Local Court
New South Wales
(1969) 123 CLR 228
Perpetual Trustees Australia Limited v
Heperu Pty Ltd (No. 2)[2009] NSWCA
387;(2009) 78 NSWLR 190
Zakaria vDr Noyce[2012] NSWSC 981

Category: Interlocutory
Parties: Richard Dunn (Applicant)
Ahmad Ghobon (First Respondent) Mandi Services (Second Respondent)
Legal Representation: Mr Oliver (for the applicant)
Mr Rajalingem (for the respondents)
File number(s): 2013/00151821
Place of Hearing: Local Court Sydney
Publication Restriction: Nil
JUDGMENT
1 This is an application made on behalf of Richard Dunn, the plaintiff in
these proceedings, seeking to set aside a default judgment entered in
open Court against Mr Ghobon, the first defendant, on 31 October
2013 and a default judgment entered by the Registrar in chambers
against Nandi Services Pty Limited on 7 January 2014. The notice of
motion relies on the power of the Court to set aside a default judgment
or a judgment given in the absence of a party under Uniform Civil
Procedure Rule 36.16(2) or, alternatively, under Uniform Civil
Procedure Rule 36.15 which permits a Court to set aside a judgment
that is entered “irregularly, illegally or against good faith”

2 An unusual feature of this application is that it is the plaintiff who
applied for, and successfully obtained, judgment in his favour that now
seeks those judgments to be set aside. The defendants resist the
plaintiff’ s application. To understand why the plaintiff makes this
application a brief summary of the history of the litigation is necessary.

3 Mr Dunn was involved in a motor vehicle collision with a taxi driven by
Mr Ghoban and owned by Nandi Services Pty Limited on 2 October
2012. As a consequence of the collision Mr Dunn’s vehicle was
damaged and, while it was being repaired, he hired a replacement
vehicle through Compass Claims. Mr Dunn lodged a claim with his
insurer, NRMA, in respect to the property damage claim. In respect to
his claim for loss of use of his motor vehicle Mr Dunn signed a
document dated 3 October 2012 appointing Compass as his agent to
recover charges related to the hire of the replacement vehicle.

4 On 16 May 2013 these proceedings were commenced at the Local
Court North Sydney on behalf of Mr Dunn by Jonathan D‘Arcy & Co
Solicitors claiming damages arising from the collision limited to loss of
use. A defence was filed on 20 June 2013. The proceedings were
listed for pre-trial review on several occasions. On 13 September 2013
the proceedings were listed for hearing in Sydney on 5 December 2013
and a further order was matter listing the matter for directions on an
application to set aside a notice to produce. On 17 October the issue
of the notice to produce was adjourned to 31 October 2013. On 31
October 2013 the presiding magistrate stood over the issue regarding
the notice to produce to the date of the hearing and granted a notice of
motion for default judgment to be entered against the first defendant in
the sum of $10,856.00.

5 Meanwhile NRMA acting under rights of subrogation instructed Holman
Webb Solicitors to commence proceedings in the name of the plaintiff
to recover the plaintiff s costs of repairs. A statement of claim seeking
costs of repairs in the sum of $19,667.32 was filed on 31 October 2013
and served on the second defendant on 6 November 2013.

6 A file note dated 21 November 2013 records a telephone conversation between Ms Bertrand of Holman Webb and Mr Dunn referring to concurrent court proceedings for a car hire claim. The file notes states “ This is the first we have heard of hire car claim – no notes received from NRMA re: hire car”. A file note indicates that contact was then made by Ms Bertrand with an officer of Jonathan D’Arcy and Co Solicitors proposing to join the two proceedings. On 3 December 2013 an email was sent by Mr Bokhari of Jonathan D’Arcy and Co Solicitors declining to amend the pleadings and referring to a letter sent on 20 May 2013 to NRMA putting the insurer on notice of the hire claim.
7 On 5 December 2013 I struck out the defence on the loss of use claim
by reason of the second defendant’s failure to attend and prosecute the
defence. On 7 January 2014 default judgment was entered against
the second defendant in those proceedings.

8 On 8 January 2014 the defendants filed a defence in the proceedings
relating to costs of repairs pleading, inter alia, res judicata. Those
proceedings have been adjourned until 5 August 2014.

