Knope v Webster - [2009] SASC 316

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
KNOPE & ANOR v WEBSTER & ANOR
[2009] SASC 316
Judgment of The Honourable Justice David
24 September 2009
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - TIME
Application by defendant for order under r 37.04 (a) and r 37.04 (b) Supreme Court Rules 1987 - application by third party for extension of time to file a defence - application for extension of time made almost two years and nine months after the initial expiry of the time prescribed by the Supreme Court Rules 1987 to do so - whether third party should be granted extension of time.
Held: defence as presented by third party to the third party claim is reasonably arguable and should proceed to trial - defendant's application for order under r 37.04 (a) and r 37.04 (b) refused - order made for extension of time for third party to file Notice of Address for Service and Defence.
Supreme Court Rules 1987 (SA) r 41.01, r 37.04, r 3.04, referred to.
Watson v Anderson (1976) 13 SASR 329, applied.

KNOPE & ANOR v WEBSTER & ANOR
[2009] SASC 316
Civil

DAVID J. These reasons relate to two applications filed subsequent to a consent judgment being entered in these proceedings between Mr Bernard Knope and Mrs Barbara Knope (“the plaintiffs”) and Mr Frank Webster (“the defendant”). The current applications were filed by Mr Robert Hallett Shueard (“the third party”) and the defendant.
Background
The defendant formerly practised as a solicitor under the registered business name of “Frank Webster & Associates” (“the Firm”) and acted as solicitor for the third party in relation to claims for damages arising out of two motor vehicle accidents.
In June 2001, the third party gave the defendant notice of a financial agreement between he and the plaintiffs and “on the express instructions of [the third party]”,[1] the defendant signed an irrevocable undertaking saying he would pay the plaintiffs “a sum as agreed between [the third party] and [the plaintiffs]” from the balance payable to the third party from his personal injuries claims after payment of special damages, costs and disbursements. The defendant denied that the third party ever advised him of the terms of the agreement or the amount that was to be repaid subject to that agreement.[2]
[1] Affidavit of Frank Raymond Webster 6 May 2009 para 57.
[2] Amended Defence 18 October 2007 para 6.
In January 2004 the defendant retired from the Firm due to ill health, and thereafter a Mr Kenneth Gluche (“Mr Gluche”) became the registered proprietor of the Firm’s business name and conducted business as a legal practitioner under that name.
The third party’s personal injuries claims settled in May 2004 for a combined total sum of $300,000 inclusive of interest and legal costs.[3] On 18 June 2004 Mr Gluche prepared the following document which the third party signed:[4]
[3]    Statement of Claim Pt I para 43.1.
[4]    Affidavit of Kenneth Bruce Gluche 5 June 2009 para 1.
INSTRUCTIONS
I, Robert Hallett Shueard, of 294 Seaview Road, Henley Beach SA 5022 hereby instruct my solicitors as follows:
·I refer to the letter to Mr Bernard and Mrs Barbara Knope dated the 16th June 2001 prepared on my instructions by my former solicitor, Frank Webster and to my instructions to Mr Webster that an agreement existed between myself and Mr and Mrs Knope that they were to be repaid monies owed to them as a first priority from any compensation I might receive in respect of claims handled on my behalf by Mr Webster.
·I have been unable to agree with Mr and Mrs Knope the amount payable to them and this is now the subject of negotiations between myself and Mr and Mrs Knope.
·Consequently, I hereby revoke absolutely and in its entirety any such instructions with regard to payments to Mr and Mrs Knope.
·I confirm that as at 29th January 2004 Mr Frank Webster ceased to act for me whereupon I instructed Mr Ken Gluche and that I have no time [sic] instructed Mr Gluche to make any payments to Mr and Mrs Knope.
·I hereby instruct Mr Gluche to pay to me the balance of monies held in trust on my behalf after payment of all outstanding costs and disbursements associated with the proceedings in respect of which such monies had been received.
·I hereby indemnify and undertake to keep indemnified both Mr Webster and Mr Gluche against all proceedings that might arise or costs that might be incurred as a consequence of complying with the instructions contained herein.
DATED     this 18^th day of June 2004.
SIGNED:           R H Shueard     [signed]
The third party subsequently received the following amounts with respect to the settlement of his personal injuries claims: instalments of $115,755.79[5], $44,633.31[6] and $360.00[7] from the Firm’s trust account and $29,874.45 directly from the Health Insurance Commission.[8]
[5]    Statement of Claim Pt I para 46; Affidavit of K Gluche 6 May 2009 para 18.
