federal Court to enter judgment not having been obtained under s 58(3) of the Act, the judgment had been irregularly entered and, accordingly, should be set aside on that basis. Counsel pointed out that it was apparent from the transcript of the hearing before the learned Master that no reference had been made to the requirement for leave under the Act. On this application it was not suggested on behalf of the plaintiff that leave had been sought and obtained.
It was also submitted on behalf of the Trustee that under O 54 r 3 the motion for judgment should have been served on the Trustee. It was not in issue that it was not served. Counsel argued that the failure to serve it rendered the proceedings pursuant to the motion a nullity and the Court should set aside the judgment in its inherent jurisdiction. Counsel referred to Cameron v Cole (1944) 68 CLR 571 per Rich J at 589 and Craig v Kanssen [1943] 1 KB 256 at 262.
It was also submitted that the judgment was irregular because it had been entered for a liquidated sum, whereas the plaintiff's claim was for unliquidated damages. No evidence had been adduced on the hearing of the motion to prove the damages claimed. The judgment was, on that ground too, irregularly entered and should be set aside.
Counsel for the plaintiff argued that the failure to obtain leave under s 58(3) was an irregularity of an administrative or procedural nature and that, had leave been sought, it would undoubtedly have been granted. The Trustee had said in writing that he did not intend to defend the action. No purpose would therefore be served by setting aside the judgment.
Counsel foreshadowed that, if it were found that the judgment was irregularly entered because it had been granted for a liquidated sum instead of for damages to be assessed, an application would be made under the "slip" rule to amend the judgment to a judgment for damages to be assessed.
The plaintiff's counsel argued there was no need for the application for judgment to be served on the Trustee under O 54 r 3 as the Trustee had already indicated that he had no interest in defending the matter and therefore there would have been no point in serving the papers on him.
On the question of a defence on the merits, counsel for the plaintiff argued there was nothing in the affidavit evidence before the Court to indicate that the Trustee intended to defend the action if the judgment was set aside, much less was there anything which indicated that there was a defence which had any prospect of success. The single email exhibited by the solicitor for the Trustee fell a long way short of that.
As I have indicated, it was not in issue that the plaintiff did not obtain leave under s 58(3) of the Act. That section relevantly provides:
"Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
…
(b)except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding."
Section 5 of the Act defines "the Court" as "a Court having jurisdiction in bankruptcy under this Act". Under s 27(1) of the Act, the Federal Court and the Federal Magistrates Court have concurrent jurisdiction in bankruptcy which is exclusive of the jurisdiction of all courts other than the jurisdiction of the High Court under s 75 of the Constitution: Davies v Gertig (No 2) (2002) 83 SASR 521; Green v Schneller (2001) 164 FLR 82 at 87 ‑ 90; Gao v Official Trustee in Bankruptcy of Yu Jing Zhu [2002] VSC 285 at [5] and [9]; Fraser Property Developments Pty Ltd v Sommerfeld [2005] QCA 242 at [13] ‑ [14].
It was also not in issue that the application for, and the entry of, judgment each constituted a "fresh step" in the action. That is plainly the case. A "fresh step" includes any step that advances the proceedings towards judgment: ANZ Banking Group Ltd v Computer Plus [1992] 1 VR 607 at 608, 610. The filing of an application for judgment and the entry of judgment are such steps: Doran v Isaacs (1912) 12 SR (NSW) 699; ANZ Banking Group Ltd v Computer Plus (supra) at 608.
It is against that background that I turn to a threshold issue which arises, namely whether the judgment is capable of being set aside on this application or whether, as contended on behalf of the plaintiff, if it is to be set aside it can only be set aside on appeal.
