Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Arnold v Forsythe [2012] NSWCA 18
• Hearing dates: 30 January 2012
• Decision date: 23 February 2012
• Before: McColl JA at 1; Young JA at 2; Sackville AJA at 3

Decision

1. Appeal allowed.

2. Orders made by Truss DCJ on 4 March 2011 be set aside.

3. The default judgment and orders made by Truss DCJ on 30 September 2010 and 14 October 2010 be set aside.

4. Remit to the District Court for hearing and determination Prayer 2(b) of the notice of appeal dated 19 August 2011.

5. The appellant pay the costs of the respondents:

(a) thrown away by reason of the entry of default judgment on 30 September 2010, including the costs of the hearing on 30 September 2010;

(b) thrown away by reason of the entry of default judgment on 14 October 2010, including the costs of the hearing on 14 October 2010; and

(c) of and incidental to the appellant's notice of motion to set aside default judgment filed on 28 October 2010, including the costs of the hearing on 10 February 2011.

6. The respondents pay the appellant's costs of the appeal, including the costs of the application for leave to appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: PRACTICE AND PROCEDURE - default judgment - whether judgment given irregularly - whether plaintiff's claim was for a debt or liquidated sum - whether affidavit in support stated the source of the deponent's knowledge - whether plaintiff entitled to retain portion of the default judgment
• Legislation Cited: Civil Procedure Act 2005; District Court Act 1912 (NSW); Supreme Court Act 1970; Supreme Court Rules 1970; Uniform Civil Procedure Rules 2005
• Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Alexander v Ajax Insurance Co Ltd [1956] VLR 436; Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; 92 CLR 424; Cameron v Cole [1944] HCA 5; 68 CLR 571; Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; 131 CLR 321; Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394; Coulton v Holcombe [1986] HCA 33; 162 CLR 1; Dalgety Futures Pty Ltd v Poretsky [1980] 2 NSWLR 646; Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; 19 VR 358; Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; 70 NSWLR 20; Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; 55 NSWLR 1; Gregory's Transport Pty Ltd v Ray's Haulage Pty Ltd [2008] NSWCA 333; Livingston v Commissioner of Stamp Duties [1960] HCA 94; 107 CLR 411; McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457; Rothwells Ltd Nommack (No 100) Pty Ltd (1988) 13 ACLR 421; Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21; 32 CLR 138; United Builders Pty Ltd v Mutual Acceptance Ltd [1980] HCA 43; 144 CLR 673
• Texts Cited: Odgers, Pleading and Practice (5th ed 1912); Lindley & Banks on Partnership (19th ed, 2010)
• Category: Principal judgment
• Parties: Peter Munroe Arnold - Appellant; David Ross Forsythe, Graeme John Weidenhofer and Geoffrey Mannion trading as Rost & Kitchener Chartered Accountants - Respondents
• Representation: Counsel: D.R Pritchard SC / B K Nolan - Appellant; J Horowitz - Respondents; Solicitors: John Conti Lawyer - Appellant; Beswick Lynch Lawyers - Respondents
• File Number(s): CA 2008/318542

Decision under appeal

• Jurisdiction: 9101
• Date of Decision: 2011-03-04 00:00:00
• Before: Truss DCJ
• File Number(s): 2008/318542

Judgment

1 McCOLL JA: I agree with Sackville AJA's reasons and the orders his Honour proposes.

2 YOUNG JA: I agree with Sackville AJA.

3 SACKVILLE AJA: This is an appeal by leave from a decision of a Judge of the District Court (Truss DCJ). Her Honour dismissed a motion by the appellant seeking orders:

• setting aside an order made by the District Court on 19 August 2010 striking out the appellant's defence and dismissing the appellant's cross-claim;
• setting aside a District Court judgment entered on 30 September 2010 in favour of the respondents on 30 September 2010 for $260,467.60;
• setting aside an order made by the District Court on 14 October 2010 for the payment by the appellant of interest of $46,871.04; and
• granting liberty to the appellant to file an amended defence and cross-claim in the District Court proceedings.

