Westpac Banking Corporation v Gibbings

[2010] WASC 379

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   WESTPAC BANKING CORPORATION -v- GIBBINGS [2010] WASC 379

CORAM:   MASTER SANDERSON

HEARD:   10 NOVEMBER 2010

DELIVERED          :   13 DECEMBER 2010

FILE NO/S:   CIV 2672 of 2009

BETWEEN:   WESTPAC BANKING CORPORATION

Plaintiff

AND

BRETT SHANE GIBBINGS
First Defendant

NORMAN BRYAN WOOLHOUSE
Second Defendant

NAARAH LYN GIBBINGS
Third Defendant

JANISE ELISABETH WOOLHOUSE
Fourth Defendant

Catchwords:

Practice and procedure - Application to set aide default judgment - Consequence of defect in statement of claim - Whether judgment regular or irregular - Whether regular judgment should be set aside - Principles to be applied

Legislation:

Nil

Result:

Judgment set aside

Category:    A

Representation:

Counsel:

Plaintiff:     Dr J Donovan

First Defendant            :     Mr G D Cobby

Second Defendant        :     Mr G D Cobby

Third Defendant           :     Mr G D Cobby

Fourth Defendant         :     Mr G D Cobby

Solicitors:

Plaintiff:     Lavan Legal

First Defendant            :     Mendelawitz Morton

Second Defendant        :     Mendelawitz Morton

Third Defendant           :     Mendelawitz Morton

Fourth Defendant         :     Mendelawitz Morton

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

ACN 076 676 438 Pty Ltd (in liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214

Allstate Life Insurance Co v ANZ Banking Group Ltd [1994] FCA 1463

Fagan v Morien [2008] WASC 54

Hall v Hall [2007] WASC 198

Jindra v Tech‑Rentals Pty Ltd [1999] VSC 206

Lam v Gulic (1979) 25 ACTR 46

Parker v Transfield Pty Ltd [2000] WASCA 382

Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257

Rollond v Bank of Western Australia Ltd (Unreported, FCt SCt of WA, Library No 980498, 3 September 1998

Webster v Lampard (1993) 177 CLR 598

Wickstead v Brown (1992) 30 NSWLR 1

1. MASTER SANDERSON:  This is the defendants' application to set aside a default judgment (as amended on 11 October 2010).  The defendants actually sought an extension of time to comply with certain case management directions made by Registrar S Boyle on 6 January 2010, non‑compliance of which resulted in the default judgment.  The matter was argued on the basis the default judgment had been entered and the defendants were seeking to set it aside under O 22.  It is on that basis I propose to deal with the matter.

2. The defendants contended first the judgment was irregularly entered.  Second, it was said if the judgment was regularly entered then the defendants' delay which led to default judgment was explained and the defendants had a good defence on the merits.  It is convenient to deal first with the question of whether or not the judgment was regularly entered.

3. The defendants submit that the entry of judgment was irregular because the statement of claim endorsed on the writ was and remains embarrassing.  For the purposes of dealing with this question I will assume for reasons which follow the statement of claim was embarrassing.  (I should emphasis this point was not conceded by counsel for the plaintiff who argued there was no fault with the statement of claim).  The defendants did not argue that the amount of the judgment was incorrect or that there was anything in the judgment document itself which was defective.  Rather, it was said when a judgment in default is entered and a pleading, which purports to support that judgment is in some way defective, then the judgment itself is irregular.

4. The statement of claim pleads a series of property transactions with the plaintiff as lender, a corporation as borrower and the defendants (not always all of them) as guarantors.  Paragraphs 38 to 56 of the statement of claim deals with borrowings by Devgroup Pty Ltd.  Paragraph 38 of the statement of claim pleads on or about 2 January 2007 the plaintiff and Devgroup entered into a written loan agreement.  The first, second and fourth defendants were said to be guarantors of that agreement.  Paragraph 39 pleads a variation to the loan agreement and par 40 pleads what is said to be the material terms of the loan agreement as varied.  By par 42 the plaintiff says pursuant to the varied loan agreement Devgroup granted the plaintiff certain charges.  These charges are pleaded in par 42.3.1 through to 42.3.6.  For instance, par 42.3.1 pleads:

   [A] registered fixed and floating charge dated 17 May 2006 (ASIC Number 1302673) over all of its assets and undertakings (First Devgroup Charge);

5. The defendants say that all of the pleaded charges predate the loan agreement.  The pleading does not contain any material facts which explain how these charges could reasonably said to have been granted 'pursuant to' an agreement made much later in time.

