Stewart Architecture Pty Ltd v Little Penguins Group Pty
[2023] ACTMC 8
•28 March 2023
MAGISTRATES COURT OF THE AUSTRALIAN CAPITAL TERRITORY
| Case Title: | Stewart Architecture Pty Ltd v Little Penguins Group Pty Limited |
| Citation: | [2023] ACTMC 8 |
| Hearing Date: | 22 February 2023 |
| DecisionDate: | 28 March 2023 |
| Before: | Magistrate Temby |
| Decision: | See [114]. |
| Catchwords: | PRACTICE AND PROCEDURE – application to set aside default judgment– costs - whether ‘general rule’ should apply that party seeking to set aside default judgment should pay the costs of the other party – where default judgment was irregular – where plaintiff did not give notice of intention to apply for default judgment – default judgment set aside - plaintiffs to pay defendant’s costs of the application. |
| Legislation Cited: | Corporations Act 2001 (CTH) s 109X |
| Cases Cited: | Bektas & Anor v M and D Investments (ACT) Pty Ltd [2019] ACTMC 35 |
| Texts Cited: | Practice Direction No.2 of 2014 |
| Parties: | Stewart Architecture Pty Ltd (ACN 167 765 826) ( Applicant) Little Penguins Group Pty Limited (ACN 635 126 260) ( Respondent) |
| Representation: | Counsel |
| Solicitors Adero Law ( Plaintiff) Harrington Hall Lawyers ( Respondent) | |
| File Number: | CS 178/2022 |
MAGISTRATE TEMBY:
Introduction
The application for determination
1․The application for determination by the court is an application brought by the Defendant, under rule 1128 of the Court Procedures Rules 2006 (ACT) (the Rules), to set aside a default judgment that the Plaintiff obtained on 10 January 2023 and for a costs order in its favour. The Defendant’s application was filed on 9 February 2023.
2․The application was listed for hearing on 22 February 2023. By that time, the Plaintiff had provided its consent for the default judgment to be set aside, and argument before me was directed to the question of costs.
3․For the reasons set out below, the default judgment is set aside, and the Plaintiff is to pay the Defendant’s costs relating to the Defendant’s application to set aside the default judgment.
The substantive proceedings - the Plaintiff’s claim against the Defendant
4․On 18 November 2022, the Plaintiff filed an originating claim and statement of claim.
5․In paragraphs 1 and 4 of the statement of claim, the Plaintiff makes a claim for $124,587.50, plus costs, arising from the Defendant’s alleged breach of contract.
6․In paragraphs 11 to 27 of the statement of claim, the Plaintiff asserts that it is entitled to be paid for certain architectural works it carried out at the request, and for the benefit, of the Defendant, between approximately 26 May 2021 and 24 September 2021.
7․Paragraphs 17 to 20 of the statement of claim make clear that the figure of $124,587.50 has been calculated by subtracting, from a fee proposal that the Plaintiff submitted for the relevant work ($173,250, inclusive of GST), amounts paid by the Defendant ($8,662.50 paid by 17 November 2021, and $40,000 paid on 17 November 2021).
8․The statement of claim identifies in paragraph 21 that, on 3 June 2022, the Defendant denied that the Plaintiff had provided any value to the development to which the architectural works related. The statement of claim identifies in paragraph 26 that, on 10 October 2022, the Defendant denied owing any amount to the Plaintiff.
9․In paragraphs 24 to 42 of the statement of claim, the Plaintiff sets out the reasons why it says the Defendant is obliged to pay it for the services it rendered to the Defendant.
10․Both the originating claim and the statement of claim identify that the Plaintiff was represented by Adero Law and that the Defendant’s electronic address for service was ‘[email protected]’. It was explained by the Plaintiff’s solicitor, at the hearing of the Defendant’s application, that Adero Law and Nelson & Hill Lawyers had merged in September 2022.
11․The originating claim identified that Nathan Kuster had been appointed as the Plaintiff’s representative in the proceeding.
Default judgment
12․On 23 December 2022, the Plaintiff applied for default judgment, arising from the Defendant’s failure to file a notice of intention to respond or a defence within the time permitted by rule 102 of the Rules.
13․The draft default judgment set out the following proposed orders:
The plaintiff recovers against the defendant $124,587.50 together with –
(a)interest of $1,672.03; and
(b)costs as agreed or assessed.
14․An affidavit filed by the Plaintiff in support of its application for default judgment, being an affidavit affirmed by Qianli Guo on 22 December 2022, asserted that the Plaintiff was entitled to:
(a)the amount owing, being $124,587.50;
(b)past interest in the amount of $1,672.03;
(c)costs in the amount of $10,343; and
(d)future interest at the rate of $16.55 per day until the date of judgment.
15․On 23 December 2022, a Deputy Registrar of the court wrote to Adero Law, stating that default judgment could not be processed because the amount that the Plaintiff was entitled to claim for costs was, according to the relevant scale of professional costs, $1,975.
16․On 9 January 2023, the Defendant filed a second draft default judgment. The second draft default judgment set out the following proposed orders:
The plaintiff recovers against the defendant $124,587.50 together with –
(a)interest of $1,970.02; and
(b)costs as agreed or assessed.
17․An affidavit filed by the Plaintiff in support of its application for default judgment, as pursued through the second draft default judgment, being an affidavit affirmed by Qianli Guo on 9 January 2023, asserted that the Plaintiff was entitled to:
(a)the amount owing, being $124,587.50;
(b)past interest in the amount of $1,970.02;
(c)costs as agreed or assessed; and
(d)future interest at the rate of $16.55 per day until the date of judgment.
18․On 10 January 2023, the court entered default judgment for the Plaintiff, against the Defendant, in the terms sought by the second draft default judgment.
Defendant’s application
19․On 9 February 2023, the Defendant filed an application in proceeding, seeking the following orders (verbatim):
(a)The default judgment dated 9 January 2023 is set aside.
(b)The plaintiff is to pay the defendants costs of and caused by the default judgment, including this Application.
(c)The plaintiff is to file and serve answers to the defendant’s request for further and better particulars dated 20 December 2022 within 14 days of these orders.