4 The appellant required leave to appeal since the orders made by the primary Judge were interlocutory: Supreme Court Act 1970, s 101(2)(e). Leave was granted by Hodgson JA and Handley AJA on 8 August 2011.

BACKGROUND

5 The appellant and the four respondents were partners in a firm of chartered accountants trading under the name " Rost and Kitchener ". It is common ground that the appellant ceased to be a partner on 30 June 2006. The dispute relates to the terms and effect of an agreement entered into by the parties in December 2006.

The Statement of Claim

6 The respondents pleaded their case in a statement of claim filed in the District Court on 15 August 2008. The " relief claimed " was said to be $260,467.60, together with interest and costs.

7 The statement of claim was as follows:

"1 The [respondents] are each principals of a chartered accounting firm and presently in business trading as Rost & Kitchener Chartered Accountants.

2 The [appellant] was, until 30 June 2006, in partnership with the [respondents] trading as Rost & Kitchener Chartered Accountants.

3 In or about December 2006 the [respondents] and the [appellant] made an agreement the terms of which included that:

(a) their partnership had been dissolved on 30 June 2006;

(b) the [appellant] would acquire from the [respondents] their interest in a specific list of receivables, work in progress and the exclusive rights to service an agreed list of clients;

(c) the [appellant] would assume certain liabilities; and

(d) the [appellant] would pay to the [respondents] the sum of $203,459.31.

('the Separation Agreement')

Particulars:

The Separation Agreement was partly oral and partly in writing. The writing included a memorandum signed by each of the parties.

4 The [appellant] has failed to pay the $203,459.31 due to the [respondents] under the Separation Agreement, in full having only paid $3,959.31. The balance of $199,500 is now due and payable by the [appellant] to the [respondents].

5 In January and April 2007, the [respondents] and the [appellant] entered into further agreements, whereby;

(a) the [appellant] acquired a licence to occupy part of the [respondents'] office premises in [xxx] Clarence Street Sydney for $5,500 per month ('the office licence'); and

(b) the [respondents] agreed to guarantee a bank loan to the [appellant] for $200,000 and the [appellant] agreed to pay the [respondents] 5% per annum on the $200,000 guarantee based on the reducing loan balance ('the bank guarantee agreement'.)

6 Since September 2007, the [appellant] has failed to pay the amounts due under the office licence and the bank guarantee agreement.

7. The [respondents] claim:

(i) $199,500 pursuant to the Separation Agreement, plus interest from 31 January 2007;

(ii) $60,967.60 pursuant to the office licence and bank guarantee agreement; and

(iii) costs."

8 The statement of claim included a notice to the appellant informing him that if he did not file a defence within 28 days the Court might enter judgment against him without further notice. The notice stated that such a judgment " may be for the relief claimed in the statement of claim " and costs. One of the respondents (Mr Forsythe) swore an affidavit stating his belief that the allegations in the statement of claim were true.

District Court Proceedings

9 On 30 September 2010, the primary Judge entered judgment for the respondents against the appellant in the sum of $260,467.60, plus costs. Her Honour held that the respondents' claim was for a debt or liquidated claim within the meaning of Uniform Civil Procedure Rules ("UCPR"), r 16.6(1) which provides for judgment to be given against a defendant in default. The appellant was " in default ", as that term is defined in r 16.2, because his defence had been struck out. In these circumstances, her Honour considered it appropriate to give judgment in the amount claimed by the respondents.

10 On 28 October 2010, the appellant filed a motion to set aside the default judgment. The motion was filed pursuant to UCPR r 36.15(1), which empowers the court, on sufficient cause shown, to set aside a judgment given or entered irregularly. Reliance was also placed on r 36.16, which (relevantly) applies only if the default judgment is not given in open court or is given in the absence of a party: r 36.16(2)(a), (b). The primary Judge dismissed the motion in a judgment delivered on 4 March 2011.