6. For its part, the plaintiff said any ambiguity could be cured by a request for particulars or an amendment to the statement of claim.  But the fact is, on the face of it, the pleaded charges do not marry up with the pleaded loan agreement.  The defendants say there is an obvious failing in the pleading and on that basis the judgment is irregular.

7. It is certainly the case courts have traditionally taken a hard line when dealing with judgments in default and have required the party entering judgment to strictly comply with the Rules.  In Lam v Gulic (1979) 25 ACTR 46 Blackburne CJ set aside a judgment when the amount for which judgment was entered exceeded the amount claimed. It is also true that there are some authorities which suggest a defect in the pleadings can lead to a judgment based on these pleadings being irregular. In Wickstead v Brown (1992) 30 NSWLR 1 the New South Wales Court of Appeal held a judgment in default entered in a case where the statement of claim did not plead essential material facts was irregular. Beaumont J reached the same conclusion in Allstate Life Insurance Co v ANZ Banking Group Ltd [1994] FCA 1463. These authorities were considered by Warrenn J (as her Honour then was) in Jindra v Tech‑Rentals Pty Ltd [1999] VSC 206. Her Honour concluded that an amended counterclaim upon which the defendant had purported to enter judgment was not a pleading which informed the plaintiff of the claim it had to meet. On that basis her Honour was satisfied judgment was irregular and should be set aside.

8. In this jurisdiction the strict approach evident in these three cases appears to have been moderated somewhat.  In ACN 076 676 438 Pty Ltd (in liq) v A‑Comms Teledata Pty Ltd [2000] WASC 214 Parker J said (at [18]):

   Some more recent decisions suggest that not every irregularity in the means by which a judgment in default is obtained will necessarily entitle the defendants to have the judgment set aside as of right.  I was referred in particular to Australian and New Zealand Banking Group Ltd v Kostovski, unreported; SCt of Vic (Chernov J); No 5511 of 1997; 2 July 1997, (BC 97032660) where the writ contained two endorsements which breached the Rules and Commonwealth Bank of Australia v Buffett (1993) 114 ALR 245 where the writ had an incorrect endorsement as to service and stated that an appearance must be entered within 8 rather than 9 days of service. In both of these cases the writ was issued out of the Registry and served. In each case, the irregularity had not caused any prejudice to the defendant and did not lead to the defendant changing his position in any way or otherwise cause any injustice. In such circumstances the judgments were not set aside. In National Australia Bank Ltd v Meehan, unreported; SCt of Vic Appeal Division (Ormiston and O'Bryan JJ); No 8407 of 1993; 24 February 1994; (BC 9400980), the absence of the number of the proceeding from the service copy of the originating process was held to be merely a technical defect not producing an irregular judgment, although in contrast in Sargent v Veneris, unreported; SCt of Vic (Beach J); No 1303/1995; 20 December 1995; (BC 9507179) a failure to duly prove service of the originating process by omitting to exhibit a sealed copy of that process to the affidavit of service was held to be an irregularity which entitled the defendant to have the default judgment set aside.  I was also referred to the observations of the Court of Appeal in Perry v Wong [1997] 1 WLR 381 at 388 that, in this context, procedural irregularities vary greatly in significance and the discussion in Farrow Mortgage Services Pty Ltd (in liq) v Victor Tunevitsch Pty Ltd & Ors, unreported; SCt of Tas (Crawford J); No 1383 of 1993; 8 July 1994; (BC 9400421) at 4.

9. While noting these cases Parker J did not find it necessary to consider the question in more detail.  His Honour was satisfied in the case before him a purported amended statement of claim had not been regularly filed.  A judgment entered in default of defence on an irregularly filed statement of claim could not stand.  His Honour's comments must be regarded as obiter. 

