Flaherty v Stone
[2007] TASSC 63
•22 August 2007
[2007] TASSC 63
CITATION: Flaherty v Stone [2007] TASSC 63
PARTIES: FLAHERTY, Michael
v
STONE, Jason
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 264/2007
DELIVERED ON: 22 August 2007
DELIVERED AT: Hobart
HEARING DATE: 27 July 2007
JUDGMENT OF: Tennent J
CATCHWORDS:
Procedure – Judgments and orders – Amending, varying and setting aside – Powers of inferior courts – Tasmania – What amounts to arguable case on the merits – Sufficiency of material put to magistrate.
Magistrates Court (Civil Division) Act1992 (Tas), s28.
Magistrates Court (Civil Division) Rules1998 (Tas), r113.
Day v RAC Motoring Services [1999] 1 All ER 1007; Watson v Anderson [1976] 13 SASR 329, referred to.
Aust Dig Procedure [492]
REPRESENTATION:
Counsel:
Appellant: K J Stanton
Respondent: M J Grove
Solicitors:
Appellant: Zeeman Kable & Page
Respondent: Bishops
Judgment Number: [2007] TASSC 63
Number of paragraphs: 28
Serial No 63/2007
File No 264/2007
MICHAEL FLAHERTY v JASON STONE
REASONS FOR JUDGMENT TENNENT J
22 August 2007
The appellant sued the respondent in the Civil Division of the Magistrates Court of Tasmania for the balance of monies due in respect of a building contract between the two. There was no dispute that the appellant's claim was personally served on the respondent on 29 June 2006. There was also no dispute that on 21 July 2006, the appellant obtained a judgment in default of the filing of a defence against the respondent; that in January 2007, the appellant sought to execute against property of the respondent to give effect to that judgment; that on 30 January 2007, the respondent filed an application to set aside the judgment, which application was supported by an affidavit of the respondent; and that on the hearing of that application on 28 May 2007, an order was made setting the judgment aside.
At no stage in the proceedings has the respondent put before the Court a draft of his proposed defence and/or counterclaim or set off.
The Magistrates Court (Civil Division) Act 1992, s28, provides:
"28 If any party to a proceeding before the Court is aggrieved by any determination, order, ruling or direction of the Court, that party may appeal to a judge of the Supreme Court who may make such orders as are appropriate in the circumstances."
The appellant, by this appeal, claims to be aggrieved by the decision of the learned magistrate to set aside judgment. There were initially four grounds of appeal. However, only one was pursued at hearing and that was as follows:
"2Upon the materials presented to the learned Magistrate by the Respondent Defendant there was no evidence upon which a Magistrate could reasonably hold that the Respondent Defendant had an arguable case that there was a defence to the Applicant claimant's claim."
The Supreme Court Rules 2000, r693, sets out the Court's powers in respect of this appeal.
The law
An application to set aside a default judgment in the Civil Division of the Magistrates Court of Tasmania is governed by the Magistrates Court (Civil Division) Rules 1998 ("the Rules"), r113, which provides:
"113 (1) The Court, on the application of a party, may set aside or vary any judgment that is not a final judgment.
(2) The Court is not to set aside a judgment under subrule (1) unless the applicant establishes that it has –
(a) an arguable case on the merits; and
(b) a reasonable excuse for not complying with –
(i)these rules or an order made under these rules; or
(ii)any time limit fixed by these rules, any order made under these rules or any practice direction.
(3) In setting aside a judgment, the Court may order –
(a) payment to a party of any costs thrown away; or
(b) that a sum of money be paid, or other security given, to a registrar under rule 144."
Counsel for the appellant referred to a number of authorities dealing with applications to set aside judgments. The majority were concerned with applications brought in jurisdictions where the discretion of the court was largely unfettered. None dealt with a provision in the same terms as r113. The discretion provided for in r113 is not unfettered. The discretion to set aside does not fall to even be exercised unless an applicant first satisfies a court about two matters. The relevant one in the present case is that he has an arguable case on the merits.