(d)The defendant is to file and serve a defence within 28 days of receipt of the plaintiff’s filed answers in order 3.
(e)The matter be listed for first directions hearing on a date that the Court considers appropriate.
(f)Any other orders that the Court considers appropriate.
20․The Defendant seeks the above orders on the following grounds (verbatim):
(a)The plaintiff and defendant were in dispute about the debt the subject of these proceedings between June 2022 and November 2022.
(b)On or about 18 November 2022 Adero Law commenced proceedings on behalf of the plaintiff by way of Originating Claim and Statement of Claim. An address for service by email was provided as:
(c)Under letter dated 23 November 2022, Nelson & Hill Lawyers posted the Originating Claim and Statement of Claim to the defendant’s registered office.
(d)On 20 December 2022, the defendant’s solicitors filed a Notice of Appointment of Solicitor with the court.
(e)On 20 December 2022, the defendant’s solicitors served the Notice of Appointment of Solicitor at the email [email protected], with a letter dated 20 December 2022, requesting further and better particulars of the Statement of Claim, expressed to be with the intention of file a defence to the claim.
(f)On 25 January 2023, Nelson & Hill Lawyers sent a letter to the defendant serving a default judgment dated 9 January 2023 and demanding payment within 28 days.
(g)No notice was provided to the defendant or defendant’s solicitors that there would be an application for default judgment.
(h)The default judgment is irregular as:
(i)There was no default at the time of the application for default judgment.
(ii)Interest has been awarded despite that not being pleaded.
(i)Further, and in the alternative, the default judgment should be set aside as:
(i)There is a genuine dispute and a bona fide defence being expressed by the defendant;
(ii)There has been no undue delay; and
(iii)The plaintiff’s solicitors failed to respond to the request for particulars, failed to grant the further time that was requested pending the provision of those particulars and failed to deal with solicitors on the record for the defendant.
21․The Defendant’s application was heard by the court on 22 February 2023. The Plaintiff was represented by Mr Guo, of Adero Law, and the Defendant was represented by Mr Robens, instructed by Harrington Hall Lawyers.
Evidence and findings of fact
22․The following affidavits were read at the hearing, without objection:
(a)Affidavit of Qianli Guo, affirmed 22 December 2022 (although bearing the date of 20 December 2022).
(b)Affidavit of Qianli Guo, also affirmed 22 December 2022.
(c)Affidavit of Zahrrah Zekrya, affirmed on 31 January 2023.
(d)Affidavit of James Anthony Hall, affirmed on 8 February 2023.
(e)Affidavit of Minh Pham, affirmed on 9 February 2023.
(f)Affidavit of Nathan Joseph Alexander Kuster, affirmed 17 February 2023.
23․Mr Guo is a solicitor employed by Adero Law.
24․Ms Zekrya was a solicitor employed by Harrington Hall Lawyers.
25․Mr Hall is a partner at Harrington Hall Lawyers.
26․Mr Phan is the sole director of the Defendant.
27․Mr Kuster is a principal at Adero Law and Nelson & Hill Lawyers.
28․There is little contest between the parties regarding the chronology of events which emerges from the above evidence, which I have set out below. I have noted where I have made findings which are not a direct recitation of the events set out in the affidavit evidence.
Chronology of events
29․In or around May 2021, the Plaintiff rendered architectural services for a property development being pursued by the Defendant, of a commercial complex in Wright, in the Australian Capital Territory. However, the Defendant considered that the Plaintiff had failed to deliver a satisfactory architectural result and engaged alternative architects before obtaining development approval for the complex.
30․On 3 June 2022, Mr Phan sent an email to the Plaintiff, seeking to resolve a dispute that had arisen between the Plaintiff and the Defendant regarding payment for the Plaintiff’s services.
31․On 8 October 2022, Nelson & Hill Lawyers (Mr Kuster) emailed a letter to Mr Phan demanding payment of the amount ($124,587.50) which the Plaintiff claimed was owed to it, within 14 days. While this would have been 22 October 2022, the letter said that it was due on or before close of business on 4 November 2022. Nelson & Hill Lawyers foreshadowed the commencement of legal proceedings if the demand was not met.
32․Mr Phan responded by email on 10 October 2022, denying that the Defendant had entered into a contract with the Plaintiff, noting that Mr Phan had written to the Plaintiff (Marcus Graham) on 27 June 2022 setting out why Mr Phan considered that the Plaintiff was not entitled to any further payments and providing further explanation as to Mr Phan’s view that the Plaintiff had not provided any value to the Defendant. Mr Phan asserted that the plans produced by the Plaintiff were not fit for the stated purpose. Mr Phan concluded the email by stating: ‘Please consult with your client to obtain accurate details about this work. We will engage in response, to show the deficiencies in your client’s work and the costs that were subsequently incurred, if your client presses for payment’.
33․Mr Kuster responded on 27 October 2022, refuting the assertions made in Mr Phan’s email and attaching a chronology which Mr Kuster stated showed that Mr Phan could not maintain the position he had expressed. Mr Kuster stated that the Plaintiff required the Defendant to make payment by close of business on 4 November 2022, after which time the Plaintiff reserved the right to commence proceedings.
34․On 18 November 2022, the Defendant filed its originating claim and statement of claim.
35․On 23 November 2022, Mr Guo sent a sealed copy of the originating claim and statement of claim to:
(a)the Defendant, addressed to Mr Phan, at RSM, Equinox Building 4, Level 2, 70 Kent Street, Deakin, in the Australian Capital Territory. This was the Defendant’s registered office address as at 16 November 2022 and at 15 December 2022; and
(b)Mr Phan, at his Little Penguins email address.
36․There is evidence before the Court that the originating claim and statement of claim were served under the cover of a letter dated 23 November 2022, however the letter itself is not in evidence. The email to Mr Phan merely stated that the originating claim and statement of claim were enclosed by way of service (purportedly in Mr Phan’s capacity as a director of the Defendant) and that a hard copy of those documents would be served by post to the Defendant’s registered address.
37․The envelope posted to the Defendant was delivered on 24 November 2022.
