Postorino v Track ‘N' Find
[2012] FMCA 342
•24 April 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| POSTORINO v TRACK ‘N’ FIND & ANOR | [2012] FMCA 342 |
| PRACTICE AND PROCEDURE – Application to set aside default judgment – relevant factors. |
| Australian Securities and Investments Commission Act 2001 (Cth) Federal Magistrates Court Rules 2001 (Cth), rr.403, 4.05, 13.03B, 16.05 |
| Arnold v Forsythe [2012] NSWCA 18 Cohen v McWilliam and Another (1995) 38 NSWLR 476; (1995) 128 FLR 263 Davies v Pagett and Others (1986) 10 FCR 226; [1986] FCA 106 Deputy Commissioner of Taxation v Johnston (2006) 230 ALR 575; [2006] QSC 61 H R Turner & Son Pty Ltd v Rhodes [1970] 1 NSWR 305 Hall v Hall [2007] WASC 198 Macquarie Bank Ltd and Another v Seagle (2006) 146 FCR 400; [2005] FCA 1239 Morrison Motors Pty Ltd v Shah [2006] FMCA 256 Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227 Westpac Banking Corporation v Gibbings [2010] WASC 379 |
| Applicant: | SANDRINA POSTORINO |
| First Respondent: | TRACK ‘N’ FIND |
| Second Respondent: | ROBERT GRAEME PRITCHARD |
| File Number: | SYG 187 of 2009 |
| Judgment of: | Barnes FM |
| Hearing date: | 30 March 2012 |
| Delivered at: | Sydney |
| Delivered on: | 24 April 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr A Hourigan |
| Solicitors for the Applicant: | Marsdens Law Group |
| Counsel for the Second Respondent: | Mr V Bedrossian |
| Solicitors for the Second Respondent: | Norton Rose |
ORDERS
Orders 1 and 2 of the court’s orders of 29 October 2010 be set aside under r.16.05(2)(a) of the Federal Magistrates Court Rules 2001 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 187 of 2009
| SANDRINA POSTORINO |
Applicant
And
| TRACK ‘N’ FIND |
Second Respondent
| ROBERT GRAEME PRITCHARD |
Second Respondent
REASONS FOR JUDGMENT
On 27 January 2009, the applicant Ms Postorino commenced proceedings in this court against Track ‘n’ Find, the first respondent (now known as Encryption Technologies Corporation Pty Ltd), and Mr Pritchard, the second respondent. On 22 July 2011 Mr Pritchard filed an Application in a Case seeking an order pursuant to r.16.05 of the Federal Magistrates Court Rules 2001 (Cth) setting aside Orders 1 and 2 made and entered in these proceedings by Lloyd-Jones FM on 29 October 2010. He relies on affidavits sworn by him on 22 July 2011 and 29 September 2011.
Orders 1 and 2 made on 29 October 2010 were relevantly as follows:
1. Pursuant to Rule 13.03B(2)(c) of the Federal Magistrates Court Rules 2001, Judgment be entered against the Second Respondent in the amount of $438,400.68.
2. The Second Respondent is to pay the Applicant’s costs of the proceedings, fixed in the sum of $38,404.15.
Rule 13.03B(2) of the Federal Magistrates Court Rules is as follows:
If a respondent is in default, the Court may:
(a) order that a step in the proceeding be taken within the time limited in the order; or
(b) if the claim against the respondent is for a debt or liquidated damages -- grant leave to the applicant to enter judgment against the respondent for:
(i) the debt or liquidated damages; and
(ii) if appropriate -- costs; or
(c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings -- give judgment against the respondent for the relief that:
(i) the applicant appears entitled to on the statement of claim; and
(ii) the Court is satisfied it has power to grant; or
(d) give judgment or make any other order against the respondent; or
(e) make an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time limited in the order.
Under r.13.03B(2)(c), as the proceeding was commenced by an application supported by a statement of claim, default judgment could be given against the second respondent for the relief that the applicant “appear[ed] entitled to on the statement of claim” and that the court was “satisfied it ha[d] power to grant”.
On 3 September 2010 Lloyd-Jones FM gave the applicant leave “to file Default Judgment as against the Second Respondent” after his solicitor had ceased to act for him. By application in a case filed on 7 October 2010 Ms Postorino sought an order pursuant to r.13.03B(c) and/or (d) for judgment and/or orders as set out in the applicant’s “Further Amended Application and Further Amended Statement of Claim” against Mr Pritchard.
The transcript of the hearing on 29 October 2010 was tendered in these proceedings. Mr Pritchard did not appear on that date. Default judgment was entered against Mr Pritchard in the amount of $438,400.68.
There are no written reasons for the default judgment before the court. It is apparent from the affidavit of Nicholas Kallipolitis (the solicitor with carriage of this matter for Ms Postorino) sworn on 6 October 2010 and filed on 7 October 2010 in support of Ms Postorino’s application for default judgment, that reliance was placed on the fact that Mr Pritchard had failed to file a defence in the proceedings. He was also said to have subsequently been in default of the court’s orders (albeit the nature of such default was not specified). There was no attempt at quantification of the damages sought by Ms Postorino in Mr Kallipolitis’ affidavit.