10. This question was further considered by Templeman J in Fagan v Morien [2008] WASC 54. His Honour cited Parker J's decision in ACN with approval.  However, once again it was not necessary for his Honour to determine the case to decide whether or not a defect in the pleading which did not significantly disadvantage a party would justify a judgment being set aside as irregular.  His Honour found that the irregularity was 'very significant'.  It resulted in a judgment which was unworkable.  The judgment was therefore irregular and was set aside.

11. It would appear then the position in this State is in a state of flux.  For my part, I cannot see that it is in the interest of justice to set aside a judgment when there is a defect in the pleading which has not prevented the defendants from understanding the case they have to meet.  It is not difficult to understand why an irregular judgment should be set aside when the amount of the judgment exceeds the amount claimed or when the judgment entered makes no sense.  It is also not difficult to understand why the judgment should be set aside when it is entered before the date when a party would be in default.  None of those situations apply here.

12. In the circumstances then I am satisfied, even if the judgment is irregular, the irregularity is of such insignificance that it would not justify the judgment being set aside.

13. That leaves the question of whether there are grounds upon which a regular judgment ought be set aside.  This involves consideration of at least three questions.  First, why the default occurred which led to judgment being entered?  Second, the reasons for any delay in bringing the application to set aside the default judgment.  Third, whether there is a defence on the merits.  These three questions are to be weighed in the balance to determine whether or not it is in the interest of justice the judgment be set aside.

14. These first two questions can be taken together.  In support of their application to set aside the default judgment the defendants relied on an affidavit of the first defendant sworn 13 August 2010.  The first defendant says when proceedings were instituted he instructed a Mr Nigel Pakes of Murcia Pestell Hillard to represent all defendants.  On or about 21 December 2009 the instructions to Mercia Pestell Hillard were terminated and the defendants instructed a Mr Augustus Lee‑Steere to act on their behalf.  On 11 January 2010 the first defendant received a copy of an email Mr Pakes had sent to Mr Lee‑Steere.  The email referred to case management directions which had been made by Registrar S Boyle on 6 January 2010 (annexure BSG 1 to the first defendant's affidavit does not contain a copy of those case management directions).  The directions relevantly provided the defence of the defendants dated 18 November 2009 be struck out and the defendants have leave to file and serve a substituted defence by 2.00 pm Friday, 15 January 2010.  It was the failure to comply with this case management direction of the registrar which led to judgment being entered against the defendants.  The first defendant says prior to receiving the email he was not aware a substituted defence had not been filed.  It is not clear from the affidavit whether the first defendant was aware of the orders made by the learned registrar on 6 January 2010.  By implication he was aware of those orders but was not aware Mr Lee‑Steere had not complied with those orders.

15. The first defendant says subsequent to the entry of judgment he discussed with Mr Lee‑Steere what should be done.  The first defendant thought an appeal should be lodged.  He was advised by Mr Lee‑Steere such a course was unnecessary.  Apparently Mr Lee‑Steere advised the first defendant the matter should simply be left to rest and when and if demand was made for payment of the judgment some steps could be taken.  While this advice seemed strange, bordering on the bizarre, the first defendant says he resolved to follow his solicitor's advice.

16. Early in 2010 the first defendant was served with a bankruptcy notice (in his affidavit the first defendant does not specify the date upon which he was served with the bankruptcy notice.  In his submissions counsel for the plaintiff gives the date of service of the notice as 9 February 2010 (see par 7.2).  Where counsel derived this date from is unclear.  However, it is not inconsistent with anything in the affidavit material and I have worked on the basis the bankruptcy notice was served on or about 9 February 2010).  Not surprisingly, after he received the bankruptcy notice the first defendant consulted Mr Lee‑Steere.