There are various ways in which judgment may be obtained by a plaintiff in an action. Order 13 provides for judgment to be entered in default of appearance and O 22 provides for judgment to be entered in default of defence. Order 13 r 10 and O 22 r 10 provide respectively that the Court may vary or set aside any judgment so entered. Order 14 provides for summary judgment and r 12 provides that the Court may set aside or vary any judgment so entered against a party who does not appear at the hearing of the application for judgment. Order 34 provides for judgment to be entered at or after trial. O 34 r 3 provides that any judgment, order or verdict obtained where one party does not appear at the trial may be set aside by the Court.
Order 30 is in more general terms. It provides that a party may at any stage of a cause or matter apply to the Court for "such judgment or order as upon such admission he may be entitled to" and the Court "may make such order or give such judgment as the Court thinks just." Given that the order or judgment is based upon an admission by the party against whom it is made or given, it is perhaps not surprising that the rules do not provide that the Court may vary or set aside such a judgment made against a party who does not appear at the hearing of the application. Similarly, judgment might also be obtained by consent under O 43 r 16.
As I have said, the motion for judgment did not state on what basis judgment was sought. It clearly was not obtained in default of appearance or defence, or by way of summary judgment, and there was no trial of the action. It was, however, obtained in chambers on an ex parte basis, the motion for judgment not having been served on the second defendant.
Order 58 r 23 provides that the Court may set aside any order which has been made ex parte. By virtue of O 59 r 7, that provision applies to any application in chambers made under O 59, as the application for judgment was in this case.
I do not consider that O 58 r 23 applies in the present case. Apart from any other consideration, in my view O 58 r 23 has no application to a judgment, as opposed to an order.
It is, I think, clear that there is for most purposes little practical difference between a "judgment" and an "order". Nevertheless, the rules maintain a distinction between the two that reflects a long‑standing technical difference. The term "judgment" in its technical sense means a decision that concludes an action, while an "order" is any other judicial determination: Onslow v Commissioners of Inland Revenue (1890) 25 QBD 465 at 466; Opie v Opie (1951) 84 CLR 362 at 372; Dunstan v Simmie & Co Pty Ltd [1978] VR 669 at 670; Australian Securities Commission v MacLeod (1994) 54 FCR 309.
In my view, O 58 r 23 applies only to an "order" of the Court, understood in the technical sense to which I have referred. Order 58 r 23 in its terms refers only to an ex parte "order". It does not refer to a "judgment". Although the practical differences between the two may be slight, if any, the rules are throughout expressed in terms which maintain the technical distinction and there is no reason why O 58 r 23 should be given effect otherwise than consistently with that distinction. The other rules to which I have referred earlier make specific provision for the setting aside of default judgments, and of judgment under O 14 and after trial given in the absence of a party. There is therefore, in my opinion, no warrant for reading the reference to "order" in O 58 r 23 other than in its technical sense. Accordingly, in my view, O 58 r 23 does not empower the Court to set aside a judgment obtained ex parte.
That conclusion appears to be consistent with the weight of authority in Victoria in respect of a similar rule, r 46.08. Rule 46.08 provides that the Court may set aside or vary an order where the application for it was made on notice to a person who did not attend the hearing of the application or where the application was not made on notice. In Delmo v Merrigal Pty Ltd, unreported; SCt of Vic; 29 April 1988, Murphy J said, obiter, that r 46.08 applied only to orders and not to judgments. His Honour observed that it appeared the rule applied to interlocutory applications in a proceeding. In Jenkins v Visualeyes [2003] VSC 14, Balmford J concluded that r 46.08 applied only to orders and not to judgments. On the other hand, in Colliev Merlaw Nominees Pty Ltd [2003] VSC 424, Nettle J expressed doubt as to the correctness of the dicta of Murphy J in Delmo (supra) but assumed, without deciding, that it was correct. In Scott v Casualife Furniture International Ltd (Hong Kong) [2005] VSC 463, Mandie J considered that the rule applied to all orders, whether final or interlocutory, so long as they were not judgments.
If O 58 r 23 does not apply, the question is whether the Court can set aside the judgment in its inherent jurisdiction. I should say that it was on the inherent jurisdiction of the Court that counsel for the Trustee primarily relied.