Issues on Appeal

11 The appellant contends in this Court that the primary Judge should have concluded that the judgment in the District Court was entered irregularly for the purposes of r 36.15(1) because:

(i) the respondents' statement of claim failed to plead the material facts necessary to establish a cause of action and thus could not support a default judgment;

(ii) in any event, the claim pleaded by the respondents did not constitute a claim for a debt or liquidated claim within the meaning of r 16.6(1); and

(iii) the affidavit filed in support of the respondents' motion for default judgment was insufficient for the purposes of r 16.6(2), in particular r 16.6(2)(c), because it did not state the source of the deponents' knowledge of the matters stated in the affidavit.

The appellant does not rely on r 36.16 in this Court. The default judgment was given in open court, in the presence of the appellant's counsel. The appellant accepts that in these circumstances r 36.16 is not available to him.

THE RULES

Pleadings

12 UCPR, r 6.2(1) provides that a person may commence proceedings in the court by filing a statement of claim or a summons. However, proceedings on a claim for relief in relation to a debt or other liquidated claim must be commenced by statement of claim: r 6.3(a).

13 A statement of claim or summons must specifically state the relief claimed by the plaintiff: r 6.12(1). Subject to presently irrelevant exceptions, a pleading must not claim an amount for unliquidated damages: r 14.13(1). A party's pleading, including a statement of claim, must be verified by an affidavit which states that the deponent believes any allegations of fact to be true: r 14.23(1), (2), (3).

14 An order for interest must be specifically claimed and, in the case of a liquidated claim, must specify the period for which interest is sought and the rate at which interest is claimed: r 6.12(6), (7). A statement of claim must also contain a statement specifying, among other things, that when a defence is filed a judgment or order may be entered against the defendant: r 6.13.

15 When proceedings are commenced by statement of claim, a party's pleading must contain only a summary of the material facts on which the party relies: r 14.7.

Default Judgments

16 UCPR Pt 16 permits a plaintiff to obtain judgment where a defendant has failed to file a defence or where a defence has been struck out. For the purposes of Pt 16, a defendant is " in default " if he or she fails to file a defence within the prescribed time, or if the court orders the defence to be struck out: r 16.2.

17 If a defendant is in default, the plaintiff may apply for judgment to be given under Pt 16 " according to the nature of his or her claim for relief ": r 16.3(a). Unless otherwise ordered, an application under r 16 may be dealt with in the absence of the parties and need not be served on the defendant: r 16.3(1A). Unless the court otherwise orders, an application for judgment to be given under Part 16 must be accompanied by an affidavit in support: r 16.3(2)(b).

18 As I have noted, r 16.6 deals with the requirements for a default judgment on a debt or liquidated claim. It provides as follows:

"(1) If the plaintiff's claim against a defendant in default is for a debt or liquidated claim ... judgment may be given for the plaintiff against the defendant for:

(a) a sum not exceeding the sum claimed, and

(b) interest up to judgment, and

(c) costs.

(2) The relevant affidavit in support:

(a) must state the amount due to the plaintiff, in respect of the cause of action for which the proceedings were commenced, as at the time the originating process was filed, and

(b) must give particulars of any reduction of that amount, and costs, as a consequence of any payments made, or credits accrued, since the time the originating process was filed, and

(c) must state the source of the deponent's knowledge of the matters stated in the affidavit concerning the debt or debts, and

(d) must state the amount claimed by way of interest, and

(e) must state whether costs are claimed and, if so, how much is claimed for costs ...

(f) must state when and how the originating process was served on the defendant." (Emphasis added.)

Setting Aside Judgments

19 UCPR r 36.15(1) provides as follows:

"A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith."

COURSE OF THE LITIGATION

Steps Preceding the Motion for Default Judgment

20 The appellant represented himself in the District Court litigation until April 2009. It appears that shortly after being served with the statement of claim in September 2008, he wrote to the District Court enclosing a defence and cross-claim which he had drafted. According to the appellant, he received no response to his letter.

21 On 20 October 2008, without further reference to the appellant, the respondents obtained default judgment against him for $266,546.34, including costs. The appellant applied to set aside the default judgment. On 24 April 2009, the District Court set the judgment aside and ordered the appellant to file his defence or cross-claim within 28 days.