17. In par 16 of his affidavit the first defendant sets out the advice he was given by Mr Lee‑Steere in relation to the bankruptcy notice.  Essentially he says he was advised Mr Lee‑Steere had instituted proceedings on his behalf against Westpac Banking Corporation (the parent of the previous plaintiff) in relation to certain transactions the subject of this claim.  That being the case, Mr Lee‑Steere advised the bankruptcy notice would 'not be allowed to continue until that claim (against Westpac) was resolved'.  Mr Lee‑Steere also said he would initiate proceedings against the previous plaintiff alleging they were wrong to appoint receivers to certain companies associated with the defendants.  This too would, on Mr Lee‑Steere's advice and in some unexplained way, ensure the bankruptcy notices did not proceed.  Once again the advice bordered on the bizarre.  However, once again, the first defendant resolved to follow that advice.  Furthermore, it appears the first defendant was prepared to allow the matter to drift.  There is nothing in the first defendant's affidavit which suggests he had any contact with Mr Lee‑Steere between the date of the discussions subsequent to the first defendant's receipt of the bankruptcy notice and early July 2010.  The first defendant does say (at par 19) he was becoming increasingly concerned about the conduct of what he terms, the Westpac claim and the bankruptcy notice, but he gives no indication of what was driving these concerns.  In any event, it does seem remarkable that, for a period of four to five months, the first defendant did not pursue these matters with his solicitor.

18. The first defendant says some time after 6 July 2010 Mr Lee‑Steere advised him that due to pressures of work new solicitors would take over the bankruptcy notice matter.  On 9 July 2010 the first defendant learnt that Mr Lee‑Steere had been suspended from practice.  This had occurred on 2 June 2010.  Perhaps, understandably, this had not come to the first defendant's attention.

19. On or about 16 July 2010 the defendant's appointed their present solicitors.  Mr See‑Steere has not cooperated by passing over his files to the defendants' present solicitors.  Doubtless that has caused a good deal of difficulty.  The present application was issued on 16 August 2010.

20. All in all, this is a most unhappy state of affairs.  It is clear the defendants were not kept fully informed by Mr Lee‑Steere who appears to have acted in an unprofessional manner.  The reason why the springing order was not complied with is explained - at least insofar as the defendants have knowledge of what actually occurred.  In part the delay between the entry of judgment and the application to set aside the judgment is also explained.  It must be acknowledged, as was pointed out by counsel for the plaintiffs, it was remarkable the defendants took no action particularly after the first defendant was served with the bankruptcy notice.  It is also unclear and unexplained why, having knowledge of the existence of the judgment and having been served with the bankruptcy notice, the defendants did not pursue their solicitor more vigorously.  The evidence suggests they did nothing for some months.  The explanation - and it is an explanation derived by implication - is the defendants believed all matters were being appropriately handled by their solicitors.

21. On balance, I am satisfied that there is a proper explanation for the delay.  Doubtless the defendants could and probably should have done more to ensure their solicitor was handling their affairs in an appropriate manner.  But they relied on professional advice and there is no evidence that they were told anything by their solicitor which would have alerted them to the difficulties in which they now find themselves.  That being so, I am satisfied there is an adequate explanation for the delay in bringing this application.

22. The remaining question then is whether the defendants have an arguable defence on the merits.  In Parker v Transfield Pty Ltd [2000] WASCA 382 Malcolm CJ referred to the decision in Rollond v Bank of Western Australia Ltd (Unreported, FCt SCt of WA, Library No 980498, 3 September 1998) and formulated the test as follows:

    [F]or an application to set aside a default judgment to be successful, the defendant must present a credible defence demonstrating that, if the default judgment was set aside and the matter was argued on its merits, the defendant would have a real prospect of success.

23. Whether that bold statement or principle represents the present state of the law in this jurisdiction is debatable.  In Hall v Hall [2007] WASC 198 Newnes J (as his Honour then was) reviewed the English and Australian authorities and quoted Malcolm CJ in Parker v Transfield Pty Ltd. His Honour then went on (at 63 ‑ 67):

    It is apparent that what a defendant will generally be required to show by way of a defence on the merits has been expressed in a number of ways that, in their terms, are not always easy to reconcile.  There are, however, two fundamental principles that I think have never been doubted.  The first is that the discretion is unfettered and no hard and fast rules can be laid down as to how it is to be exercised.  The second is that the discretion is to be exercised so as to do justice between the parties, having regard to the particular circumstances of the case. 