There is no evidence that any other affidavit evidence was filed and relied on in support of the default judgment.
Relevant Background
In her original application of 27 January 2009 Ms Postorino sought damages under the Trade Practices Act 1974 (Cth) (and also the Australian Securities and Investments Commission Act 2001 (Cth) and the Fair Trading Act 1987 (Cth)) in the amount of $125,000, essentially on the basis that she had been misled into investing $125,000 in the purchase of shares in the first respondent in or around August 2008. She filed a Statement of Claim on the same date from which it is apparent that further, or in the alternative, she asserted a breach of contract by the first and/or second respondent in respect of which she sought damages in the amount of $125,000. Further, or in the alternative, she claimed that the first and/or the second respondent had been unjustly enriched at her expense and sought restitution in the amount of $125,000. She also sought interest and costs.
The applicant has acknowledged that the statement of claim and the application were not served on Mr Pritchard. Nonetheless Mr Pritchard, who was a director of the first respondent, attested that from the time the application was filed until 27 May 2009 Steve Miotti, a solicitor and director of the first respondent, acted as his solicitor. No notice of address for service or any other document was filed for Mr Pritchard in this time.
A notice of address for service was filed for the first respondent on 29 May 2009. I note, relevant to the progress of the substantive matter, that it was not until 23 April 2010 that the first respondent filed a response and a defence. There had, in the interim, been an issue about a disputed subpoena issued to the first respondent by the applicant and unsuccessful mediation.
On 27 May 2009 Mr Pritchard instructed John Tomko of Dennis and Company. On 28 May 2009 Mr Tomko wrote to the applicant’s solicitors seeking certain documents, addressing an allegation in the Statement of Claim that the shares had not been transferred to Ms Postorino or not registered with ASIC, endeavouring to clarify what relief she was actually seeking from the second respondent and advising that they would file Mr Pritchard’s defence within seven days of receipt of the documents requested.
There is no evidence as to whether there was a response to this letter. The matter was before the court on 29 May 2009. Mr Pritchard appeared or was represented. Orders were made for the applicant to file an amended application by 5 June 2009 and for the respondent (sic) to seek particulars by 19 June 2009 and to file a response by 3 July 2009 and a defence by 24 July 2009. The matter was referred to a registrar for mediation on a date to be fixed.
However it was not until 26 June 2009 that the applicant filed an Amended Statement of Claim and an Amended Application in which the express references to the amount of damages sought in various parts of the Statement of Claim were deleted and a declaration was sought that the first and second respondents’ conduct in representing to the applicant that the first respondent’s value was $30 million, that it had exclusive licensing agreements, and that upon purchase of 1.25 per cent of shares in the company known as Track and Find those shares would be worth $375,000 was misleading or deceptive or likely to mislead and deceive contrary to s.52 of the Trade Practices Act (and/or equivalent provisions in the ASIC Act and the Fair Trading Act). The particulars of loss and damage in relation to the claims brought under the Trade Practices Act, the ASIC Act or the Fair Trading Act were deleted.
In the Amended Statement of Claim, in relation to the claim for breach of contract the applicant maintained that the first and second respondents were liable to her for the amount of $125,000 and also “the difference in the value of the shares based on the First Respondents value and the amount paid for them and for any profits”.
By letter of 21 July 2009 Mr Pritchard’s then solicitor sought further and better particulars and indicated that he proposed filing and serving a defence at short notice once he received adequate replies to the request for particulars. A reply was sought by 28 July 2009. Ms Postorino’s solicitors replied to the request for better particulars by letter dated 21 August 2009, although not all the information requested was provided.
On 7 September 2009 the solicitors for Mr Pritchard wrote to the solicitors for Ms Postorino disputing whether there had been any failure to register the shares or breach of contract and suggesting that, putting aside the dispute as to the making of misleading or deceptive representations, the claim for misleading and deceptive conduct was misconceived insofar as Ms Postorino seemed to seek expectation damages.
Mediation took place on 9 September 2009. Mr Pritchard was represented and attended. The mediation was adjourned until 29 October 2009. Mr Pritchard was represented. On that date the parties agreed that the matter should be generally stood over, apparently because there was some prospect of settlement. The matter was next before the court on 3 February 2010 in relation to a subpoena issued to the first respondent by the applicant. However this did not involve Mr Pritchard. It appears that the subpoena was further stood over.
On 23 April 2010, the first respondent filed a response and a defence. Apart from listings before a registrar in relation to subpoena issues involving the applicant and the first respondent, it appears that the next listing before a federal magistrate was before Lloyd-Jones FM on 18 June 2010. All parties were represented. The applicant was granted leave to file and serve an Amended Application/Statement of Claim (presumably this was intended to be a reference to a further Amended Application and Further Amended Statement of Claim) by 2 July 2010. The respondents were to file and serve documents in reply by 16 July 2010. The matter was adjourned until 30 July 2010.