38․Pursuant to s 109X(1)(a) of the Corporations Act 2001 (CTH), a document may be served on a company by posting it to the company’s registered office. As there is no suggestion that the Defendant’s registered address changed between 16 November 2022 and 24 November 2022 (and given that the Defendant’s registered address remained the same as at 15 December 2022), I find that the Defendant was served with a copy of the originating claim and statement of claim on 24 November 2022 when the hard copy of the claim was delivered by post. While Mr Guo submitted at the hearing that service had been effected by email on 23 November 2022, he did not identify any basis upon which the Plaintiff could properly serve the originating claim and statement of claim by email on Mr Phan and I find that service was not effected on that date.
39․On 20 December 2022, the Defendant filed a Notice of appointment of solicitor, appointing Mr Hall to act for it in the proceeding.
40․Also on 20 December 2022, Zahrrah Zekrya, of Harrington Hall Lawyers, emailed a copy of the Notice of appointment of solicitor to Mr Kuster, at [email protected]. As this was the Plaintiff’s electronic address for service, and as Ms Zekrya attests in paragraph 5 of her affidavit that she ‘did not receive any ‘bounce back’ email to say the email address was not correct or not active nor any automatic reply such as an ‘out of office’ notice’, I find that the Notice of appointment of solicitor was properly served by the Defendant on 20 December 2022.
41․That email also attached a letter of the same date which:
(a)sought the Plaintiff’s compliance with paragraph 5 of the court’s Practice Direction No.2 of 2014, ‘Case Management in proceeding commenced by Originating Claim’;
(b)requested that certain particulars be provided of the Statement of Claim within 14 days;
(c)foreshadowed that, upon receipt of the requested particulars, the Defendant anticipated being in a position to file a defence within 28 days; and
(d)stated that Harrington Hall ‘trust that no adverse action will be taken against our client in the meantime’.
42․In paragraph 13 of Mr Kuster’s affidavit, affirmed on 17 February 2023, he states that he has searched the entire contents of the ‘[email protected]’ email (which I take to mean mailbox) and did not locate any correspondence received from Zahrrah Zekrya of Harrington Hall on 20 December 2022. There is no evidence before the court to explain why this was so. However, for the same reasons as I found that the Defendant has properly served its Notice of appointment on Mr Kuster, I find that the covering letter was also correctly sent to the Plaintiff’s electronic address for service.
43․Whether the email was lost through human error or was lost through some mechanical issue in the Nelson & Hill Lawyers email system is unclear. Whatever the explanation, the issue was not one of the Defendant’s making.
44․On 20 December 2022, Mr Guo prepared an affidavit in support of the Plaintiff’s (then proposed) application for default judgment, attesting to the service of the originating claim and statement of claim on the Defendant. Mr Guo confirmed at the hearing of the application that while this affidavit retained the date of 20 December 2022 in its affirmed form, it was in fact affirmed on 22 December 2022.
45․Pursuant to rule 102(1)(a) of the Rules, the Defendant had until the end of 22 December 2022 to file a Notice of intention to respond or a defence.
46․On 22 December 2022, Mr Kuster identified that it had been 28 days since service of the Plaintiff’s originating claim and statement of claim on the Defendant and he instructed Mr Guo to attend court to check Adero Law’s court box, which Mr Guo did. Mr Guo reported that there was nothing in Adero Law’s court box. Mr Kuster formed the view that the Defendant was in default.
47․On 22 December 2022, Mr Guo affirmed a further affidavit in support of the Plaintiff’s (still then proposed) application for default judgment. As noted earlier in these reasons, Mr Guo asserted in this affidavit that the Plaintiff was entitled to interest on the amount said to be owing by the Defendant. As interest had not been sought in the statement of claim, I find that Mr Guo’s assertion was incorrect.
48․On 23 December 2022, the Plaintiff applied for default judgment by filing a draft default judgment and supporting affidavits. It was not required by the Rules to file an application in proceedings. The Plaintiff did not provide the Defendant with any notice of its intention to file for default judgment.
49․On 23 December 2022, a Deputy Registrar of the court wrote to Adero Law, stating that default judgment could not be processed because of an apparent irregularity in the sum claimed by the Plaintiff for costs.
50․On 9 January 2023, the Defendant filed a second draft default judgment. As noted earlier in these reasons, this draft judgment asserted that the Plaintiff was entitled to:
(a)past interest in the amount of $1,970.02; and
(b)future interest at the rate of $16.55 per day until the date of judgment.
51․As interest had not been sought in the statement of claim, I find that the Plaintiff’s assertion that it was entitled to interest on default judgment (and as to the sum of interest to which it was entitled) was incorrect, and led the court into error.
52․On 10 January 2023, the court entered default judgment for the Plaintiff, against the Defendant, in the terms sought by the second draft default judgment, including an order that the Defendant pay the Plaintiff an amount ($1,970.02) for interest.
53․On 25 January 2023, Nelson & Hill Lawyers wrote to the Defendant at its registered office address, serving a copy of the default judgment and demanding payment within 28 days. The letter identifies Mr Kuster as its author, however he attests to having caused Mr Guo to serve the default judgment on the Defendant. The letter noted that the Defendant could apply to the court to have the default judgment set aside. The letter stated that it was sent by email, although it is not clear to what address. In any event, the letter was received by the Defendant on or before 30 January 2023.
54․On 30 January 2023, Mr Hall sent an email to Mr Kuster at [email protected], copied to [email protected], noting that Harington Hall had not had any response to their letter of 20 December 2022 and noting that the Plaintiff had applied for default judgment ‘despite particulars being outstanding and our being on the record since 20 December 2022’. The email also stated that if ‘adverse steps are taken, we will seek costs of any resulting applications noting we are on the record and have advised of our intention to defend the matter’.
55․On 31 January 2023, Mr Guo responded to Mr Hall’s email, by way of letter sent by email. The letter asserted that the default judgment had been entered in accordance with the Rules, and that the Plaintiff’s failure to comply with paragraph 5 of Practice Direction No.2 of 2014 did not affect the validity of the default judgment, but that the Plaintiff ‘would agree to set aside the Default Judgment provided that your client agrees to pay our client’s legal costs to date’.
56․Harrington Hall responded on 1 February 2023, raising issues regarding service of the originating claim, the fact that Harrington Hall had not received a response to its letter of 20 December 2022 and the related fact that Adero Law had served the default judgment directly on the Defendant, rather than being provided to Harrington Hall.