22 The appellant, through a solicitor, filed a defence on 21 May 2009. The defence admitted that the appellant had executed the Separation Agreement and that the partnership had been dissolved on 30 June 2006. The defence also admitted that under the Separation Agreement the appellant would acquire from the respondents work in progress and the exclusive rights to service an agreed list of clients, but asserted that the list had never been agreed. The appellant denied that he was to receive the respondents' interest in a specified list of receivables.

23 The appellant further denied that he had agreed to pay the sum of $203,459.31 and asserted that this sum was merely an estimate and in any event was wrongly calculated. The defence detailed what were described as " particulars of erroneous calculations " made by the respondents. The appellant's calculations set out how the respondents had reached a figure of $203,515.00 due to them (very close to the amount actually claimed of $203,459.31). The appellant's calculations incorporated what were said to be adjusted and corrected figures which demonstrated that the respondents owed the appellant $44,392.

24 The appellant filed a cross-claim seeking orders against the respondents setting aside the Separation Agreement or declaring it void. The cross-claim alleged, among other things, that the appellant had been induced to enter the Separation Agreement by undue influence. The appellant also sought an order for $66,577.50, said to be the total of moneys due and owing to him by the respondents.

25 After several interlocutory hearings, on 7 July 2010 Gibb DCJ set the matter down for hearing on 27 September 2010, with an estimate of two to three days. Her Honour made orders in relation to discovery and the filing of affidavits.

26 On 12 August 2010, the respondents were granted leave to file a notice of motion returnable on 19 August 2010, seeking orders striking out the defence and cross-claim because of the appellant's failure to comply with court orders.

27 The appellant did not appear on 19 August 2010. The respondents' motion was heard by McLoughlin DCJ. His Honour was satisfied that the appellant had been served with the appellant's notice of motion and the supporting affidavit. His Honour ordered that the defence and cross-claim be struck out by reason of the appellant's failure to comply with the orders made on 7 July 2010. There is no challenge in the present appeal to these orders.

The Default Judgment

28 On 1 September 2010, the respondents filed a notice of motion headed " Default Judgment for Liquidated Claim ". The motion sought judgment against the appellant for $347,951.19.

29 The affidavit in support of the motion was sworn by a solicitor and was in the following form:

"1. I am a solicitor in the employ of the solicitor on record for the [respondents].

2. The source of my knowledge of the matters contained in this affidavit concerning the debt is that I have care and care and conduct of this matter for the [respondents].

3. The statement of claim commencing these proceedings was filed on 15 August 2008. The statement of claim was served personally on the Defendant on 4 September 2008. The source of my knowledge is the affidavit of service ...

4. The amount owing to the [respondents] at the time of commencement of the proceedings in respect of the cause of action for which the proceedings were commenced was $260,467.60.

5. Since the commencement of the proceedings, no payments have been received or credits accrued to reduce the amount of the claim.

6. The amount owing to the [respondents] and amounts claimed for interest and costs as at the date of swearing this affidavit are:

Current amount owing	$260,467.60
Interest claimed at the prescribed rate of 10% under UCPR schedule 5 from 31 January 2007 - 5 March 2009	$ 50,532.21
Interest claimed at the prescribed rate of 9% under UCPR Schedule 5 from 6 March 2009 - 30 June 2010	$ 30,956.40
Interest claimed at the prescribed rate of 8.5% under UCPR Schedule 5 from 1 July 2010 - 9 September 2010	$ 4,245.98
Filing fees	$ 512.00
Service fees	$ 100.00
Solicitors fees	$ 1,137.00
TOTAL	$347,951.19"

30 The respondents' motion for default judgment came before the primary Judge on 9 September 2010. The appellant was represented by counsel, who successfully applied for the matter to be adjourned until 30 September 2010. Directions were made requiring the appellant to file any notice of motion within fourteen days.

31 On 23 September 2010, the appellant, through his counsel, filed a motion seeking to set aside the orders striking out the defence and cross-claim. No supporting affidavit was filed.