On 9 July 2010 the applicant filed a Further Amended Statement of Claim (but not a Further Amended Application). The Further Amended Statement of Claim elaborated on the asserted contractual claim, but maintained that the first and second respondent were liable to her for the amount of $125,000 and the difference in the value of the shares based on the first respondent’s value and the amount paid for them (but deleted the claim for any profits). The Trade Practices Act and other statutory claims were also elaborated on, but no particulars of loss and damage were specified. Rather, it was maintained that there had been a representation that the value of the shares on their purchase would be $375,000 when, in fact, that was said not to be the case. It was pleaded that the company had not increased in value “if any” at all. It was stated that further particulars would be provided upon discovery taking place. On 30 July 2010 the matter was adjourned until 3 September 2010.
On 17 August 2010 Mr Pritchard’s then lawyer filed a notice of intention to withdraw as lawyer and identified an Elizabeth Bay address as Mr Pritchard’s address for service. On 25 August 2010 a notice of withdrawal as lawyer was filed.
On 3 September 2010 there was apparently no appearance for Mr Pritchard. Lloyd-Jones FM granted leave to the applicant to “file Default Judgment” as against Mr Pritchard and ordered that the applicant file and serve a Further Amended Application and/or Statement of Claim by 24 September 2010 and that the first respondent file and serve any Defence by 22 October 2010. No such order was made in relation to the second respondent. The matter was listed for directions on 29 October 2010.
As indicated, on 7 October 2010 the applicant filed the application in a case seeking default judgment. It was given a return date of 29 October 2010. The applicant did not file the Further Amended Application foreshadowed in the orders of 18 June 2010 (and the orders of 3 September 2010) until 18 October 2010, notwithstanding that the application in a case seeking default judgment filed on 7 October 2010 sought judgment and/or orders as set out in the applicant’s Further Amended Application as well as the Further Amended Statement of Claim.
In the Further Amended Application filed on 18 October 2010 the wording of the declaration sought was altered slightly and damages under the Trade Practices Act were sought not only under s.82, but also under s.87 and the equivalent provisions of the Fair Trading Act, although the amount sought was unspecified. The claim for damages for breach of contract was amended by the addition of the words “and/or agreement”. A reference to “and/or collateral contract” that had appeared in the Amended Application was deleted.
Although it has been suggested in relation to former Federal Court Rules comparable to r.13.03B(2)(c) that the requirement that the court be satisfied that the applicant “appears entitled to relief” may be seen as requiring evidence of proper service (see Macquarie Bank Ltd and Another v Seagle (2006) 146 FCR 400; [2005] FCA 1239 and Speedo Holdings B.V. v Evans (No 2) [2011] FCA 1227), there was no evidence of service of the application in a case on Mr Pritchard. Rather, in the hearing on 29 October 2010 Ms Postorino’s solicitor informed the court that “as a matter of courtesy” he had sent out the application to Mr Pritchard at the last known address on the notice of the withdrawal of solicitor.
However Mr Pritchard does not dispute that there was service of the Application in a Case in accordance with the provisions of the Federal Magistrates Court Rules. He has put in evidence a copy of a letter of 22 October 2010 from Ms Postorino’s solicitors headed Express Post, enclosing by way of service a copy of the Application in a Case and the affidavit of Mr Kallipolitis sworn on 6 October 2010 and advising of the listing on Friday 29 October 2010.
Counsel for Mr Pritchard pointed out that although the application in a case was filed on 7 October 2010 there was no attempt to serve Mr Pritchard until the Express Post letter sent on Friday 22 October 2010. It is not in dispute that such letter could not have been received before Monday 25 October 2010. Mr Pritchard acknowledged that the letter serving the Application in a Case was received at his home address, but claimed that he had people looking after his affairs at that time, that he did not recall seeing the letter, and that if he did, he had put it to one side without giving it the importance it needed. He also gave oral evidence that on Monday 25 October 2010 he travelled to Japan for some four days.
As indicated, on 29 October 2010 the court ordered that judgment be entered against Mr Pritchard in the sum of $438,400.68 and that he pay the applicant’s costs of $38,404.15. There is no evidence as to how such costs were calculated.
I note that the first respondent did not file a defence to the Further Amended Statement of Claim as ordered on 3 September 2010 and was given until 29 November 2010 to do so. Such Defence (and a Response) were filed on 10 December 2010.
There is no evidence before the court of service on Mr Pritchard of a copy of the default judgment apart from evidence Mr Pritchard put before the court of service on him of a bankruptcy notice issued on behalf of the applicant on 2 February 2011 annexing a copy of the default judgment. On 4 February 2011 an email was sent to the solicitor for Ms Postorino by Anne Wilson for Mr Pritchard advising that Mr Pritchard’s wife had passed away in the previous week and that he would not be attending to business matters until 21 February 2011. I accept that his primary focus, before his wife died, was on caring for her.