57․Paragraphs 9 to 13 of Harrington Hall’s letter of 1 February 2023 are of particular relevance to its present application, and are set out below in full:
[9] You should also have been aware of the correspondence directly between our clients between June and October 2022 during which our client raised many defences and disputed your client’s claim. In all circumstances it should have been apparent to you that our client did intend to defend the claim and was not just disregarding the need to file a defence.
[10] You should be aware of the authorities that require parties to provide further time, and engage with requests for particulars, rather than ignoring them as you have done and proceeding directly to judgment.
[11] You have acted contrary to the Rules, the authorities and the established courtesy between practitioners, by applying for the default judgment. As such, our client should be entitled to receive an order that its costs associated with the default judgment be paid by either your client or by your office.
[12] Kindly respond by 4:00pm tomorrow, 2 February 2023, indicating your consent to the following orders:
a. The default judgment entered and dated 9 January 2023 is set aside.
b. The plaintiff is to pay the defendant’s costs incurred in response to the default judgment.
[13] We look forward to your prompt response. Failing a positive response, we will file an application and seek an order for cots on an indemnity basis as it should be plain that you have not acted appropriately. We will seek an order that your office pay the costs given it seems to be your conduct that has incurred the costs.
58․By letter dated 1 February 2023 (sent by email), Adero Law responded to the above correspondence, disputing the Defendant’s position regarding service of the originating application and statement of claim and disputing that Harrington Hall’s letter of 20 December was successfully delivered. Adero Law asserted that the Defendant’s notice of appointment of solicitor was not successfully served on the Plaintiff until 30 January 2023 and, regardless of the 20 December 2022 correspondence and regardless of the parties’ discussions between June and October 2022, the Defendant had an obligation to file a notice of intention to respond or a defence in accordance with rule 102 of the Rules to avoid default judgment, before requesting further particulars from the Plaintiff. Adero Law stated that they did not agree that the Defendant should be entitled to recover costs from the Plaintiff in relation to the default judgment and repeated Adero Law’s position that they ‘would agree to set aside the default judgment only if the Defendant agrees to pay our client’s legal costs to date’.
59․As noted earlier in these reasons, I find that Harrington Hall did properly serve the Defendant’s Notice of appointment on 20 December 2023. Nevertheless, having regard to:
(a)the evidence given by Mr Kuster that he was unable, from a search of the relevant mailbox, to find the email serving the notice; and
(b)the fact that Nelson & Hill Lawyers served the default judgment directly on the Defendant (which Mr Kuster and Mr Guo would have known was not permitted if they had known that the Defendant was represented: rule 33 of the Legal Profession (Solicitors) Conduct Rules 2015),
I find that Mr Kuster was unaware of Harrington Hall’s email and letter of 20 December 2022 until 30 January 2023.
60․On 9 February 2023, the Defendant filed an application in proceeding, seeking that the default judgment obtained by the Plaintiff be set aside (amongst other orders).
61․As noted earlier in these reasons, the Defendant’s application was heard by the court on 22 February 2023. By that time, the Plaintiff conceded that an order should be made, setting aside the default judgment, albeit that the Plaintiff’s concession was made ‘based on a defence on the merits’ (being the alternative position expressed in the Defendant’s application), rather than on any concession that the default judgment was irregular (the Defendant’s primary position).
62․Accordingly, the only substantive issue in contest at the hearing was the nature of the costs order that the court should make. The Defendant submitted that the Plaintiff should pay its costs of the application, and the Plaintiff submitted that the Defendant should pay its costs thrown away as a result of the default judgment process.
Parties’ submissions
Defendant’s submissions
63․The Defendant submitted that the Plaintiff’s solicitors have not acted reasonably in the proceedings. The Defendant:
(a)points to the fact that the Defendant’s solicitors proceeded to default judgment on 23 December 2022, just before Christmas:
(i)despite knowing (from dealings with the Defendant’s director prior to the commencement of proceedings) that the Defendant disputed the Plaintiff’s claim;
(ii)without giving any notice to the Defendant’s director (something that the Defendant says was even more important than it might otherwise have been, given that it was just before Christmas, being a time when it is busy and things might be missed); and
(iii)despite the Defendant’s solicitors having filed a notice of appointment and serving that document, together with a request for particulars, on the Plaintiff’s solicitors on 20 December 2022; and
(b)submits that the Plaintiff’s solicitors acted unreasonably:
(i)by demanding, in exchange for giving the Plaintiff’s consent to having the default judgment set aside, that the Defendant pay all of its costs to that time, in circumstances where:
1.it should have been apparent to the Plaintiff’s solicitors that the default judgment was irregular (including because the Plaintiff sought, and the court awarded, interest in the default judgment, in circumstances where the originating claim had not sought interest); and
2.the Plaintiff could never have been entitled to all of its costs to date, given that costs incurred prior to the preparation of the default judgment (for example, taking instructions and drawing the statement of claim) are not costs thrown away as a result of the default judgment process; and
(ii)by not seeking to work collaboratively with the Defendant’s solicitors (but, rather, taking an ‘obstructive’ approach) once the Defendant’s solicitors brought to Mr Kuster’s attention (on 30 January 2023) the fact that the Defendant’s solicitors had written to Mr Kuster on 20 December 2022 with a request for further particulars of the Plaintiff’s claim and a request that no adverse action be taken against the Defendant.
Plaintiff’s submissions
64․The Plaintiff submits that:
(a)a reasonable response to the Plaintiff’s statement of claim and originating claim would have been to file a notice of intention to respond, before sending a letter requesting better particulars;
(b)the Defendant’s solicitors should have been aware that the deadline for filing the notice of intention to respond was 21 December 2022 (albeit noting that I have found that the deadline was 22 December 2022), and by sending the request for particulars on 20 December 2022, the Defendant’s solicitors were acting strategically;
(c)the failure on the Plaintiff’s part to give notice of its intention to file for default judgment did not make entry of the judgment irregular; and
(d)the irregularities (unidentified) do not cause any injustice or difficulty for the Defendant to file a notice of intention to respond or defence in accordance with the Rules and therefore do not form a ground to set aside the default judgment.