32 On 30 September 2010, both motions came before the primary Judge. Counsel appearing for the appellant requested that the appellant's motion be adjourned. Her Honour indicated that she was not prepared to grant an adjournment. Since the appellant's counsel was not in a position to tender any evidence in support of the motion, her Honour dismissed the appellant's motion.

33 The primary Judge then heard the respondents' motion. The respondents' counsel read the solicitor's affidavit in support of the motion. The following exchange then took place:

"HER HONOUR: Let me have a look at that [affidavit]. Normally the affidavit is by the party rather than the solicitor of a party.

MEEHAN: This is an affidavit intended to be in compliance with rule 16.6. Your Honour might recall that what happened on 19 August your Honour made orders striking out the defence of the cross claim.

HER HONOUR: Yes.

MEEHAN: I then was intending to move the Court for orders entering judgment but I informed the Court that we didn't have an affidavit which I believed was necessary in compliance with this rule, 16.6 Your Honour then stood the matter over until 9 September part heard. I must say I cannot see where any requirement that the affidavit be by a particular person.

HER HONOUR: No, it's just--

MEEHAN: And in my submission it is otherwise compliant with the provisions in subs 2 of that rule."

34 The primary Judge asked the appellant's counsel whether he had any objection to the affidavit. Other than observing that the respondents were not entitled to claim service and filing fees (amounting to $1,237), counsel did not object to the affidavit and made no submission that the affidavit failed to comply with r 16.6(2). Indeed it does not appear from the transcript that the appellant's counsel was expressly invited to make submissions as to whether the primary Judge should enter judgment against the appellant pursuant to r 16.6(1). In any event, counsel did not seek to make submissions except in relation to some minor components of the amount claimed by the respondents.

35 After some discussion on these issues, her Honour gave judgment for the respondents against the appellant for $260,467.60, plus costs. She granted the respondents liberty to apply in relation to interest and adjourned the proceedings until 14 October 2010. By dealing with the respondents' application in this way, the primary Judge heard the matter in open court.

The Motion to Set Aside the Default Judgment

36 At the adjourned hearing, the appellant's counsel indicated that he had instructions to file a motion to set aside the orders made on 30 September 2010, but that no documents had yet been filed. Her Honour proceeded to deal with the respondents' claim for interest and ordered the appellant to pay interest in the sum of $46,871.04. Her Honour also made directions for the filing of a further motion by the appellant and granted a stay of execution of the judgment entered on 30 September 2010.

37 On 28 October 2010, the appellant filed his notice of motion seeking to set aside the judgment entered in favour of the respondents (see [3] above).

38 The appellant's motion was heard on 10 February 2011. Counsel who now appeared on behalf of the appellant submitted that the judgment should be set aside on the ground that it had been given or made irregularly. The irregularity was said to be that the statement of claim did not plead a cause of action for debt or a liquidated claim. No argument was advanced that the affidavit in support of the respondents' application for default judgment failed to comply with the requirements of r 16.6(2).

39 The appellant's counsel sought to read a number of affidavits in support of the appellant's case. The respondents' counsel objected on the ground that the affidavits were irrelevant to the question of whether there had been an irregularity. The objection led to the following exchange:

"HER HONOUR: Can we do it this way. Mr Meehan, if at the end of the day the court determines that the judgment was entered irregularly or illegally does the plaintiff propose to advance any argument to the effect that why despite that the judgment should not be set aside.

MEEHAN: No, your Honour, I couldn't advance such a proposal."

Her Honour did not formally reject the affidavits, but following this exchange the appellant's counsel did not press the application to read the affidavits.

The Primary Judgment

40 The primary Judge rejected the appellant's contention that the statement of claim, properly understood, did not plead a claim for debt or a liquidated claim. In her Honour's view, it was not necessary for the respondents to plead any conditions precedent to the appellant's obligation to pay any sum certain due under the Separation Agreement. The statement of claim, on its face, pleaded a liquidated claim in debt.

41 Her Honour also rejected the appellant's submission that the statement of claim did not contain a summary of material facts as required by r 14.7. A perusal of the defence filed by the appellant demonstrated that he had not experienced any difficulty in pleading to para 3 of the statement of claim.