9 The default judgments of 31 October 2013 against the first defendant
and 7 January 2014 against the second defendant operate to prevent
the plaintiff from prosecuting the separate cost of repairs claim.
Section 24 of the Civil Procedure Act 2005 prohibits splitting a cause of
action by providing a right to the defendants to obtain judgment in their
favour in the second proceedings. The defence raised of res judicata
also would similarly prevent the subrogated insurer from succeeding
on the cost of repairs claim as the cause of action which the subrogated
insurer seeks to rely has merged upon judgment being entered on the
loss of use claim.

10 Accordingly, it is necessary from the point of view of the plaintiff s
subrogated insurer, to remove the barrier and seek to set aside the
judgments entered.

11 On 5 June 2014 Holman Webb, on instructions from the plaintiff, filed a
Notice of Change of Solicitor in the loss of use claim and filed this
notice of motion seeking to set aside the default judgments. The
change of legal representative coincides with a change of approach on
the part of the plaintiff who now seeks to set aside the judgments, no
doubt having regard to the interests of his subrogated insurer.

12 The plaintiff relies firstly on Uniform Civil Procedure Rule 36.16(2) to
set aside the default judgments. That Rule relevantly provides:

(2) The court may set aside or vary a judgment or order after it has
been entered if.
(a) it is a default judgment (other than a default judgment given in open
court) or,
(b) if it has been given or made in the absence of a party, whether or
not the absent party had notice of the relevant hearing or of the
application for the judgment or order.

13 There is no doubt that the Rule applies with respect to the default judgments entered against the first and second defendants. While the Rule is ordinarily one which is relied upon by the defaulting party the plaintiff relies on comments made by Jenkyn J in Nicholson v Nicholson [1 974] 2 NSWLR 59 [at 65] that “it would seem to be anomalous that the privilege of setting aside or varying an order should be reserved for a party in default, and be denied to a party who sought and obtained an order, if a variation of the order so obtained or its setting aside is being sought for reasons which to the court seem just”.

14 The plaintiff also relies on the decision in Buckland v Palmer [1984] 1
WLR 1109. In that case the plaintiff owner of a motor vehicle damaged
in a collision sued the defendant for an excess amount and accepted
payment from the defendant that operated as a stay of proceedings.
The plaintiff s insurer then initiated an action in the plaintiff s name
claiming the balance of the cost of repairs. Sir John Donaldson MR
struck out the second claim brought in the name of the plaintiff.
However, at 1115 Donaldson MR considered the wider implication of
reviving the earlier proceedings if a judgment, as opposed to a stay,
had been obtained in the earlier proceedings.

15 Donaldson MR acknowledged that in those circumstances the
judgment would extinguish the cause of action by merger and thus
frustrate the remainder of the plaintiff s claim. He went on to consider
the plaintiff s position stating:

“However, I would be surprised and disappointed if this left the courts
powerless to do justice if, for example, advantage had been taken of an
ill-informed plaintiff by an experienced defendant who offered to submit
to judgment in a small sum, well knowing that the plaintiff was under
some misapprehension as to the effect upon his right thereafter to
proceed with his substantial claim. Just as I think that I detect a
difference in the approach to the exercise of discretion in relation to
removing a stay on an action in Lambert’s case [1977] 1 WLR 825,
as compared with Derrick v Williams [1939] 2 All ER 559 so I would
expect the courts to re-appraise the circumstances in which
a judgment could be set aside, if justice so required ”

16 The plaintiff submits that the interests of justice in the present case
require the judgment to be set aside. The plaintiff submits that the
subrogated insurer should not be precluded from recovering the
substantial cost of repairs by reason of the judgment in the separate
loss of use proceedings. The plaintiff states that the subrogated
insurer took immediate and appropriate steps when it became aware of
the existence of the separate proceedings for loss of use on 21
November 2013 to attempt to consolidate the proceedings.

17 The plaintiff states that the second defendant was aware of the second
proceedings from 6 November 2013 when it was served with the
statement of claim for costs of repairs yet it took no positive steps to
raise the potential impediment to the second proceedings until after
judgment was obtained in the first. The plaintiff submits that it is open

for the Court to infer that defendants intended to take advantage of the
impediment by filing a defence pleading res judicata in the second
proceedings the day after judgment was entered in the first
proceedings.