Defendant’s reply submissions
65․In response to the last of these submissions, the Defendant submitted (on an understanding that the relevant injustice is in the default judgment being taken out) that the Defendant had suffered an injustice, given that:
(a)interest had been awarded on the default judgment that hadn’t been claimed in the originating claim; and
(b)the Defendant was not able to defend a claim in relation to which it was clear it had raised defences.
Consideration
The Rules
66․As noted earlier in these reasons, under rule 102(1)(a) of the Rules, the Defendant was required to file a defence to the Plaintiff’s claim within 28 days of service of the Plaintiff’s claim. Its failure to file a defence, or a notice of intention to respond, to the Plaintiff’s claim, meant that it was in default at the end of that period, being 22 December 2022 (rule 1117(1)(a)(i)).
67․Once the defendant was in default, the Plaintiff was entitled to apply for default judgment (rule 1118(1)(a)), as it did on 23 December 2022. As the Plaintiff’s claim was one for a liquidated demand, the Plaintiff’s application for default judgment was governed by rules 1118 to 1120. Under rules 1118(3) and 1119, the Plaintiff was required to file a draft default judgment accompanied by an affidavit of service and an affidavit in support of the application for default judgment. The Plaintiff’s application comprised these three documents.
68․Under rule 1118(5), the Plaintiff was not required to serve a copy of the default judgment and relevant affidavits on the Defendant. The court could have ordered it to do so, but that was not done in this case.
69․Under rule 1120, the affidavit in support of the Plaintiff’s application was required to identify, and the court could enter default judgment for:
(a)the amount claimed; and
(b)if interest and/or costs were claimed, an amount for interest and costs.
70․The reference in rule 1120 to the ‘amount’, and to ‘interest’ and ‘costs’, ‘claimed’, refers to the amount claimed, and whether interests and/or costs were claimed, in the Plaintiff’s statement of claim. The application for default judgment cannot expand the Plaintiff’s claim.
71․Relevantly, the Plaintiff’s statement of claim stated an amount that was claimed ($124,587.50), stated that costs were sought, but did not state that interest was claimed. Had interest been claimed, the Plaintiff would have been required to comply with rule 51(2), which requires, for a debt or liquidated demand, that the period or periods for which interest is claimed be specified in the statement of claim.
72․As noted earlier in these reasons, the Plaintiff’s affidavits in support of its application for default judgment (both in support of the draft judgment filed on 23 December 2022 and in support of the draft judgment filed on 9 January 2023) stated an amount for interest, despite interest not having been claimed in the Plaintiff’s statement of claim. Accordingly, the default judgment that was entered by the court on 10 January 2023, which included an amount for interest ($1,970.02), was entered irregularly.
73․The Plaintiff served the default judgment on the Plaintiff at some point in the period 25 January to 30 January 2023.
74․Under rule 1128, the court may amend or set aside a default judgment. The court’s order may include an order in relation to costs. The Defendant’s application for an order under rule 1128 was filed on 9 February 2023. The Defendant seeks its costs of and caused by the default judgment, including its costs of the application to set aside the default judgment. The Plaintiff seeks its costs of responding to that application.
Relevant principles
75․In support of their submissions, the Defendant’s relied on the decision of:
(a)Master Mossop (as his Honour then was) in Stormer Building Group Pty Ltd v Graham Michael Johnson and Jasminka Mary Johnson [2014] ACTSC 23 (Stormer); and
(b)Harvey J, of the NSW Supreme Court, in Bushby v Mackenzie (1919) 19 SR (NSW) 104 (Bushby).
76․The Plaintiff relied on the decision of:
(a)Special Magistrate McCarthy in Bektas & Anor v M and D Investments (ACT) Pty Ltd [2019] ACTMC 35 (Bektas);
(b)the Western Australian Supreme Court, Court of Appeal, in Starrs v Retravision (WA)Ltd [2012] WASCA 67 (Starrs);
(c)Refshauge J, of the ACT Supreme Court, in Ezekiel-Hart v Law Society of the Australian Capital Territory, Reis, King and Barnett [2012] ACTSC 103 (Ezekiel-Hart (2012)); and
(d)Master Mossop in Stormer.
77․I have also had regard to the decision of:
(a)Holt AsJ, of the Supreme Court of Tasmania, in French v McKenna (No 2) [2012] TASSC 8 (French v McKenna);
(b)the Queensland Supreme Court, Court of Appeal, in Cusack v De Angelis [2007] QCA 313 (Cusack);
(c)Bongiorno J, of the Victorian Supreme Court, in French v Triple M Melbourne Pty Ltd [2006] VSC 36 (French v Triple M);
(d)Higgins J, of the ACT Supreme Court, in St George Bank Limited v Ronald Paul O’Reilly [1999] ACTSC 21 (St George Bank); and
(e)Kearney J, of the Northern Territory Supreme Court, in Hogg v Isherwood-Hicks [1992] NTSC 41 (Hogg).
78․A default judgment may be set aside, either on:
(a)the basis that it has been obtained irregularly; or
(b)discretionary grounds.
Irregularity in obtaining default judgment
79․The cases I have reviewed suggested that irregularity, as that term is used in relation to default judgments, traditionally refers to a failure to comply with the rules of court relating to the entering of default judgments (Cusack at [37]), however there are several decisions which accept that a judgment entered for more than the amount due is irregular (Starrs at [44]; Cusack at [38]). Higgins J, in St George Bank, suggested that a default judgment signed in breach of good faith might also be set aside as having been entered irregularly (at [28]), however the court in Starrs indicated that default judgment entered as a result of unreasonable behaviour on the part of the plaintiff’s solicitors would not normally be described as irregular for that reason alone (at [40], [43]).
80․If a default judgment is obtained irregularly, the usual order is that the default judgment be set aside. However, not every irregularity in the means by which a judgment in default is obtained will necessarily entitle a defendant to have the judgment set aside as of right (Starrs at [36], citing ACN 076 676 438 Pty Ltd (In Liq) v A-Comms Teledata Pty Ltd [2000] WASC 214; Bektas at [49], [51], referring to Australia & New Zealand Banking Group Ltd v Kostovski (Supreme Court of Victoria, Chernov J, 2 July 1997) and Cusack v Angelis [2007] QCA 313). The key question will be whether the irregularity caused the defendant any injustice (Bektas, citing Sargent v Veneris (Supreme Court of Victoria, Beach J, 20 December 1995) and Commonwealth Bank of Australia v Buffet (1993) 114 ALR 245 per Morling J).