Mr Pritchard’s wife was diagnosed with brain cancer in the form of a tumour in about January 2010. She underwent what initially appeared to be successful radiation therapy in January to February 2010, but in March 2010 she was advised that the cancer had spread and was terminal. Her oncologist advised that at most she had six months. Mr Pritchard’s evidence was that from that time he stopped working and devoted his time to caring for his wife, that her wellbeing was his sole priority and that he was entirely distracted and emotionally drained by what she was enduring and was unable to bring himself to give any real attention to these proceedings. He detailed the treatment and operations his wife underwent and the impact on him. She died on 24 January 2011. In cross-examination Mr Pritchard conceded that he had some minor involvement in business activities in this time as considered further below. Mr Pritchard’s evidence is that he did not have solicitors acting for him in these proceedings from 25 August 2010 until 14 July 2011.
In March 2011 he began concentrating on his own financial and personal matters which he had not dealt with during his wife’s illness. He claimed that he first became aware that judgment had been entered against him in these proceedings when the bankruptcy notice attaching a copy of the judgment was served on him in February 2011. I accept that he was initially too emotionally distracted by his wife’s death to deal with the bankruptcy notice, that he was not earning any significant income at that time, and that the process of engaging solicitors was financially challenging.
Mr Pritchard did not begin to attend to business matters until March 2011. I accept that he had underestimated the effect his wife’s death and subsequent commitments would have on him. From about 29 May 2011 to 10 June 2011 he was in the United States attending to his and his wife’s financial and personal matters (in circumstances where prior to his wife’s illness they had spent approximately nine months of the year overseas, primarily based in California). He returned to Australia on or about 10 June 2011. He claimed that at that time he first became aware of a creditor’s petition presented by Ms Postorino.
Mr Pritchard claimed that he did not become aware of the seriousness of the judgment until June 2011. He conceded that this was a serious error. On review of the creditor’s petition in June 2011 he proceeded to instruct solicitors in relation to the bankruptcy proceedings and these proceedings. He filed the Application in a Case on 22 July 2011.
Mr Pritchard’s evidence is that if his application to set aside the default judgment is successful he intends to defend the substantive proceedings and that he is now in a position to do so. He set out in some detail in his affidavit the basis on which he asserted that he had a good defence (including his claim that he did not send and was not copied into an email from a third party in which the alleged representation as to the value of the shares was said to have been made).
I note that after October 2010 orders were made in the substantive proceedings (in December 2010) for discovery and the filing of affidavit evidence. It appears there have been ongoing issues about discovery. No affidavits have been filed. Mr Pritchard’s application in a case was to be heard in September 2011 but was adjourned until this year. In the absence of Lloyd-Jones FM who is on leave, the matter was transferred to my docket for the hearing of the Application in a Case.
The Law
Mr Pritchard seeks an order that the default judgment and the costs order of 29 October 2010 be set aside under r.16.05(2)(a) of the Federal Magistrates Court Rules which provides that:
The Court may vary or set aside its judgment or order after it has been entered if:
(a) the order is made in the absence of a party
Counsel for Mr Pritchard submitted that on this application Mr Pritchard was required to provide:
a)an adequate explanation regarding the delay which caused or permitted the applicant to have default judgment entered against him; and
b)an identification of a meritorious defence to the applicant’s claim; and
c)(if relevant) an identification of any irregularities and/or inconsistencies in the judgment entered by default (when compared with the pleadings and the available evidence) or any other relevant factor which would indicate that, as a matter of justice, it is appropriate that default judgment be set aside.
Counsel for Ms Postorino submitted that Mr Pritchard was not able to satisfy the court of what were said to be the first two requirements set out in the judgment of Atkinson J of the Supreme Court of Queensland in Deputy Commissioner of Taxation v Johnston (2006) 230 ALR 575; [2006] QSC 61. It was said that in that case his Honour had stated that the relevant test was (at [3]):
(1)“whether the defendant [respondent for present purposes] ha[d] given a satisfactory explanation of the failure to defend”;
(2)“whether the defendant’s delay in making the application to set aside preclude[d] it from obtaining relief”; and
(3)“whether the defendant ha[d] a prima facie case on the merits”.
Ms Postorino did not dispute that Mr Pritchard has a prima facie defence to her substantive claim on the merits.
I note first that, as Atkinson J stated in Deputy Commissioner of Taxation v Johnston at [3]:
The discretion to set aside a regularly entered judgment is unfettered but a number of matters are relevant to its exercise.
It was in that context that his Honour referred to the three matters cited by counsel for the applicant as matters which will “usually be relevant to the exercise of the discretion”. However Atkinson J did not prescribe such matters as the relevant test.
It is well to bear in mind that as Newnes J stated in Hall v Hall [2007] WASC 198 at [63] it is fundamental that the discretion to set aside a default judgment is “unfettered and no hard and fast rules can be laid down as to how it is to be exercised” and that it is to be exercised “so as to do justice between the parties, having regard to the particular circumstances of the case”. As his Honour went on to suggest at [64], the weight or emphasis to be given to the various factors that fall for consideration in the exercise of the discretion will vary from case to case as the circumstances differ.