[6]    Statement of Claim Pt I para 46C; Affidavit of K Gluche 6 May 2009 para 18.
[7]    Statement of Claim Pt I para 46D; Affidavit of K Gluche 6 May 2009 para 18.
[8]    Affidavit of K Gluche 6 May 2009 para 18.
On 17 August 2006 the plaintiffs filed an Inter Partes Summons and Statement of Claim in the District Court of South Australia claiming from the defendant under the irrevocable undertaking the sum of $77,856.85 (calculated by deducting amounts subsequently paid directly to the plaintiffs by the third party following his receipt of settlement proceeds from the total claimed under the irrevocable authority).
On 14 September 2007, a Third Party Notice and Third Party Statement of Claim were filed on behalf of the defendant in the District Court and subsequently served upon Mr Shueard on 26 September 2007. The Third Party Notice, which had attached to it a copy of the Inter Partes Summons and the original Statement of Claim filed by the plaintiffs on 17 August 2006, stated:
THIRD PARTY NOTICE
To the Third Party:-
ROBERT HALLETT SHUEARD of
294 Seaview Road
HENLEY BEACH SA 5022
This action has been brought by the Plaintiff against the Defendant. The Plaintiffs’ claim against the Defendant is set out in the copy Summons and Statement of Claim attached hereto.
The Defendant Frank Webster claims against you on the grounds contained in a separate Statement of Claim also attached hereto.
If you wish to dispute the Plaintiffs’ claim against the Defendant, or the Defendant’s claim against you, you must file a Notice of Addresses for Service within twenty-eight (28) clear days after the service of the Notice upon you and then file a Defence, in accordance with the Rules of Court.
The Notice of Address for Service must be filed electronically through the Website of the Courts Administration Authority ( in the case of a proceeding commenced using the Court electronic filing system or at the Registry of the District Court of South Australia. A list of the Registry addresses is attached.
If you do not have a Solicitor, you may attend personally at a Registry to do this.
Unless you file a Notice of Address for Service and Defence, you will not be entitled to challenge the Defendant’s liability to the Plaintiffs and will be taken to have admitted the Defendant’s claim against you, and your liability to reimburse or contribute to the amount of judgment in favour of the Plaintiffs. A judgment in respect of such liability may be given against you without further notice.
The third party Statement of Claim stated as follows:
THIRD PARTY STATEMENT OF CLAIM
Part 1:
The facts and basis of the claim are:-
1.In the Summons and Statement of Claim filed in these proceedings, the Plaintiffs claim against the Defendant alleging that the Defendant failed to comply with an Irrevocable Authority to pay settlement monies received on behalf of the Third Party to the Plaintiffs, to satisfy an alleged liability by the Third Party to the Plaintiffs.
2.The Defendant denies receiving any monies on behalf of the Third Party and says that any monies that where received on behalf of the Third Party were received by Mr Gluche who, at the time of the receipt of the monies, was carrying on business under the name “Frank Webster & Associates”.
3.On or about 18 June 2004, the Third Party executed a written document headed “Instructions” in which he said, inter alia:
3.1     That he had been unable to agree the amount payable by himself to the Plaintiffs;
3.2     That he purported to revoke any authority he had given with regard to payments to the Plaintiffs;
3.3     That the Defendant ceased to act for him on 29 January 2004;
3.4     That on or about 29 January 2004, he instructed Mr Gluche;
3.5     That he thereby instructed Mr Gluche to pay to the Third Party all of the monies held by Mr Gluche on behalf of the Third Party;
3.6     That he indemnified both the Defendant and Mr Gluche against all proceedings that might arise or costs that might be incurred as a consequence of complying with those instructions.
4.To the extent that the Defendant might be found liable to the Plaintiffs (and any such liability is denied), then the Defendant claims to be indemnified by the Third Party in respect of any liability to the Plaintiffs, including as to costs, and also in respect of all costs incurred in and about the claim against the Defendant by the Plaintiffs.
Part 2:
The Orders sought are:-
1.Indemnity from the Third party in respect of the whole of the Plaintiffs’ claim, including costs, and the Defendant’s own costs.
2.Such further or other Order as is just and equitable.