In R v Forbes; Ex parte Bevan (1972) 127 CLR 1, Menzies J (at 7) described "inherent jurisdiction" as the power courts of unlimited jurisdiction have, without the aid of any authorising provision, to prevent abuse of their process and to punish for contempt.
In Craig v Kanssen (supra) at 262, Lord Greene MR (with whom Goddard LJ agreed), having reviewed a number of authorities, said:
"Those cases appear to me to establish that an order which can properly be described as a nullity is something which the person affected by it is entitled ex debito justitiae to have set aside. So far as the procedure for having it set aside is concerned, it seems to me that the court in its inherent jurisdiction can set aside its own order; and that an appeal from the order is not necessary. I say nothing on the question whether an appeal from the order, assuming that the appeal is made in proper time, would not be competent.
The question we have to deal with is whether the admitted failure to serve the summons upon which the order in this case was based was a mere irregularity, or whether it was something worse, which would give the defendant the right to have the order set aside. In my opinion, it is beyond question that failure to serve process where service of process is required, is a failure which goes to the root of our conceptions of the proper procedure in litigation. Apart from proper ex parte proceedings, the idea that an order can validly be made against a man who has had no notification of any intention to apply for it is one which has never been adopted in England. To say that an order of that kind is to be treated as a mere irregularity and not something which is affected by a fundamental vice, is an argument which, in my opinion, cannot be sustained."
In Cameron v Cole (supra), Rich J criticised a distinction drawn by Lord Greene in Craig v Kanssen (supra) between an order "which can properly be described as a nullity" and proceedings in respect of which "there has been nothing worse than an irregularity". Rich J said (at 591) that while the distinction between nullities and procedural irregularities is appropriate for an inferior court, in the case of a superior court "the distinction is between irregularities so fundamental as to create an unconditional right, ex debito justitiae, to have the judgment set aside, and non‑fundamental irregularities as to which the Court has a discretion".

The question as to whether a proceeding of a superior court beyond its jurisdiction is a nullity or remains binding unless it is set aside has been considered in a number of cases. See, for instance: Re K Piper (Deceased) and the Testator's Family Maintenance and Guardianship of Infants Act 1916 (1960) 60 SR (NSW) 328, Electricity Commission of New South Wales v Yates (1991) 30 NSWLR 351 at 356 and Sutherland v Zalakos, unreported; CA SCt of NSW; No 40633 of 1992; 8 October 1996. I do not, however, think the determination of that question is necessary for present purposes.
There appears to be no doubt that the Court has inherent jurisdiction to set aside an ex parte judgment which under the rules of court the plaintiff had no right to obtain. Thus in Anlaby v Praetorius (1888) 20 QBD 764, a default judgment entered before the time for appearance had elapsed was set aside. Fry LJ, having referred to a rule in similar terms to O 2 of the rules of this Court, went on (at 769):
"But in the present case we are not concerned with an instance of non‑compliance with the rules, nor with an irregularity in acting under any rule. The irregular entry of judgment was made independently of any of the rules; the plaintiff had no right to obtain any judgment at all."
The Court concluded that the defendant was entitled to have the judgment set aside ex debito justitiae.
In Hamp‑Adams v Hall [1911] 2 KB 942, the rules provided that a plaintiff could not enter a default judgment unless the writ was indorsed with details of service of it within three days of service. The writ was indorsed outside that time. It was held that the plaintiff was not entitled to proceed to obtain default judgment and the judgment must therefore be set aside.
Similarly, the Court has inherent jurisdiction to set aside a judgment where the relevant process was not served on the defendant at all: Craig v Kanssen (supra); Cameron v Cole (supra).