It is appropriate to have regard to all of the relevant circumstances on the evidence before the court (see Morrison Motors Pty Ltd v Shah [2006] FMCA 256 at [5]) while bearing in mind the caution to be exercised in setting aside an order or judgment under a provision such as r.16.05 of the Federal Magistrates Court Rules.
It is normally necessary to consider whether there is a defence on the merits. As stated in Westpac Banking Corporation v Gibbings [2010] WASC 379 at [13], issues such as:
…why the default occurred which led to judgment being entered…the reasons for any delay in bringing the application to set aside the default judgment [and] whether there is a defence on the merits…are to be weighed in the balance to determine whether or not it is in the interest of justice the judgment be set aside.
In Westpac Banking Corporation v Gibbings it was suggested that there may be a distinction between the principles applicable where a judgment was irregularly entered (for example, where there was a failure to comply with the rules of court in connection with the application for default judgment, where the amount of the judgment was incorrect, or the pleading which purported to support the judgment was in some way defective), and circumstances where the judgment was regularly entered but given in the absence of a party (and see Arnold v Forsythe [2012] NSWCA 18).
Caution must be exercised in considering the relevance of “irregularly” entered judgments in the sense in which such expression is used in a provision such as r.36.15 of the Uniform Civil Procedure Rules2005 (NSW) (which provides that a judgment may “on sufficient cause being shown”, be set aside if it was given or entered “irregularly, illegally or against good faith”). Rule 16.05(2) is not expressed in such terms. The question of whether there are procedural or other irregularities is part of all the circumstances to be taken into account in an application under r.16.05 of the Federal Magistrates Court Rules.
A meritorious defence or prima facie case on the merits
The task faced by Mr Pritchard in these proceedings is made easier in a critical respect by the fact that Ms Postorino does not dispute that, however formulated, he has a prima facie defence on the merits or a meritorious defence to her claim. Notwithstanding that this fundamental issue is not disputed by Ms Postorino and that it is not the role of the court in proceedings such as these to determine whether Mr Pritchard’s version of events will be accepted at trial, it is relevant to note that a number of matters are relied on by Mr Pritchard in support of the proposition that he has not only a bona fide, but also a strongly arguable defence to the applicant’s claims as pleaded in the Further Amended Statement of Claim.
Mr Pritchard’s counsel pointed to the fact that on the pleadings the majority of the alleged misrepresentations or warranties were said to have emanated from a third party, a Mr Tony Coombs, and that there was no more than an allegation by Ms Postorino that Mr Coombs was the agent or representative of Mr Pritchard. It is arguable that a careful and proper reading of what were said to have been the misrepresentations or warranties would not support the claims made by Ms Postorino against Mr Prtichard. Counsel for Mr Pritchard submitted that there is a reasonable basis to conclude, even at this point in time, that the representations made by Mr Coombs were true, but that in any event to the limited extent that Mr Pritchard passed on information about the first respondent to Ms Postorino (putting aside whether or not such information was accurate or had a reasonable basis) he received that information from a reliable source and conveyed it to her. It is not necessary or appropriate to determine such issues in these proceedings, but it is of significance that unless the default judgment is set aside Mr Pritchard will not have the opportunity to rely on what is conceded to be a prima facie defence.
In addition, and importantly, having regard to the quantum of the default judgment, it was submitted that even if Mr Pritchard was held responsible for any misleading or deceptive conduct, it was apparent that such liability would not necessarily be for the whole of the damages obtained by the applicant, but rather only for that proportion for which to which Mr Pritchard could be said to be truly responsible. Mr Bedrossian submitted that given the very limited extent to which Mr Pritchard was said to have been involved in any of the alleged communications with the applicant prior to the applicant’s decision to invest in the shares, the probability was that Mr Pritchard’s proportion of any liability, if he was liable, would be very low, particularly as he was said not to have made any representations to Ms Postorino regarding the value or future value of any investment in the first respondent. It must be said that at this stage there is no defence, but there is some evidence (beyond the applicant’s pleading) in Mr Pritchard’s affidavit of 22 July 2011 about his claimed limited involvement in communications with Ms Postorino prior to her decision to invest in the shares.
I am satisfied that Mr Pritchard has a prima facie defence on the merits and that in this case this is of considerable significance as a factor to be taken into account in connection with the application to set aside the default judgment.
Circumstances in which Default Judgment obtained
Before considering why the default occurred and the reasons for delay in bringing this application it is relevant to have regard to the circumstances in which judgment was entered by default. Counsel for Ms Pritchard pointed to the fact that an inconsistency between the claim pleaded and the default judgment entered (including where there is a defect in the pleading) is an irregularity (Arnold v Forysthe at [56] – [59] and [79] – [84] per Sackville AJA (which whom McColl and Young JJA agreed). As indicated above r.16.05 is not in the same terms as r.36.15 of the Uniform Civil Procedure Rules and it is not necessary to find that there is an “irregularity” in that sense although issues relevant under that provision may be taken into account as part of all the circumstances in determining whether a default judgment should be set aside.