81․Further, a court may amend an irregularly entered judgment, rather than setting it aside, in an appropriate case, including to vary the amount of a default judgment by reducing it to the proper amount (Starrs at [36] and [46] – [47]; Cusack at [11], [31]). In this respect, unless the defendant has a defence to a plaintiff’s claim, it would be futile to set aside the judgment rather than substituting the amount in fact owing (Starrs at [48]; Cusack at [34] – [36]). Of note, in Starrs and in Cusack, the plaintiffs had sought a variation of the default judgment to ensure that it did not exceed the amount owing. In Cusack, at [33], Muir JA noted the remarks of Buckley LJ in Muir v Jenks [1913] 2 KB 412 (CA) at 417, with apparent approval, that ‘unless the party who holds the judgment elects to have it put right, then upon the authority of Hughes v Justin it seems to me the defendant is entitled to say ‘this is a wrong judgment, set it aside’’.
Principles relevant to an application to set aside a default judgment on discretionary grounds
82․The considerations to which a court must have regard, in considering an application to set aside a default judgment on discretionary grounds are (taken from Stormer at [11], citing Ryan v Adams (1993) 112 FLR 474 at 476 and Davies v Pagett (1986) 10 FCR 226):
(a)the length of the delay between the time for delivery of defence and the date of the default judgment – as to which, the giving of a notice of intention to apply for judgment may be a relevant factor;
(b)the length of delay between the entering of default judgment and the application to set it aside;
(c)the reasons for such delay – the defendant’s own contribution to the delay, as contrasted with the delay caused by its legal advisers, may fall for consideration;
(d)the evidence as to whether or not the defendant may have a defence – the probability of a successful defence need not be demonstrated, however, and the fact that a defendant’s case may appear weak will seldom be a bar to the court setting aside a default judgment; and
(e)whether the plaintiff will be prejudiced by setting aside the judgment (beyond merely losing the forensic benefit of having an enforceable judgment of the court), the nature of the prejudice being such that it cannot adequately be compensated by an order for costs.
83․As to the question whether the defendant may have a defence, and despite the position described above, several cases suggest that, as a general rule, a judgment regularly entered will not be set aside unless the defendant has a defence on the merits (Starrs, citing Palmer v Prince [1980] WAR 61; Evans v Bartlam [1937] AC 473).
Applying for default judgment without warning
84․Where a Plaintiff applies for default judgment without giving warning of its intention to do so, this would tend in favour of setting aside the default judgment if a defence on the merits is disclosed (Stormer at [12], [23], referring to Ezekiel-Hart (2012), which in turn cited Pope v Aberdeen Transport Co Pty Ltd [1965] NSWR 1550 per Wallace J).
85․In some circumstances, applying for default judgment without warning may mean that the plaintiff’s solicitors have acted unreasonably. In this respect, the cases make clear that unreasonable behaviour on the part of the plaintiff’s solicitors may warrant, or at least be a factor in favour of, setting aside default judgment (Starrs at [38] – [43], citing Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [2009] WASC 10; St George Bank Ltd v O’Reilly [1999] ACTSC 21; and French v Triple M Melbourne Pty Ltd [2006] VSC 36).
86․As Kearney J said in Hogg, at [12]:
where, as here, a solicitor has entered an appearance, the practice of “snapping on” a default judgment, without notice, immediately upon the expiration of the period prescribed by the rules, should be strongly deprecated. It serves no useful purpose. It increases the cost of litigation unnecessarily.
87․Similarly, in French v Triple M, Bongiorno J said at [23]:
In the circumstances of this case, the entry of a default judgment at the earliest possible opportunity without warning against parties known to the plaintiff’s solicitor to be represented constituted a precipitate and unwarranted, if nonetheless legal, attempt to advance his client’s case by taking advantage of what any reasonable and experienced solicitor should have realised was an oversight or perhaps several oversights by the defendants and their legal advisors. It would be contrary to justice for this Court to allow this tactic to be successful by refusing to set aside the judgment entered by default. Litigation is not a steeple chase nor even a bike race where a fall can determine the outcome.
88․In St George Bank, Higgins J commented, at [31] – [34], in relation to the filing of a default judgment despite a request from the defendant for particulars and further time to file a defence:
[31] It was open to him [the plaintiff’s solicitor] in replying to the request for particulars to have declined further to extend time for filing a defence. It was not open to him, however, to simply ignore Mr Helman’s request for an extension of time. That would have been both unreasonable and contrary to the usual expectation which Mr Helman was entitled to entertain, that his request, even if not acceded to, would be declined with sufficient notice to enable him to apply for an extension of time without his client having to first suffer judgment …
[32] It was not inappropriate for Mr Price in responding to Mr Helman as he did, to decline the extension of time Mr Helman had sought. However, the notice he gave was quite unreasonably short.
[33] He gave Mr Helman, effectively, only until 10.00 am the next day to be first at the registry with an application either to extend time to file a defence, or to be supplied with further particulars pending filing a defence, as the case might be. Even had the notice been slightly longer, less than twenty-four hours would still have been unreasonable. [34] It was for that reason that I ordered the default judgment entered on 12 January 1999 set aside. It was, in my view, entered in breach of the usual standards of practice between solicitors and, in that sense, in breach of the requirement of good faith.
89․I note that the cases considered above all concerned circumstances in which the Defendant had, to the knowledge of the Plaintiff’s solicitors, been represented. However, I do not consider that the question as to whether notice has been given, as a factor relevant to an application to set aside a default judgment on discretionary grounds, is limited to that circumstance. I consider that it is a relevant consideration in this matter, given that the Defendant was represented, the Defendant’s solicitors had properly served their notice of appointment on the Plaintiff’s solicitor (albeit that that notice had not come to the attention of the Plaintiff’s solicitor) and the Plaintiff’s solicitors had communicated with the Defendant’s director before commencing proceedings.