    It seems to me, with respect, that there is force in the suggestion of Ward LJ in Day v RAC Motoring Services Ltd that the different verbal formulations in the cases are properly to be viewed as emphasis in the context of the facts of the particular case.  It is obvious that 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.  And the circumstances may differ widely; for example, from cases where there is a serious question as to the defendant's bona fides through to cases of simply oversight by the defendant, or its agent, which it promptly seeks to remedy.

    Given particularly the general nature of the discretion, it would, in my view, be wrong to place too much store on the precise terms in which the test has been expressed from time to time, isolated from the particular circumstances.

    Again, with respect, it seems to me there is obvious force in the observations of Ward LJ that courts should be very wary about attempting to come to a provisional view as to the probable outcome of a defence involving issues of fact, based on the affidavit evidence available on an application of this nature, unless there is some inherent improbability in what is being asserted or some extraneous evidence which would contradict it.  The evidence before the Court on such an application is necessarily limited and generally untested by cross‑examination, and it is not appropriate to seek to resolve disputed questions of fact on the affidavit evidence: Lau v Citic Australia Commodity Trading Pty Ltd.

    I do not, however, understand the decisions of the Full Court in Rollond v Bank of Western Australia and Parker v Transfield Ltd to require such a course to be undertaken.  That is, I do not understand the statements in those cases to the defendant having a 'credible defence' which would have 'a real prospect of success' to be referring to a provisional view as to probable findings of fact at trial.  Rather, I understand the Court to mean that it must appear from the affidavit material before the Court that the defendant's case is not inherently incredible and that if the defendant's evidence were accepted at trial the defendant would have a real prospect of success.

1. His Honour's decision in Hall v Hall was referred to by the Court of Appeal in Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd [2007] WASCA 257. In that case it was not necessary for the court to give consideration as to how the test should be precisely formulated. But by referring to his Honour's decision and to the decisions in Rolland and Parker it is at least implicit the court was of the view there was merit in his Honour's formulation.

2. In any interlocutory application such as this it is not the role of the court to determine whether an applicant's version of events will be accepted at trial.  Unless the evidence is 'inherently incredible' (see Webster v Lampard (1993) 177 CLR 598) then it must be accepted for the purposes of the hearing. That is the approach I have adopted in this case.

3. It is the defendants' case that they were induced to guarantee the debts of various special purpose companies which borrowed from the plaintiff by representations regarding the plaintiff's intention to continue to provide funding to those companies made by the plaintiff's officers.  Each of the companies which entered into a loan agreement with the plaintiff, with the exception of Devgroup, was established to act as the project manager for a joint venture comprised of individual investors.  In each case the joint venture envisaged the purchase and subdivision of certain identified land and the subsequent construction of strata titled units upon that subdivided land.

4. The completed strata titled units were to be transferred to the joint venturers in each case in accordance with each venturer's contribution to the joint venture project.  As the viability of each joint venture was dependent upon completion of construction of the joint venture project, both the availability and continuation of financing until the completion of the construction phase of each project was crucial to its success.  The evidence of the defendants is officers of the plaintiff represented to the first defendant on various occasions that the plaintiff would continue to provide funding to the joint ventures, irrespective of the terms of the formal loan agreements with each company and the defendants.  The defendants say they relied upon that information and agreed to guarantee the various loans.  Without the oral representations they say they would not have done so.  Their claim - and it was acknowledged by counsel for the defendants to be a counterclaim - is then under s 52 of the Trade Practices Act.  As a subsidiary proposition the defendants alleged there is an estoppel which would operate as a defence to the plaintiff's claim.  The legal basis of this defence need not be explored.  It is enough to say it relies on the same facts as the Trade Practices Act claim.

5. Counsel for the plaintiff analysed the s 52 claim and the estoppel claim in some detail.  Counsel conceded for the purposes of this argument (and for only this purpose) it had to be accepted that representations were made and they were false.  He submitted even in that circumstance it was not possible for the defendants to establish the representations were misleading.  But in the end, once that point is reached, it must be acknowledged that there is a serious question to be tried or an arguable defence - or whatever test is to be applied.  To attempt to resolve the issues between the parties on an interlocutory basis is simply inappropriate.

6. In the circumstances then, I am satisfied the defendants have an arguable defence.  In all the circumstances, the default judgment ought be set aside.

7. I will hear the parties as to the form of orders and as to costs.