Counsel for Mr Pritchard submitted that the time for filing a defence to the further amended application had not expired as at the time of the default judgment, that there was no evidence before the court as to how the damages sought were to be calculated (in circumstances where the pleadings had abandoned a claim for a fixed quantum of damages) and that the pleading itself did not support a claim for $375,000 plus interest.
First, while the Further Amended Application was not filed until 18 October 2010, Mr Pritchard had, prior to the first time, failed to file a defence to the Amended Application. Nonetheless it is part of all the circumstances that the application in a case seeking default judgment sought to rely on the further amended application.
As to the issues of evidence to support the quantification of damages, as indicated, Ms Postorino obtained default judgment on the basis that it was for relief to which she appeared entitled to on the Further Amended Statement of Claim. This was not a case in which judgment was entered for a debt or liquidated damages.
It is not in dispute that it can be inferred that the amount of the default judgment was calculated as $375,000 plus interest on the basis that this was the expectation arising from what was said to be a misrepresentation as to the value of the shares.
Originally Ms Postorino claimed damages in the sum of $125,000. The further amended statement of claim sought damages for breach of “the agreement” in relation to purchase of shares in the first respondent in the amount of $125,000 and the difference in the value of the shares (based on the first respondent’s value) and the amount paid for them. The Trade Practices Act (and other statutory) claims for damages on the basis of representations in which Mr Pritchard was said to have been involved do not include any particulars of the amount of the loss and damages sought from Mr Pritchard (or from the first respondent). Notwithstanding the absence of clear quantification of the damages sought from the Mr Pritchard in the pleadings there is no evidence that the court had before it evidence quantifying such loss and damages.
When seeking default judgment an applicant may place before a court evidence by which he or she seeks to quantify damages (in addition to the statement of claim) provided such evidence does not alter the case as pleaded (see Speedo Holdings BV v Evans). However there is no evidence that this occurred in the present case. In the amended application (and the further amended application) and the further amended statement of claim there was an abandonment of a fixed quantum of damages, in particular in relation to the Trade Practices Act and other statutory claims, and there is no evidence other than the unparticularised claim in contract of the calculation or assessment of damages.
I do not accept that the amount for which judgment was entered was squarely raised on the pleadings. Further there is, at the least, a serious issue as to whether the amount of the default judgment exceeds the relief even arguably available to the applicant on the pleadings.
In these proceedings Ms Postorino sought to rely on an affidavit sworn by her on 27 October 2010. As unsealed copy of such affidavit was tendered. However there is no evidence that such affidavit was filed in these proceedings. There is no reference to such evidence in the transcript of the proceedings of 29 October 2010.
Insofar as it was contended that I could have regard to paragraph [25] of Ms Postorino’s affidavit of 27 October 2010 as part of all the circumstances, on the basis that it was of relevance in respect of the regularity of the default judgment, “regularity” in the Uniform Civil Procedure Rules sense is not determinative in these proceedings. In any event Ms Postorino’s evidence that she purchased the shares on the basis that they were to be valued at $375,000 and she would be able to either retain the shares or have the opportunity to sell the shares at a profit is not such as to address in full all issues raised about the amount of the default judgment against Mr Pritchard.
Indeed while, as counsel for Mr Pritchard pointed out, the same degree of concern about the amount of the default judgment may not have arisen had judgment been sought for $125,000, insofar as the applicant might have been warranted in seeking default judgment for an amount in the order of $125,000 plus interest, she retained the shares and did not put evidence before the court as to their value and there is some evidence from Mr Pritchard in his affidavit of 29 September 2011 to the effect that the applicant’s shareholding in the first respondent does have some value.
It is a basic proposition that a creditor is not entitled to recover more than is due to them (see H R Turner & Son Pty Ltd v Rhodes [1970] 1 NSWR 305 at 309). The default judgment was for an amount which, on the evidence before the court, appears to exceed the relief to which the applicant could be entitled on the pleadings and the evidence that was relied on in support of the default judgment. The lack of consistency between the claims pleaded and the default judgment entered and the absence of evidence to support the quantification of damages sought in the default judgment are part of all the circumstances relevant to the exercise of the discretion to set aside the default judgment, particularly given that Ms Postorino accepts that Mr Pritchard has a prima facie defence on the merits.
Reasons for Default and Delay in Proceeding
It is also relevant to have regard to the explanation given by Mr Pritchard for his failure to defend the proceedings which led to the default judgment and the delay in seeking to have the default judgment set aside.
As counsel for Mr Pritchard submitted, the circumstances that led to the default, including any delay on the part of Mr Pritchard, have to be seen in light of all the circumstances. In Davies v Pagett and Others (1986) 10 FCR 226; [1986] FCA 106 the Full Court of the Federal Court set aside a default judgment notwithstanding that a delay in defending proceedings was “gross and inexcusable” for which there was “[n]o satisfactory explanation” (and where there was an 11 month delay in bringing a set aside application that was “even more inexcusable”). The Court stated at 232:
It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct, in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation. The problem of delays in the courts, egregious as it is, must be dealt with in other ways: for example, by disciplinary actions against offending practitioners and by a comprehensive system of directions hearings or other pre-trial procedures which enable the Court to supervise progress - and, more pertinently, non-progress - in all actions.