Until recently (and I will return to this later), court documents showed that the only response by the third party was to have a Mr John Daenke, solicitor, write a letter to the solicitors for the defendant in the following terms:
19 February 2008
Mr Chris Wellington
Partner
Wallmans
ADELAIDE SA 5001
Dear Sir
Knope v Webster and Shueard
We refer to your letter to us of 7 February 2008.
We are instructed by Mr Shueard that he is not in a position to fund any defence and that should any judgment be obtained against him is not in a position to meet any judgment.
In view of the situation Mr Shueard has requested we inform you that he will take no further part in the proceedings against him and will not defend those proceedings.
He will not be attending Court on the next directions hearing.
We are happy for you to provide a copy of this letter to the Court to indicate his position
Mr Shueard has indicated to us that he has no assets of any substance, he lost his home and other debts arising from the collapse of his business and he has no regular income.
He informs us that he is 61 years of age, he specialized in handling hazardous substances and occasionally gets small consulting jobs.
Yours faithfully
John Daenke      [signed]
John Daenke
Consultant
Lynch Meyer
Mr Wellington presented a copy of this letter to the Court in February 2008. From that time the third party took no part in the proceedings and was not served with any documents until April 2009 when he was served with a subpoena to attend at the trial between the plaintiffs and defendant.
An amended Statement of Claim was filed on 16 May 2008.
The proceedings were transferred to the Supreme Court. A formal offer of settlement was subsequently filed by the plaintiffs on 20 November 2008, pursuant to r 41.01(1) of the Supreme Court Rules 1987 (SA) (“the Rules”). By this offer the plaintiffs agreed to settle the action for $94,000. This amount represented the outstanding principal claimed, inclusive of interest. The defendant did not accept this offer. Originally the defendant claimed that as he had retired, Mr Gluche was responsible for failing to comply with the irrevocable undertaking to pay settlement monies received on behalf of the third party to the plaintiffs. However, on the day that the trial was listed to commence the parties informed the Court that they had arrived at a settlement and that a consent judgment was sought. Accordingly I entered judgment in terms as agreed by the parties. The judgment provided:
1.By consent judgment is entered for the plaintiffs in the sum of $102,356.16, this sum comprising principal of $77,856.85 and agreed interest of $24,499.31.
2.Execution of this judgment is to be stayed for 14 days.
3.Adjourned to 10.30 am on Friday, 8 May 2009, for argument as to basis for award of costs.
On 8 May 2009 I heard argument from the parties as to costs and on 29 May 2009 I ordered that the defendant pay the plaintiffs’ costs of the action on a solicitor and client basis, such amount to be taxed or agreed.
The Current Applications
The third party's application for an extension of time
The third party submits that, pursuant to r 3.04(c) of the Rules, the Court has the power to:
(c)validate any proceedings or document which is invalid or informal
or, pursuant to r 3.04(d), the Court is able to:
(d)extend or abridge any prescribed periods of time within or by which any step in a proceeding may be taken whether or not such period of time has expired.
The third party deposed:[9]
[9] Affidavit of Robert Hallett Shueard 3 July.
·at the time he had been served with the Third Party Statement of Claim he was unemployed, had no financial means to engage a solicitor to defend the claim and had no regular income;
·he had lost his home due to his indebtedness and still had significant debts to pay;
·he initially sought advice from Mr Attila Meister, solicitor, who referred him to Mr Daenke;
·when he met with Mr Daenke he was advised that his firm could not act for him unless substantial fees were placed into trust, and that a defence to the claim would cost $10,000-$20,000;
·he did not have the financial ability to pay for legal representation;
·he had been ill, and due to his health, lack of legal training and unfamiliarity with the court processes he felt unable to represent himself;
·Mr Daenke suggested he instruct him to write to the defendant advising that he had no financial means to defend the Claim, and he so instructed him;
·there was subsequently an exchange of correspondence between Mr Daenke and the solicitors for the defendant - as well as the letter already set out above, the third party had a copy of a facsimile letter sent by Mr Daenke to the solicitors for the defendant dated 5 February 2008 in the following terms:
5 February 2008
Mr Chris Wellington
Wallmans
Via Facsimile: 8232 0926
Dear Chris
Knope v Webster and Shueard
We refer to previous discussions and your letter of 22 November 2007.
It is noted that in the Third Party Statement of Claim has an assertion that the plaintiffs’ claim is that the defendant failed to comply with an irrevocable authority to pay settlement moneys received on behalf third-party to the plaintiffs, so as to satisfy an alleged liability but the third party to the plaintiffs. It is further noted that those allegations are denied.