The cases to which the appellant referred did not necessarily use the phrase "arguable case on the merits". However, the concepts dealt with were the same and the cases are clearly relevant. In Day v RAC Motoring Services [1999] 1 All ER 1007, the Court held:
"When considering whether to set aside a judgment obtained in default of defence, the court did not need to be satisfied that there was a real likelihood that the defendant would succeed, but merely that the defendant had an arguable case which carried some degree of conviction. The court should, however, be very wary of trying issues of fact on affidavit evidence where the facts were apparently credible and were to be set against the facts being advanced by the other side, since choosing between them was the function of the trial judge, not the judge on the interlocutory application, unless there was some inherent improbability in what was being asserted, or some extraneous evidence which would contradict it."
In Watson v Anderson (1976) 13 SASR 329, Bray J said at 334:
"What attention should be paid to the merits of the alleged defence? Clearly, quite apart from the necessity for an affidavit of merits, a defendant who wants a default judgment set aside must say something about his defence. It is not enough to say that he has one without saying when it is: Nash v Swinburne. Clearly, too, if the facts he swears to are incapable of constituting a legal defence, the application will not be granted: Grimshaw v Dunbar."
Walters J, in the same case, said at 341:
"However that may be, a mere statement by a defendant that he has a good defence is not sufficient to justify a review of the exercise of a judicial discretion. He must go further and demonstrate 'a very compelling reason' for his failure to appear in the action, and, further, that he has a plausible defence either in law or in fact. True it is that on an application to set aside a judgment by default, the court does not pronounce on the law or the facts, but it seems to me that before allowing a defendant to come in and defend, the court should have before it materials which enable it to say how it came about that the defendant found himself bound by a judgment regularly obtained; that the defendant genuinely desires to be allowed to come in and present his case; and that issues are raised in such form as to require serious consideration of the defence which he would put forward. In the words of Jenkins LJ, in Grimshaw v Dunbar 'the judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success'.
The failure of a defendant positively to swear to all matters of fact and law upon which he would base his defence – and such a failure is evident in the case at bar – would scarcely give the court an assurance that his application was being made in good faith, or that he has a defence of any real substance. In the view I take, the court must be in a position to see for itself that on the pleadings and affidavit evidence, a bona fide case fit to be tried has been made out by the defendant."
Issue on appeal
Counsel for the appellant accepted that the decision of the learned magistrate involved the exercise of a discretion and that it should not be interfered with lightly by an appellate court. At issue in this appeal was the question of what amounts to an arguable case. More specifically, the questions to be answered were, how far did the respondent need to go in raising matters relating to a defence to establish an arguable case on the merits, and did he present sufficient evidence to meet whatever the level required was? Counsel for each party submitted that the level of information to be provided by the respondent was different, the appellant contending for a more detailed amount of material. The appellant's contention was the bar was at a certain level and there was no evidence before the learned magistrate to meet the level at which that bar was.
Counsel's submissions
Counsel for the appellant submitted that all the respondent had done was flag a possible counterclaim or set-off. He did not dispute the existence of the contract between the parties, that essentially the work required to be done by the appellant had been done or the balance due. He suggested only that some of the work was substandard and that he had tried to get the appellant to rectify it, but he had not. Counsel submitted the respondent had not put before the learned magistrate any facts which could have enabled the learned magistrate to be satisfied the respondent had an arguable case. Counsel for the respondent submitted that it was not an issue whether sufficient particulars of a defence were disclosed, but simply whether one was disclosed at all. He argued it was.
Material before the learned magistrate
The material before the learned magistrate took the form of the claim, an affidavit sworn by the respondent on 29 January 2007 and cross-examination of the respondent upon that affidavit. In the course of the hearing, a copy of the contract entered into between the parties, and a document headed "Notice of Completion" were tendered. The material disclosed that the appellant was a builder. He entered into a contract with the respondent to complete some building works. By his claim he sought the sum of $17,044.86, being the balance due for work done and goods supplied between the date of the contract, 20 June 2005, and 28 March 2006. The total cost had been $119,800. Relevantly the contract provided:
"1 RESPONSIBILITY OF BUILDER AND STANDARDS OF CONSTRUCTION
(a) The Builder shall in a proper and skilled manner and subject to these Conditions execute and complete the Works shown on the Contract Drawings and described in the Specification."