18 The defendants submit that the subrogated insurer was made aware of
the claim for loss of use by way of a letter dated 20 May 2013 from
Jonathan D’Arcy & Co Solicitors to NRMA. The letter states relevantly:

“The purpose of this communication is to advise that Compass has
commenced proceedings, as agent for and in the name of Richard
Dunn, against the Third Party, in order to seek recovery in respect of
the demurrage/credit hire claim. We anticipate that the Third Party’s
insurer, acting pursuant to rights of subrogation, will conduct the
defence and, and any negotiations for settlement, of those
proceedings.

As you would appreciate, by reason of s 24 of the Civil Procedure Act
2005 (NSW) and principles of res judicata, issue estoppel and Anshan
Estoppel, there is a real risk that a determination of the proposed
proceedings by Compass as agent for and in the name of Richard
Dunn might operate to prejudice or prevent recovery by you of the
Insured loss in any proceedings commenced by you against the Third
Party.”

19 The defendants further submit that the subrogated insurer failed to .respond to this letter and delayed taking action for a further five months
before commencing proceedings. In those circumstances, the
defendants submit that it is the subrogated insurers own conduct which
has left it unable to prosecute its claim.

20 The defendant also submits that the Court should have regard to the
provisions of section 56 and 58 of the Civil Procedure Act 2005. The
defendants submit that it is consistent with the overriding purpose of

court to give effect to the finalising judgments particularly in light of the
delays of subrogated insurer.

21 The defendants deny that fifing a defence pleading res judicata after
judgment was obtained in the first proceedings constitutes an absence
of good faith. The defendants submit that the present case is
distinguishable from the decision in Chand v Zurich Australian Limited
[2013] NSWSC 102 where the Court of Appeal dismissed an appeal
against a decision by Magistrate Townsden (as he then was) to set
aside a judgment entered by consent. In that case Magistrate
Townsden considered that the ” Morganite” principle applied with the
effect that the insurer’s right of subrogation will not be defeated in
circumstances where the wrongdoer, with knowledge of the insurer’s
interest, nonetheless procures a release with the insured that infringes
the insurers rights. The consent judgment in Chand was set aside
implicitly on the basis that it was obtained against good faith.

22 In the present case the defendants neither procured a release or a
consent judgment.

Should the default judgments be set aside?
23 The power to set aside a default judgment under Rule 36.16 is to be
exercised with regard to the interests of justice. The Court is to have
regard to the competing considerations “that controversies once
resolved, are not to be re-opened..” (D’OrtaEdenaike v Victoria Legal
Aid [2005} HCA 12; (2005) 223 CLR 1 at [34]) and ” whether any useful
purpose that would be served in setting aside the judgment and how it
came about that the applicant found himself to be bound by a judgment
regularly obtained” (Sackville AJA in Dai v Zhu [2013] NSWCA 4 12 at
89).

24 The Court is also required to have regard to the overriding objective of
the Court to achieve the “just, quick and cheap” resolution of the matter

in dispute in section 56 in conjunction with the dictates of justice
identified in section 58 of the Civil Procedure Act 2005.

25 The alternative power to set aside a judgment under Rule 36.15 allows
the Court to set aside a judgment if it was given or entered, or the order
was made, irregularly, illegally or against good faith. The plaintiff
submits that judgment was entered “against good faith” in at least to
the extent that judgment was obtained against the second defendant.

26 The operation of the Rule was considered in Coles v Burke (1987)
10NSWLR 429 where Kirby P (with whom Samuels & McHugh JJA
concurred said of the earlier version of Rule 36.15 contained in Part
12A of the District Court Rules (at 437):

” The genus which is involved in the phrase “irregularly, illegally or
against good faith” appears to me to be misconduct or dishonourable
conduct of the person who procured the judgment which it is
suggested undermines the authority of that judgment warranting the
exceptional course for which Part 12A provides. ~

27 If it were only on the basis of the arguments pressed by the applicant
the Court would not be satisfied that the judgments should be set aside under either Rule.

28 The plaintiff cannot be described as the ill-informed plaintiff referred to
by Donaldson MR in Buck|and v Palmer. There is no evidence to
suggest that the plaintiff was operating under some misapprehension
as to the effect that obtaining judgment in the loss of use claim would
have against the subrogated insurer. To the contrary, the plaintiff was
represented by a legal practitioner who was well aware of the potential
prejudice to the subrogated insurer. The letter to the insurer
prepared by Jonathan D’Arcy & Co Solicitors in May 2013 outlines in detail the likely adverse consequences.
29 Presumably, Jonathan D’Arcy & Co procured judgments against both
the first and second defendants in accordance with the instructions
provided by Mr Dunn. There is no evidence given by Mr Dunn to
suggest otherwise. The plaintiff obtained the judgments with
knowledge of the insurer’s interest and presumed knowledge of the
impact of the judgments on those interests through his authorised legal
representative.