Principle regarding costs orders with respect to an application to set aside a default judgment
90․Generally speaking, in an application to set aside a default judgment, the party seeking to set aside the default judgment is seeking an indulgence and the usual order would be that it pays the cost of the application and the Plaintiff’s costs thrown away by reason of the setting aside of the default judgment (Stormer at [33]; French v McKenna at [4]).
91․However, the court might not make the usual costs order if:
(a)the Plaintiff’s resistance, or continuing resistance to the application to set aside the default judgment was unreasonable (Stormer at [33]); or
(b)the Plaintiff had not given the Defendant notice of its intention to file for default judgment (Bushby).
92․In this respect, parties are obliged to conduct themselves reasonably, including by reasonably assessing the prospect that they will be successful on an application to set aside the default judgment (Stormer at [34]).
93․In Stormer, the court made the usual order as to costs on the basis that the material relied on by the defendants in their communications with the plaintiff’s solicitors ‘was not so clear and compelling as to mean that the application should not reasonably have been opposed’ (at [35]).
94․In French v McKenna, the court made the usual order as to costs, even though the favourable outcome of the set aside application could have been predicted with a high degree of likelihood at an early time, as the plaintiff’s opposition was not ‘entirely without merit and wholly unreasonable’ (at [15]).
95․In French v Triple M, the court made no order as to costs, in circumstances where: correspondence from the plaintiff’s solicitor was ‘polemic’, including disputing various facts which appeared to have been indisputable, and the plaintiff refused an offer from the defendant to pay the plaintiff’s costs in exchange for an agreement to set aside the default judgment; but the defendant did not put forward relevant material establishing a right to have the default judgment set aside on discretionary grounds and the defendants were unsuccessful in their principal argument that the default judgment was entered irregularly (at [29] – [31]).
96․In St George Bank, Higgins J made a costs order in favour of the defendant, in circumstances where the default judgment had been entered in breach of the requirement of good faith (breach of the usual standards of practice between solicitors) and thus ‘occasioned an unnecessary application to set aside the judgment’ (at [34] – [35]).
97․In Hogg, Kearney J ordered that the plaintiff pay the defendant’s costs of its application to set aside a default judgment which the plaintiff’s solicitors had ‘snapped on’, without notice to the solicitors who had entered an appearance for the defendant, immediately upon the expiration of the period prescribed by the rules for filing a defence (at [12] – [13]).
Disposition
Plaintiff’s submissions
98․The Plaintiff’s submissions were not focused on the critical issues that arose for consideration in the determination of the Defendant’s application.
99․As to the Plaintiff’s submission that the Defendant, acting reasonably, ought to have filed a notice of intention to respond, before sending a request for better particulars of the Plaintiff’s claim, taking such a step would have made no legal or practical difference in this case. In particular:
(a)from a practical perspective, Mr Kuster did not see the email that the Defendant’s solicitors sent on 20 December 2022 serving a copy of the filed notice of appearance. Had the attachment to the Defendant’s email been a notice of intention to respond, instead of a notice of appearance, this would not have changed that fact; and
(b)from a legal perspective, even if the Defendant had taken the course suggested in the Plaintiff’s submission, the Defendant would still, on the expiry of the 28 day period provided for in rule 102, have been in default (see rule 1117(1)(a)(ii)).
100․As to the Plaintiff’s submission that the Defendant should have been aware that the deadline for filing the notice of intention to respond was 21 December 2022 (noting that it was actually 22 December 2022) and, by sending the request for particulars on 20 December 2022, the Defendant’s solicitors were acting strategically:
(a)whatever might be said as to what knowledge the Defendant’s solicitors ought to have had regarding the period for the Defendant to file a defence, the Defendant’s solicitors in fact thought that the defence was due to be filed by 9 January 2023, as set out in their letter of 1 February 2023; and
(b)there is no evidence that the Defendant’s solicitors were acting strategically in the timing of their request for further particulars of the Plaintiff’s claim.
101․As to the Plaintiff’s submission that the failure of the Plaintiff to give notice of its intention to file for default judgment did not make entry of the judgment irregular, this may be accepted, however it is not the Defendant’s position that the default judgment was irregular on this basis.
102․As to the Plaintiff’s submission that any irregularities in the default judgment did not cause any injustice or difficulty for the Defendant to file a notice of intention to respond or defence in accordance with the Rules, this is misconceived, as the relevant injustice arising from any irregularity is that which flows from the entry of the default judgment itself. Further, for the reasons set out below, the entry of the default would, if left undisturbed, cause the Defendant injustice because it would be precluded from defending a claim to which it has raised defences (that the Plaintiff accepts are arguable defences).
Default judgment should be set aside
103․The Defendant’s application asserts that the default judgment was irregularly obtained as:
(a)there was no default at the time of the application for default judgment; and
(b)interest has been awarded in the default judgment despite that not being pleaded.
104․For the reasons articulated above, the Defendant was in default at the time of the application for default judgment. The period for it to file a defence under the Rules expired on 22 December 2022.
105․However, as I have found above, the default judgment is irregular. It includes an amount for interest ($1,970.02) and is liable to be set aside on that basis.
106․The prejudice to the Defendant from the entry of an irregular default judgment is two-fold. The primary prejudice, as noted above and as submitted by the Defendant, is that it would be precluded from defending a claim to which it has raised defences (which the Plaintiff accepts are arguable defences). The further prejudice is that the default judgment exposes the Defendant to a larger claim than that which has been pleaded by the Plaintiff.
107․While the Plaintiff could have sought to remedy the irregularity, by applying to amend the default judgment to substitute the amount in fact owing, it did not do so. Accordingly, the Defendant is entitled to have the default judgment set aside as of right.