"8 POSSESSION OF THE SITE AND ACCESS
(a) The Builder shall have exclusive and uninterrupted possession of and access to the Site for the performance of this Contract.
(b) The Owner or his duly appointed representative or an authorised officer of the Lending Authority shall have access to the land for the purpose of inspecting and viewing the progress of the Works but only at reasonable times and in such a manner as shall not disrupt the Builder or prevent the Builder from properly discharging their contractual obligations.
(c) Neither the Owner nor any duly appointed representative shall give or be entitled to give at any time directions to the Builder's workers or subcontractors on the Site, or elsewhere, relating to the Works or any part thereof. All instructions shall be given directly to the Builder."
"13COMPLIANCE. WITH THE REQUIREMENTS OF LOCAL AND OTHER AUTHORITIES
(a) The Builder shall comply with and give all notices required by any Act of Parliament or by any regulation or by-law of any local authority or of any public service company or authority which has any jurisdiction with regard to the Works or with whose systems are the same are or will be connected, and they shall pay and indemnify the Owner against any fees or charges legally demandable under the Act of Parliament, regulation or by-law in respect of the Works provided that the Builder shall not be responsible for any legally demandable fees or charges that are imposed after the date of this Contract."
"20PAYMENT
(d) The making of any progress payment to the Builder shall not be taken as proof or admission that any particular work has been executed in accordance with the Drawings and Specification but shall be taken to be payment on account."
"22PRACTICAL COMPLETION
(a) Practical Completion is that stage when the Works are completed except for minor omissions and defects which do not prevent the Works from being reasonably fit for occupation or use by the Owner. For the purposes of this Clause the Works shall not include any labour or materials which are to be supplied or fixed by the Owner.
(b) When in the opinion of the Builder the Works have reached Practical Completion, the Builder shall give to the Owner notice of this in writing.
(c) Within five days after the service of notice of Practical Completion the Owner shall give to the Builder notice, in writing, of those things (if any) required by this Contract to be done for Practical Completion to have occurred.
The Builder shall as soon as possible do all those things necessary for Practical Completion and give to the Owner notice in writing on completion.
(d) …
(e) In the event that the Owner does not give to the Builder a notice in accordance with the provisions of Sub-Clause (c), the Works shall be deemed to have reached Practical Completion."
"23PAYMENT ON PRACTICAL COMPLETION
(a)When Practical Completion has occurred, the Builder shall be entitled to receive the unpaid balance of the Contract Sum together with any other monies which are payable under this Contract."
On 20 December 2005, the respondent signed a document entitled "Notice of Completion" under the Housing Indemnity Act 1992. By that document the respondent certified that the appellant had completed the building works as stated in the contract and handed over possession of them on 25 November 2005.
Relevant to the issue of arguable case, the respondent said in his affidavit in support of his application:
"9During the time at which the works were being performed I had occasion to speak with the Claimant on a number of occasions due to me being of the opinion that the works performed were not being completed to a satisfactory standard, or in accordance with the plans: I do not believe that my speaking with the Claimant and raising my concerns made any difference to the standard of work being performed.
10On the 23rd of December 2005 Mr P Goss from the Northern Midlands Council attended the property to perform an occupancy inspection. At that time a Certificate of Completion was not issued, however I was granted an Occupancy Permit, to reside in the property.
11Between April and May 2006, the Claimant had finished work and left the property. At that stage, I cannot recall the exact date, I was so concerned about the standard of works performed to the property that I contacted Mr Max Seymour, a representative from the Master Builders Association by telephone. I recall that Mr Seymour told me that I should allow the Claimant the opportunity to rectify the works, and bring them up to standard required for obtaining a Certificate of Completion from the Northern Midlands Council. I also recall that Mr Seymour advised me to withhold payment until the work was completed to the necessary standard, being the standard required by the Northern Midlands Council to issue an Certificate of Completion.
12I invited the Claimant return to my property so he could fix his substandard work. The Claimant returned to the property and performed more work. However I did not believe that the work was completed to a satisfactory standard which would allow for a Certificate of Completion.