30 The conduct of the plaintiff is capable of binding the subrogated
insurer.

31 Barwick CJ in State Government insurance Office (Queensland) v
Brisbane Stevedoring (1969) 123 CLR 228 (at 240-241) noted:

“It is also settled law that an insured may not release, diminish,
compromise or divert the benefit of any right to which the insurer is or
will be entitled to succeed and enjoy under his right of subrogation. On
occasions an attempt by the insured to do so will be ineffective against
the insurer because of the knowledge of the circumstances which the
person under obligation to the insured may have. On other occasions
when the insured’s act has become effective as against the insurer, the
insured will be liable to the insurer in damages, or possibly, on some
occasions for money had and received…”

32 The present case is one where I would consider that the conduct of the
insured is capable of being effective against the insurer.

33 Furthermore, there was nothing in the conduct of the second defendant
that would warrant a finding that the judgment should be set aside by
reason of it being against good faith. The second defendant did not
play any active role in procuring the judgment. Even if it is accepted
that the second defendant was aware of the interests of the subrogated
insurer when it was served with the second statement of claim on 6
November 2013 this is immaterial given that the legal representative for
the subrogated insurer was on notice of the claim for loss of use prior

to the judgment being entered against the second defendant. Both the
insurer and the plaintiff were aware of their respective claims but failed
to take steps to consolidate the proceedings or alternatively, amend
pleadings.

Finally, it should not be forgotten that the legal principles that prohibit
the splitting of an action are intended to protect against multiplicity of
proceedings and defendants being vexed by the same cause of action
twice. By initiating a notice of motion to set aside judgments the
plaintiff seeks the Court to excuse it from its own disregard to these
principles. The plaintiff has an obligation to ensure that it gets its
house in order and commences single proceedings for the entirety of
the loss suffered. In the absence of some compelling explanation as to
why the prejudice to be suffered in this case was not of the plaintiffs
own making the plaintiff cannot satisfy the Court that the prejudice
likely to be suffered constitutes a sufficient basis to set aside the
judgments.

Judgment of 31 October 2013 entered Irregularly

Although the applicant has not succeeded on the arguments pressed
there is clearly a further basis upon which the judgment entered on 31
October 2013 against the first defendant should be set aside. A
perusal of the Court record shows that it was entered irregularly within
the meaning of Rule 36.15.

In Perpetual Trustees Australia Limited v Heperu Pty Ltd (No. 2) [2009]
NSWCA 387; (2009) 78 NSWLR 190, the Court of Appeal said (at [16]
and [17]):

” The focus of Pt 36. 15(1) is on the judgment or order that is attacked
and question is whether it was “given. . . entered, or. . .. Made” irregularly
etc. The focus is on irregularity in those steps. .not on the merits of any
decision or the irregularity of other steps in the proceedings, or in the
proceedings below.

The rule applies with particular force to default or consent judgments
and orders, and those given or made ex parte.”

37 In Zakan’a v Dr Noyce [2012] NSWSC 981 Davies J at [24]-[25] referred to irregularity in the following terms:

“Ordinarily irregularity is concerned with a failure to comply with
Rules of Court. That will extend to the position where, for example,
default judgment has been obtained on a Statement of Claim that does
not properly plead a debt or liquidated sum; or does not plead an essential
element of the cause of action. In addition, a judgment entered for more than is due will be irregular. A denial of procedural fairness will be a fundamental irregularity that will entitle a person aggrieved to set aside an order as a matter of unconditional right. That right is part of the court’s inherent power. Further, such irregularity falls within r 36.15” (citations omitted).

38 The irregularity of the default judgment entered by the presiding magistrate at North Sydney on 31October 2013 is apparent upon a perusal of the Court file A defence was filed by Legal Wisdom on 20 June 2013. The filed form of defence contains following filing details: ” Filed for Second Defendant”. The pleading and particulars use the plural term ” defendants”. It is apparent that the defence was filed on behalf of both the first and second defendants.