It is then alleged that Mr Shueard executed a written document. That document speaks for itself. our letter to us of 7 February 2008.
Mr Shueard would obviously support the defence raised by your client. There are documents which apparently speak for themselves in this regard.
Mr Shueard will deny that he has a liability to the defendant.
However, our instructions are that Mr Shueard has no funds is not in a position to engage solicitors to defend the action.
Furthermore, if any judgment is obtained against him, then that judgment would lead to his bankruptcy if steps were taken to enforce it.
Is not in a position to satisfy any judgment and is likely that your client will incur costs in conducting the third party proceedings which would provide fruitless.
In the circumstances we are instructed to invite your client to discontinue third party claim against our client.
If your client wishes to pursue the claim, in your client would not be able to take any steps to obtain a judgment which was enforceable to the completion of primary action between the plaintiff and your client.
Please advise if you would discontinue the third party proceedings on the basis that our client makes no claim for costs.
Yours faithfully
John Daenke [signed]
John Daenke
Consultant
Lynch Meyer
and since he had given those instructions to Mr Daenke, he had not played an active role in the proceedings.
The defendant’s application
The defendant seeks orders:
1.An order that the third party is to be deemed to admit the validity of the judgments given in the action on 4 and 29 May 2009 against the defendant.
2.That the defendant have judgment against the third party in the following terms:
2.1     A declaration that the third party is liable to indemnify the defendant against:
2.1.1His liability to the plaintiffs pursuant to the judgment entered on 4 May 2009 for the plaintiffs against him in this action for $102,356.16.
2.1.2His liability pursuant to the judgment entered on 29 May 2009 for the plaintiffs against him in this action that he is to pay the plaintiffs' costs on a solicitor and client basis to be agreed or taxed.
2.1.3The costs incurred by the defendant of and incidental to his defence of the plaintiffs' claim as between solicitor and own client.
2.2     Orders that:
2.2.1The third party pay the defendant the sum of $102,356.16.
2.2.2The third party pay the defendant interest on the said sum of $102,356.16 from the date of payment of this sum by or on behalf of the defendant to date.
2.2.3The third party pay the defendant’s costs of and incidental to his defence of the plaintiffs’ claim as between solicitor and own client as taxed or agreed.
2.2.4The third party pay the defendant’s costs of and incidental to the Third Party Claim including this application as between solicitor and own client as taxed or agreed.
3.In the alternative to the orders sought in paragraph 2 above:
3.1     That the Notice of address for Service of the third party dated 27 May 2009 be set aside.
3.2     Further or in the alternative, that the defence of the third party dated 27 May 2009 be set aside.
3.3     Declarations and orders in terms of paragraphs 1 and 2 above.
It is agreed that the Supreme Court Rules 1987 (SA) (“the Rules”) apply to this matter.
There is no doubt that, according to the Rules, a third party must file a Notice of Address for Service within 28 days of service of the documents. In this matter, the third party was served on or about 26 September 2007, well before he filed his Notice of Address for Service.
Rule 37.04 of the Rules provides that where a third party does not file a Notice of Address for Service, the Court may make orders referred to in r 37.04(a) and r 37.04(b), namely:
(a)that the third party is to be deemed to admit the validity of any judgment given, or to be given, in the action, whether by consent or otherwise, against the defendant issuing the third party notice;
(b)that the defendant have judgment against the third party in such terms as the Court directs.
The defendant now asks for an order in those terms.
The third party deposed:[10]
·he did not recall being served with any documents after he was served with the Third Party Statement of Claim and had not received any correspondence from the defendant since September 2007;
·he has now been informed by his current solicitor that on 4 May 2009 consent judgment was entered in favour of the plaintiffs and the execution of the judgment was stayed for 14 days;
·on 27 May 2009 he was served with a letter from the defendant’s solicitors and this was the first notice he had received that the defendant intended to apply for judgment against him in default of filing a Defence;
·on 27 May 2009 he filed an Address for Service and Defence to the Third Party Statement of Claim;
·he did not know that the defendant could seek judgment in default of his appearance or due to his failure to file a Defence;
·his solicitors informed him that the defendant applied to strike out his Defence on 29 May 2009; he was not present at that hearing and did not have any prior notice that the defendant intended to bring such an application.
[10] Affidavit of Robert Hallett Shueard 3 July 2009 para 5-11.