In my view, in the present case an appeal is not necessary. The Court has inherent jurisdiction to set aside the judgment entered, in the absence of the second defendant, on the application of the plaintiff who, not having obtained leave under s 58(3) of the Act, was not competent to move for judgment. Having regard to the purposes of s 58(3) of the Act, I consider the judgment in this case was entered in circumstances where the irregularity was, as Menzies J put it in Cameron v Cole (supra), so fundamental as to create an unconditional right, ex debito justitiae, to have the judgment set aside.
Section 58 of the Act plays an important part in the scheme of the Act. The statutory scheme was outlined in Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72 ‑ 73, where Hill J said:
"The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated to the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh …"
In Cummings v Claremont Petroleum NL (1996) 185 CLR 124, Brennan CJ, Gaudron and McHugh JJ said (at 132) as follows:
"The Act follows the pattern of earlier bankruptcy law. Broadly, and not precisely, the effect of bankruptcy is to divest a bankrupt of his property, to vest that property in a trustee and to make it available for the payment of provable debts. The right to commence or take a fresh step in legal proceedings or to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt are, in general, denied to creditors when sequestration is ordered (s 58(3))."
As Doyle CJ pointed out in Gertig v Davies [2003] SASC 86 (at [15]), s 58(3) of the Act protects a bankrupt and the property of the bankrupt against the enforcement of remedies and enables the Court to control proceedings in respect of a provable debt in the light of the objectives of the Act.
I do not accept the plaintiff's contention that the requirement under s 58(3) to obtain leave before taking a fresh step in a proceeding, such as making an application for judgment, is to be regarded as simply a procedural or administrative matter. This was not a case of some procedural irregularity of the sort with which O 2 is concerned. The effect of the Act is that the plaintiff was not entitled to apply for and enter judgment unless leave to do so was first obtained. The obtaining of leave is not a matter of form; it is a matter of substance. The requirements of s 58(3) are plainly designed to preserve the jurisdiction of the Court (as defined in s 5 of the Act) to control proceedings in respect of a provable debt so as to enable effect to be given to the objectives of the Act. That is why the Act expressly provides that, in the absence of the leave of the Court, it is not competent for a creditor to take a fresh step in such proceedings; that is, the creditor is not legally able or entitled to do so.
I should say that no question of waiver of the irregularity arises in the present case. Putting aside whether a trustee in bankruptcy can waive the requirements of s 58(3) of the Act, in this case the Trustee specifically pointed out to the plaintiff's solicitors that leave was required to take any further step in the action. In addition, nothing the Trustee said suggested that he was consenting to the entry of judgment for a liquidated sum.
I do not accept the submission on behalf of the plaintiff that the Court should decline to set aside the judgment, despite the fact that leave under s 58(3) was not obtained, because to do so would be futile, the Trustee having said in his letter of 7 July 2004 that he would not be defending the action and no arguable defence to the claim having been shown on this application.
I consider that the affidavit evidence put on by the Trustee falls short of establishing an arguable defence. However, in my view, as leave was not obtained by the plaintiff under s 58(3), the Trustee has "an unconditional right, ex debito justitiae, to have the judgment set aside". Moreover, as I have mentioned, nothing said by the Trustee in his letter of 7 July 2004 accepted that judgment in a liquidated sum might be entered for the plaintiff, rather than the plaintiff being put to proof as to any damages to which it was entitled. The fact that the plaintiff has obtained judgment for a liquidated sum, when its claim was one for damages, is a further reason that the judgment should be set aside. Quite apart from the question of leave under s 58(3), the plaintiff has obtained a judgment to which it is not currently entitled and to which it would be entitled only upon proof of the damages which it claims.
I also do not accept that it would be appropriate, if it is open, to amend the judgment under the "slip" rule to a judgment for damages to be assessed, in circumstances where the original judgment was obtained contrary to the requirements of s 58(3) of the Act.
I would therefore set aside the judgment. If the plaintiff wishes to pursue an application for judgment, it must follow the statutory procedure and apply first for leave.
I will hear the parties on the form of orders and the question of costs.