On the other hand, in Cohen v McWilliam and Another (1995) 38 NSWLR 476; (1995) 128 FLR 263 the New South Wales Court of Appeal heard an appeal from a refusal to grant leave to the appellant (as defendant in the original proceedings) to amend her defence. By majority (Sheller JA, with whom Priestly JA agreed), the Court allowed the appeal and set aside the judgment entered against the appellant. Priestly JA stated at 478:
I see nothing particularly modern (or wrong) in a court taking court efficiency into account when deciding whether or not to grant such applications. It is a factor of which courts will be more keenly aware in times of congested lists and delayed hearings than when hearing dates are more speedily available.
I see nothing, however, in the modern cases to which Cole JA refers dealing with the court efficiency factor which obliges a court to give decisive weight to that factor. I know of no authoritative decision which says that court efficiency is more important than, or takes priority over, deciding cases on their merits.
Consideration of the delay in this case in complicated by the fact that there were intervening factors and the applicant did not comply in all respects with orders in relation to amended pleadings.
First, under the Federal Magistrates Court Rules a respondent is to file a response within 14 days of service of the application to which it relates. If a Statement of Claim has been filed then the respondent must file a Defence or Points of Defence (see rr.403 and 4.05). However, Mr Pritchard’s failure to file a response shortly after these proceedings commenced must be seen in light of the acknowledgment by the solicitor for Ms Postorino that Mr Pritchard was not served with the Statement of Claim and the Application. Nonetheless, on 28 May 2009 a solicitor for Mr Pritchard confirmed that they acted for him and that they had considered the pleadings. Thereafter, his failure to file a defence is to be seen in light of the fact that his solicitors sought production of further documents. In so doing his solicitors made the applicant aware that he intended to defend the proceedings.
The applicant then filed an Amended Statement of Claim. Mr Pritchard’s solicitors sought further and better particulars, foreshadowing an intention to file a defence by 4 August 2009 if an adequate response was provided by 28 July 2009. There was no response until 21 August 2009.
On 7 September 2009, the second respondent’s then solicitors wrote to the applicant’s solicitors complaining about the failure to provide complete answers to the request for further and better particulars. This correspondence expressly notified the applicant of suggested significant flaws in relation to the relief claimed in her proceedings.
In the meantime, mediation had been ordered and took place over two dates with the parties agreeing to the matter being stood over until 2010.
After the time provided for in subsequent orders a Further Amended Statement of Claim was filed on 9 July 2010 but no Further Amended Application was filed. That did not occur until 18 October 2010. Indeed, technically, the second respondent ought to have been permitted at least 14 days from 18 October 2010 to provide a response to the Further Amended Application. However default judgment was entered based on the Further Amended Application on 29 October 2010.
There was, therefore, not as a great a delay attributable to the second respondent’s failure to file a defence to the proceedings as first appears to be the case, although I do not accept that there was no delay at all. Notwithstanding that the Further Amended Application was only filed on 18 October 2010 it would have been open to Mr Pritchard to file a response and defence to the amended application and amended statement of claim in early 2010 (as the first respondent did) when it apparently became clear that the matter had not settled. The further delay from July 2010 through to October 2010 does have to be seen in light of the existence of leave to file a further amended application which did not eventuate until 18 October 2010. I also note that until Mr Pritchard ceased to be legally represented in August 2010 he otherwise participated in the proceedings.
Further, as and from 25 August 2010, the Applicant’s solicitors would have know that the second respondent was not legally represented. Contrary to any suggestion to the contrary, there is no evidence of any warning to the second respondent of the applicant’s intention to move for default judgment (save for by service of the application for default judgment shortly before the hearing date).
On 7 October 2010, the applicant filed an Application in a Case seeking entry of judgment pursuant to the applicant’s Further Amended Application, notwithstanding that there was no such document filed at that time. The Further Amended Application was not filed until 18 October 2010.
Rather than provide immediate service of the filed application to the second respondent, it appears that the applicant’s solicitors did not purport to serve the filed application until 22 October 2010 (a Friday). Even if sent by express post, service would not have been effected until, at the earliest, Monday 25 October 2010 (a bare 3 clear working days before the return date) at a time when Mr Pritchard had travelled overseas for some four days.
While greater notice to the second respondent was not technically required, the time and extent of notice are part of all the circumstances in which the default and delay are said to have occurred.
Mr Pritchard has provided an explanation for his failure to attend, as he should have done, to these proceedings during the period from March 2010 through to October 2010 and thereafter to March 2011 on the basis that his attention was primarily on the needs of his wife. The core of the explanation provided by Mr Pritchard for his failure to deal with the proceedings during 2010 was the serious and terminal illness suffered by his wife, as diagnosed in March 2010, in circumstances where his expectation was initially that she would not survive past September 2010. She died in late January 2011.