39 Notwithstanding this, the plaintiff filed a notice of motion on 9 September 2013 seeking default judgment against the first defendant. That motion was refused by the Registrar, acting under delegated powers of the Court, on 15 September 2013. Presumably, the application was refused due to the presence of the defence filed on behalf of the first defendant.

40 On 2 October 2013 Mr D’Arcy filed an affidavit attaching a copy of
correspondence between his firm and Legal Wisdom. A letter dated 16

September 2013 from Jonathan D’Arcy & Co concludes “We are
proceeding to judgment as against the 1st Defendant” .

41 An email dated 19 September 2013 from Mr Amin of Legal Wisdom responds:

“Furthermore, would you kindly explain how you would be in a position
to enter judgement against the First Defendant, if a Defence has been
filed for the First AND Second Defendant.”

42 There is no evidence as to whether the plaintiff s legal representative
extended the courtesy of providing an explanation.

43 On the 31 October the proceedings were listed before the presiding
magistrate for determination of an objection to a notice produce issued
against the second defendant. Although the proceedings were listed for
a specific purpose that did not require attendance of the first defendant
the plaintiff made an oral application for default judgment against the
first defendant. The presiding magistrate made the following orders in
open court in the absence of the first defendant:

“Motion for default judgment granted Judgment entered against first
defendant for $10,856.60.”

44 The motion was raised orally, without notice to the first defendant, and
on a date when the matter was listed before the magistrate for the
limited purpose of determination of an objection by the second
defendant to a notice to produce that required no attendance on the
part of the first defendant. The judgment gives no details on the
components of the judgment that relate to the claim, pre-judgment
interest or costs. These matters of themselves raise issues of
procedural fairness.

45 More fundamentally, however, is that as at 31 October 2013 the first
defendant was not in default within the meaning of Uniform Civil
Procedure Rule 16.2. That Rule relevantly provides:

“(1) A defendant is in default for the purposes of this Part:
(a) if the defendant fails to file a defence within the time limited by rule
14.3 (1) or within such further time as the court allows, or
(b) if the defendant fails to file any affidavit verifying his or her defence in accordance with any requirement of these rules, or
(c) if the defendant having duly filed a defence, the court orders the defendant to be struck out.

The first defendant had filed a defence in accordance with the Rules.
No order was made by the magistrate to strike out the first defendant’s
defence prior to entering default judgment. It was not open to the
magistrate to consider an application for default judgment.

A further irregularity arises in that there was no affidavit filed in support
of the motion as required by Uniform Civil Procedure Rule 16.3(2)(b).
There was no order by the Court dispensing with the need for the
affidavit to be filed in support of the motion. In Ion v Danutz [2012]
NSWSC 941 Harrison AsJ considered the consequences of failing to
file an affidavit in support of an application for default judgment at [47]
and [52]:

“Hence, if there is no affidavit in support of an application for judgment
under UCPR r1 6, a court is not empowered to give judgment, unless it
has ordered otherwise pursuant to UCPR r 16.3(2).

The Magistrate should not have granted default judgment and in so
doing he also erred at law. ”

I am mindful that these are issues not agitated during the course of
submissions on hearing the motion. While I considered that it was
open for me to roust the matter for further submission on the issue the
irregularities identified in the judgment against the first defendant are
so apparent and fundamental that the Court could not conceivably
allow such a judgment, having been challenged, to stand.
49 Accordingly, I am satisfied that pursuant to Uniform Civil Procedure Rule 36.15 the judgment entered against the first defendant on 31 October 2013 is irregular and the Court orders that it be set aside.

50 The decision that the judgment entered against the first defendant be set aside necessitates a reconsideration as to whether the judgment entered against the second defendant should also be set aside.

51 The statement of claim asserts that the second defendant is vicariously
liable for the negligent acts or omissions of the first defendant. The
first defendant is asserted to be the employee or agent of the second
defendant. To my mind it would be anomalous for the judgment to
stand against the second defendant when the liability of the alleged
tortfeasor remains undetermined It may lead to inconsistent outcomes
with respect to the same liability. In those circumstances, it is in
accordance with the interests of justice to set aside the default
judgment entered against the second defendant on 7 January 2014
pursuant to Rule 36.16.

52 The applicant’s motion is granted.

Assessor Olischlager