108․The Defendant would, in any event, and as it submitted, have been successful in having the default judgment set aside on discretionary grounds in circumstances where:
(a)the Plaintiff applied for default judgment at the earliest opportunity, noting that Mr Guo started drafting his affidavit in support of the default application on 20 December 2022, two days prior to the expiry of the period for the Defendant to file its defence, and the Plaintiff in fact filed the draft default judgment the day after the period for the Defendant to file its defence expired;
(b)the Plaintiff gave the Defendant no notice of its intention to apply for default judgment, despite the Plaintiff’s solicitors having been in contact with the Defendant’s director not long before the Plaintiff commenced proceedings;
(c)the period of time between the entry of the default judgment (on 10 January 2023) and the filing of the application to set aside the default judgment (on 9 February 2023) was not long. Indeed the period of time between when the Plaintiff served the default judgment on the Defendant (at some point between 25 and 30 January 2023) and when the Defendant filed its application was short, particularly when regard is had to the fact that the Defendant sought, through correspondence on 30 January and 1 February 2023, to resolve the matter before filing its application;
(d)the Plaintiff accepts that the Defendant has an arguable defence; and
(e)there is no evidence that the Plaintiff will be prejudiced by the court setting aside the default judgment, beyond merely losing the forensic benefit of having an enforceable judgment.
109․For the foregoing reasons, I consider that the default judgment ought to be set aside, and that it is therefore appropriate to make an order to give effect to the agreement that was reached between the parties in that respect.
Plaintiff should pay the Defendant’s costs
110․I also consider that it is appropriate that the Plaintiff pay the Defendant’s costs of, and caused by, the default judgment, including its costs of the application to set aside the default judgment.
111․The principal reason I have reached this view is that the default judgment was irregularly obtained, as a result of the Plaintiff drafting a default judgment that included an amount that was more than the Plaintiff had claimed in its pleading. Accordingly, it should never have been entered and the Defendant requires no indulgence for it to be set aside.
112․Additionally, I accept the Defendant’s submission that the Plaintiff’s solicitors acted unreasonably, for the following reasons:
(a)at the time that the Plaintiff applied for default judgment:
(i)the Plaintiff’s solicitors had given the Defendant no grace for the filing of its defence, having filed the draft default judgment the day after the period for the defence to be filed expired;
(ii)the Plaintiff’s solicitors had included an amount for interest in the draft judgment to which their client was not entitled;
(iii)the Plaintiff, and its solicitors, were aware that the Defendant disputed the Plaintiff’s claim, and the reasons why it disputed the claim, from correspondence engaged in with the Defendant’s director between June and October 2022 (with Mr Phan’s final position being articulated a little more than a month prior to the Plaintiff filing its claim);
(iv)there being no evidence before the court that the Defendant has advanced any defences, or provided further explanation of its position, since the Plaintiff applied for default judgment, but where the Plaintiff’s solicitors conceded at the hearing that the Defendant had an arguable defence, the Plaintiff’s solicitors had sufficient information at the time they filed for default judgment to understand that the Defendant had an arguable defence;
(v)despite having communicated directly with Mr Phan as late as 27 October 2022 in relation to the Plaintiff’s claim, and despite emailing Mr Phan the Originating Claim and Statement of Claim on 23 November 2022 and emailing Mr Phan the default judgment on 25 January 2023, the Plaintiff’s solicitors chose not to contact Mr Phan prior to applying for default judgment, to provide him with notice of the Plaintiff’s intention of doing so or to enquire as to whether he had engaged representation; and
(vi)there is no evidence that the Defendant’s solicitors made any enquiries of the Court registry as to whether the Plaintiff had filed a notice of appointment or notice of intention to respond. While Mr Kuster attests to having instructed Mr Guo to attend court on 22 December 2022 to check Adero Law’s court box, it is not clear why he took that step. Any document filed by the Defendant’s solicitors would have been returned by the court registry to the Defendant’s solicitors for service; and
(b)when the Defendant’ solicitors wrote to the Plaintiff’s solicitors on 30 January 2023, to identify the fact that the Defendant’s solicitors had been on the record since 20 December 2022 and that the Defendant’s solicitors had written to the Plaintiff’s solicitors (to the Plaintiff’s electronic address for service) on that date to make a request for particulars of the claim on that date and ask that no adverse steps be taken by the Plaintiff without notice, the Defendant’s solicitors responded on 31 January 2023 to assert that the default judgment was valid and offered to agree to the default judgment being set aside if the Defendant paid the Plaintiff’s legal costs ‘to date’. For reasons already discussed, the default judgment had not been entered in accordance with the Rules and it was unreasonable for the Plaintiff’s solicitors to demand payment of their client’s costs to that point. As noted earlier in these reasons, the usual order would be that the Defendant pay the Plaintiff’s costs thrown away by reason of the default judgment being set aside. Thus, even in the absence of the reasons why I consider that the Plaintiff’s solicitors acted unreasonably in filing the draft default judgment, the Plaintiff would still not have been entitled to all of its costs. The unreasonableness of the position taken by the Plaintiff’s solicitors is underscored by the fact that:
(i)it had been brought to the attention of the Plaintiff’s solicitors that the correspondence of the Defendant’s solicitors of 20 December 2022 had not been seen by the Plaintiff’s solicitors (being correspondence that, had it seen, would have meant that that the Plaintiff’s solicitors should not, acting reasonably, have filed for default judgment);
(ii)the Plaintiff’s solicitors had filed the default judgment the day after the period for the Defendant to file its defence had expired, without notice to the Defendant;
(iii)the Plaintiff’s solicitors had sufficient information at the time they filed for default judgment to understand that the Defendant had an arguable defence; and
(iv)in the above circumstances, it should have been apparent to the Plaintiff’s solicitors that it was very likely to be the case that the Defendant would succeed in any application to set aside the default judgment.
113․For the above reasons I consider that it is appropriate that the Plaintiff pay the Defendant’s costs, as sought by the Defendant in its application.
Orders
114․I make the following orders:
(a)The default judgment entered on 10 January 2023 is set aside;
(b)the Plaintiff pay the Defendant’s costs, incurred as a result of the entry of the default judgment, including its costs of and incidental to its application to set aside the default judgment; and
(c)the Plaintiff bear its own costs which have been thrown away by reason of the default judgment being set aside.
115․I will hear from the parties with respect to proposed orders 3 to 6 set out in the Defendant’s application.
| I certify that the preceding one hundred and fifteen [115] numbered paragraphs are a true copy of the Reasons for Decision of his Honour Magistrate Temby. Associate: Mason Britton Date: 28 March 2023 |
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