13I received an invoice from the Claimant in relation to the 'Close up Stage', as referred to within the Claim L40571 of 2006 (the Claim) sometime after the Claimant had attended my property to attempt to rectify his work. I have not paid the account as I do not believe that the works completed are of the standard as required by the contract and set out in condition l(a). I was so dissatisfied with the works performed that I have also not contacted the Claimant again to rectify the works.
14Soon after this, on the 1st May 2006 I received a letter containing an offer from the Claimant stating that he would be willing to accept a lesser sum than that invoiced for the 'Close up Stage' being $10,000.00. I did not respond to this offer because I did not believe that the works had been completed to a satisfactory standard."
In his oral evidence before the learned magistrate, the respondent told the court that he and his wife were indeed living in the house when the document referred to in par13 was signed. He also told the court that he signed that document because he was led to believe it was to do with insurance so the builder could put the insurance on another job. He said that the local council had provided a certificate to the effect the house was fit to occupy, but would not then give a certificate of completion. It became clear there was other work beside the work on the house by the appellant that had to be done before a certificate of completion could be obtained.
As to steps taken by the respondent after the appellant had sought payment of the amount he ultimately sued for, it was unclear precisely what he did and when. However, he said he received a letter from the appellant's solicitors but did not do anything about it. He did contact a Mr Seymour from the Master Builders Association, who it appears may have suggested to him to withhold some money and give the appellant an opportunity to come back and rectify work. He did not, after receiving the claim, make contact with the appellant, nor did he seek legal advice about the matter. He does not appear to have sought any legal advice until January 2007. The basis for the respondent's dissatisfaction can be seen in his statements that:
- "because we were withholding payment because of works not done correctly";
-"I'd spoken to Mr Seymour and I suppose given Michael Flaherty an opportunity to come out on two occasions to repair work which was still illegal and not done as per the plan"; and
-"the house wasn't built according to plan. There was insulation missing, there was a number of issues Mr Flaherty was aware of".
The respondent obtained a building report in relation to his property in early May 2007. The respondent was legally represented at the hearing before the learned magistrate. For reasons that were never made clear, the report was not tendered to the court. The respondent's only explanation was he did not know he could. The only reference to its contents was when the respondent told the learned magistrate:
"I'd spoken to Mr Flaherty on a number of occasions about issues with the house that weren't built according to plan. Subsequently I've had a building report done and there's a number of breaches to Australian Standards."
The evidence of the respondent establishes a number of things. These are that:
- he was withholding payment because he believed work was not done correctly;
- he believed work done by the appellant was illegal and not done in accordance with the plan;
- there was insulation missing;
- there were other issues about the house the appellant was aware of;
- he had given the appellant an opportunity to come and rectify works; and
-12 months after he said the appellant had last worked at the site, he had obtained a building report and there were breaches to Australian Standards.
At no stage in his affidavit or oral evidence did the respondent say - the appellant has not done the work he was to do and therefore I do not owe him the money he seeks. He does not say - these are the defects I have identified, I have obtained advice and they are substantial and they will cost x thousands of dollars to rectify. What he says, in effect, is the appellant has done the work, but he has done it badly and it needs to be fixed. There is nothing more of any substance. At its highest, the respondent's evidence raises the possibility of a counterclaim or set-off, in the form of seeking damages for a breach of contract or perhaps in negligence.
There is, in my view, good reason why, in considering an application to set aside a judgment in circumstances such as the present, there is an obligation on the applicant to provide the court with more than bare allegations without some particulars. It is easy for a defendant to make an allegation in a vacuum. If that allegation is unable, however, to be supported by facts such as, if accepted at trial, might give rise to a sustainable defence and/or counterclaim or set-off, what is the efficacy of setting aside the judgment in the first place?
In the present case there are assertions by the respondent that the respondent's work was substandard, that his work was illegal, that the work was not according to plan, that insulation was missing and that he had a building report done and there were a number of breaches of Australian Standards. The respondent is not qualified in any way in the building trade and has no expertise to allow him to speak authoritatively in respect of any of these matters. The contents of the building report referred to are unknown. There are no particulars at all so that the court might make some assessment as to whether the assertions have such substance as may allow them to underpin a defence. The context in which the assertions have been made are also relevant, in my view, to the determination of whether there is an arguable case on the merits because in the words of Walters J in Watson v Anderson (supra) "In the words of Jenkins LJ in Grimshaw v Dunbar 'the judge is entitled to satisfy himself that the party applying has a bona fide intention of defending the action, and that there is some possibility of his doing so with success'."