Insofar as the applicant contended that Mr Pritchard was still attending to his business deals during 2010, including the publication of a book and business affairs overseas, I accept his evidence in cross-examination as to the relatively limited nature of such activities as necessary income-earning ventures in circumstances where he was seeking to provide financial and personal support to his wife in her illness. In all the circumstances Mr Pritchard’s failure to file a defence or to appear in the proceedings after his lawyer withdrew, in particular in the period from March to October 2010 is to be seen in light of his personal circumstances. These circumstances do not entirely excuse Mr Pritchard’s failure to defend the proceedings, but they do provide an explanation.
Further, insofar as in submissions the applicant contended that after 25 August 2010 (when Mr Pritchard’s lawyer withdrew) the solicitor for the applicant wrote to Mr Pritchard on “numerous occasions” informing him of the proceedings and the urgency of the matter, there is no evidence before the court of such correspondence other than the letter of 22 October 2010 serving Mr Pritchard with the application in a case which had been filed on 7 October 2010 and was listed for hearing on 29 October 2010.
In all the circumstances, notwithstanding that it would have been open to, and should have been open to Mr Pritchard to file a defence at some stage prior to 29 October 2010, I am of the view that he has provided an explanation regarding his failure to deal with the proceedings up to and including the time of the default judgment that is satisfactory for the purposes of this application when seen in conjunction with all the other circumstances.
It is also relevant to consider any delay in making the application to set aside the default judgment and any explanation for that delay. The applicant submitted that Mr Pritchard waited nine months before bringing the current proceedings, during which time he was said to be aware that Ms Postorino had obtained a judgment and was seeking to enforce the orders made on 29 October 2010. It was also claimed that since the entry of the judgment of 29 October 2010 the applicant had spent over $15,000 in enforcing these orders. (This presumably is a reference to the fact that a bankruptcy notice has been issued and creditor’s petition presented although there is no evidence before the court as to the actual costs incurred by Ms Postorino).
The applicant also submitted that to allow Mr Pritchard to agitate the original proceedings now would require Ms Postorino to expend more money in having prepared a case against him, in effect doubling up on the work already undertaken. It was submitted that Mr Pritchard was willing and able to attend to his business affairs throughout the period the proceedings were being pursued and the judgment being enforced, that he had failed to respond to the orders made against him or to the subsequent attempt to enforce those orders, and that he could not satisfy the court as to the reasons for the delay in making his application to set aside the judgment. It was submitted that to allow him to do so would be unfairly prejudicial to the applicant in circumstances where Mr Pritchard was said not to have shown good cause for the delay.
It has not been established that Mr Pritchard was made aware of the default judgment in October 2010. On his evidence, Mr Pritchard became aware of the judgment in March 2011 when he commenced attending to his financial affairs after his wife’s death and became aware of the bankruptcy notice served in February 2011 to which a copy of the judgment was annexed. He did not immediately take action to have the judgment set aside. His application in a case was not filed until 22 July 2011. His travel to the United States in May/June 2011 does not provide an explanation for the whole of this period. Nonetheless, while an entirely satisfactory explanation has not been provided for the whole of this period, this has to be seen in light of whether there is any prejudice to the applicant. It is apparent that while the substantive proceedings are ongoing they have not even progressed to the point of evidence being served. The applicant has filed and served a Further Amended Statement of Claim and Further Amended Application which includes her claims against the second respondent. It is not apparent that the applicant would have to expend more money in having to prepare the case against the second respondent such as to, in effect, double up on the work already undertaken, as was submitted.
Insofar as Ms Postorino may have incurred any prejudice consisting of incurring expense, it has not been established that any such prejudice cannot adequately be compensated by an order for costs. This is not a case in which it can be said that a lengthy period of time has been lost by reason of the default of Mr Pritchard. In fact the ultimate disposition of the substantive proceedings appears to have been delayed by other factors concerning the state of the proceedings between the applicant and the first respondent. In these circumstances issues as to court administration and efficiencies do not arise for consideration in the same way that they might in other circumstances (and see Davies v Pagett). Ms Postorino has not demonstrated any particular prejudice by reason of the delay in relation to finalisation of the proceedings.
I have borne in mind that Mr Pritchard was in default and that there was a delay in bringing these proceedings. In all the circumstances however, Mr Pritchard’s default and delay in making the application to set aside the default judgment is not such as to preclude him from obtaining relief, bearing in mind in mind that he has a prima facie defence on the merits and that, whether or not there are technical irregularities in the judgment in the sense in which that expression is used in the Uniform Civil Procedure Rules (see Arnold v Forsythe), there are issues about the applicant’s apparent entitlement to default judgment in the amount obtained.
In all of the circumstances I am satisfied that in the interests of justice the default judgment should be set aside.
I will hear the parties as to costs.
I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of Barnes FM
Date: 24 April 2012
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