The third party also deposed that he believes he has an arguable and a good defence because:[11]
[11] Affidavit of Robert Hallett Shueard 3 July 2009 para 13-19.
·when he attended the offices of Frank Webster & Associates and was presented with the settlement document by Mr Gluche - who asked him to sign it - he understood that the document was a form of receipt for the moneys he was receiving for his personal injury claims;
·he did not know that the document contained an indemnity in favour of Mr Gluche and the defendant;
·he was not informed that he should obtain independent legal advice;
·he did not know the effect that the document had on the irrevocable undertaking which had previously been given to the plaintiffs; and
·he would not have signed the document if he knew that it contained an indemnity in favour of Mr Gluche and the defendant;
·he is informed by his current solicitors that there are additional grounds for a defence, and if he is not able to ventilate his defence he would be severely prejudiced;
·he has been unrepresented throughout the proceedings, does not have an understanding of court practice and procedure and did not know that the defendant could seek judgment in default of his appearance or due to his failure to file a Defence;
·he did not take any part in the proceedings or receive any documents, including the amended Statement of Claim, until April 2009, when he was served with a subpoena to attend at the trial between the plaintiffs and the defendant.
·on 27 May 2009 he filed an Address for Service and a Defence to the proceedings as a self-represented party; and
·since that date he has obtained legal representation.
The defendant argues that the criteria relevant to the exercise of the discretion is clearly set out in the decision of Watson v Anderson,[12] namely:
·the reasons for the delay;
·whether there has been undue delay in applying to the Court;
·what prejudice the defendant would suffer if the application were allowed;
·whether a defendant has a bona fide intention to defend; and
·there is a reasonably clear defence with legal merit.
There is no doubt that the delay was substantial. It is clear that the reasons for delay were that the third party, as he claimed through Mr Daenke, was impecunious, and allowed the matter to play out between the plaintiffs and defendants.
[12] Watson v Anderson (1976) 13 SASR 329.
The Defence to the Third Party Statement of Claim contained among other things:
...
5.On the 17th June 2004, he attended the offices of Frank Webster & Associates as a result of a request by Linden Fairclough.
6.At the offices, Kenneth Gluche of Frank Webster & Associates advised him that:
6.1     the balance of the settlement proceeds would be paid to him,
6.2     he was not obliged to pay any of the settlement proceeds to the plaintiffs,
6.3     it was up to him to decide whether to pay the plaintiffs any sum and if so how,
6.4     Kenneth Gluche was arranging for a cheque, representing the first instalment of the settlement proceeds, to be paid to him direct and
6.5     the cheque will be ready for him to collect on the following day.
7.On the 18th June 2004, he attended the offices of Frank Webster & Associates to collect the cheque. He saw a person who purported to act on behalf of Frank Webster& Associates. That person:
7.1     gave him a document,
7.2     said words to the effect of “just sign here and you can have this cheque”,
7.3     did not suggest that he read the document,
7.4     did not explain the nature or effect of the document,
7.5     led him to believe that the document was just a receipt,
7.6     did not give him any legal advice,
7.7     did not explain to him that the document contained an indemnity in favour of Frank Webster & Associates or Frank Webster or Kenneth Gluche,
7.8     did not explained to him that the document contained any instructions,
7.9     did not explain to him that the document revoked the irrevocable authority.
8.As a result, he signed the document:
8.1     believing that it was a receipt,
8.2     not believing that it contained any instructions,
8.3     not believing that it revoked the irrevocable authority, and
8.4     not believing that it contained an indemnity.
9.In acting as pleaded at paragraphs 7 and 8, Frank Webster & Associates breached their fiduciary duties to him.
10.In all the circumstances, he is not bound by the document.
...
As can be seen, that Defence depends upon factual findings after the hearing of evidence. The third party therefore argues that there is a reasonably arguable defence and the matter should proceed to trial.
The prejudice which would be suffered by the defendant if the application to strike out was refused, would be that he would have to involve himself in the preparation of a case that for all purposes he considered to have been settled.
On the material before me, I am of the view that third party has a bona fide intention to defend the matter, and that the results may depend upon findings of fact after the hearing of evidence. The above paragraphs of the third party’s Defence to the Third Party Statement of Claim make that clear. In my view, looking at the matter as a whole, the third party should be able to defend the Statement of Claim against him and have the matter tried.
Consequently, I refuse the defendant’s application, and the time for the third party to file a Notice of Address for Service and a Defence should be extended. I will hear the parties as to the terms of my orders.