That context was that, despite his complaints, the respondent, who had the benefit of a dispute resolution clause in his building contract, sought no expert advice as to the alleged defects with work until over a year after he said the appellant last worked at his property, ignored the appellant's claim for nearly seven months until the appellant sought to execute against his possessions, sought no legal advice about the appellant's claim and the proceedings until execution was attempted, and at no stage put before the court any document by way of a draft defence and/or counterclaim or set-off. The court was left with assertions from which it was expected to assume the respondent had a defence to the appellant's claim.
To use the analogy with which I started, the learned magistrate, in my view, placed the bar to be reached by the respondent far too low. There was an obligation on the respondent to provide to the court facts upon which it could make an assessment as to whether, if accepted, such facts might sustain a defence and/or counterclaim or set-off. This process would not require the court to conduct a trial on affidavits at a preliminary hearing and make findings as to whose case should be accepted. All that would be required would be for the court to look at the facts to see if there was some possibility of the respondent defending with success.
The learned magistrate had an obligation to be satisfied on evidence before him that the respondent had an arguable case on the merits. Rule 113 provided that he was not to make an order setting aside the judgment unless he was so satisfied. By reference to the transcript in the judge's papers, the only reference by the learned magistrate to matters he considered in respect of this issue appear at 76. There the learned magistrate said:
"Whether he has an arguable defence, that is, one where he can present a prima facie defence with some real prospect of success, is another matter. He says, in his affidavit, and in his evidence before the Court today, that in his view, and he, of course, does not profess to be an expert in the matter, the building work was deficient. He doesn't go into particulars regarding that as I read the affidavit, and he was questioned about his signing of a document in evidence, this is D1, the Notice of Completion, where he certified that the builder has completed the building works as stated in the contract and 'handed over possession of the work to me on the 25th November'.
Now he was asked why he would sign that if it were not in fact the case. His response as to that was that he was misled, he says, by the builder into signing it believing that he was really signing a document that allowed the builder to transfer his indemnity insurance from his own building works to fresh building works the builder was then about to engage upon. So that is the explanation he gives regarding that, which on its face indicates, would indicate one would think, that he had no complaints whatever.
On balance it seems to me that he has presented a case whereby one can say that he has an arguable defence."
The learned magistrate identified that the respondent, who was unqualified to give an opinion about the works, believed the works were deficient. He also identified that the respondent gave no particulars. He made reference to the signing of the Notice of Completion and the respondent's explanation for signing it. He then concluded the respondent had an arguable defence. There is no complaint pursued about the sufficiency of the learned magistrate's reasons for his decision. However, their brevity does make it difficult to know exactly what matters the learned magistrate may have taken into account, if any, apart from those he articulated. The challenge is that there was no evidence upon which the learned magistrate could reasonably be satisfied there was an arguable case.
The learned magistrate, in my view, set the bar for the respondent too low. He allowed him leave to defend on the basis of a bare allegation work done was substandard without particulars in circumstances where the allegation was raised in the proceedings only when the appellant sought to execute in respect of his judgment. Even then the respondent made no attempt to obtain expert advice, which, notwithstanding counsel for the respondent's submissions to the contrary about this, would have been required and when he did get it, he did not put it before the court.
The respondent had an obligation to put more detailed material before the learned magistrate which would have enabled him to see just what defence and/or counterclaim or set-off the respondent proposed to mount and whether it was an arguable one. He did not do so. In my view, the learned magistrate erred in setting aside the relevant judgment when there was no evidence before him upon which he could reasonably be satisfied there was an arguable case on the merits.
The appellant will therefore succeed upon this ground of appeal and the order of the Court will be that the order of the learned magistrate made 28 May 2007 by which he set aside a judgment for the appellant against the respondent in proceedings numbered L40571 of 2006 will be quashed.
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