42 Accordingly, the primary Judge dismissed the appellant's notice of motion.

REASONING

Irregularity: Debt or Liquidated Claim

43 It is convenient to commence with the appellant's contention that the statement of claim did not plead a claim for a debt or liquidated claim, within the meaning of UCPR r 16.6(1). Mr Horowitz, who appeared for the respondents, accepted the following propositions, subject to several matters I shall refer to later:

• if the appellant established that the statement of claim did not plead a claim for a liquidated amount, the default judgment against him had been given or entered irregularly;
• the appellant was entitled to rely on r 36.15(1) to set aside the default judgment, notwithstanding that the judgment had been given in open court and in the presence of the appellant's counsel; and
• if the judgment had been given or entered irregularly because of the failure to plead a claim for a liquidated amount, the appellant was entitled to an order setting aside the default judgment.

Authorities on Debt or Liquidated Claim

44 The UCPR do not define the expression " debt or liquidated claim " used in r 16.6(1). However, similar expressions have been employed in other legislation or rules providing for default judgments. In Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21; 32 CLR 138, the question was whether a claim under an award for reasonable legal expenses incurred in an inquiry was for a " debt or liquidated demand " within the meaning of s 64 of the District Court Act 1912 (NSW). Knox CJ and Starke J adopted (at 142) the view of Odgers, Pleading and Practice (5 th ed), at 41, that:

"whenever the amount to which the plaintiff is entitled ... can be ascertained by calculation or fixed by any scale of charges, or other positive data, it is ... liquidated."

Their Honours held that since the plaintiff had a contractual right to recover his reasonable expenses incurred at the inquiry and since the expenses could be readily quantified, his claim was for a liquidated amount. See also at 145, per Isaacs and Rich JJ; Dalgety Futures Pty Ltd v Poretsky [1980] 2 NSWLR 646, at 649-650, per Rogers J.

45 However, a claim is not necessarily one for a liquidated amount merely because it can be readily quantified. In Alexander v Ajax Insurance Co Ltd [1956] VLR 436, Sholl J held that a claim under a house insurance policy for ₤1,000, the maximum amount payable under the policy for lost contents, was not a claim for a debt or liquidated demand. His Honour, after a detailed historical analysis of the authorities, held (at 445) that the expression " debt or liquidated demand " cove red any claim:

"(a) for which the action of debt would lie;

(b) for which an indebitatus (or 'common') count would lie - including those cases formerly covered by the quantum meruit or quantum valebat counts, notwithstanding that the only agreement implied between the parties in such cases was for payment at a 'reasonable' rate;

(c) for which covenant, or special assumpsit , would lie, provided that the claim was for a specific amount, not involving in the calculation thereof elements the selection whereof was dependent on the opinion of a jury."

46 The plaintiff's claim in Alexander v Ajax Insurance did not answer this description since it sought damages for breach of the contract of insurance. This was so notwithstanding that, on the plaintiff's case, the loss exceeded the maximum payable under the policy. See also Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; 19 VR 358, at 385 [78]-[81], per Nettle JA (with whom Ashley and Dodds-Stretton JJA agreed).

47 In Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 13 ACLR 421, McPherson J observed (at 424) that there were three ways in which a debt could arise at common law such as to support an action in debt or indebitatus assumpsit . These were:

"(1) by judgment; (2) by deed under seal; and (3) as the quid pro quo for a consideration that was executed. "

His Honour quoted Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; 92 CLR 424, at 456-457, per curiam , as authoritatively stating the nature of the required relationship between a promise to pay money and the executed consideration:

"In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act; and that the act was really done in consideration of a potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak, the relation of a quid pro quo ."

Construction of the Statement of Claim

48 There is little doubt that the drafter of the respondents' statement of claim intended to plead a claim for a debt or liquidated claim. The pleading specifies the amount of claim ($260,467.60), something that is not permitted in a claim for unliquidated damages: r 14.13(1). Moreover, the allegation that a precise sum is " now due and payable " by the appellant to the respondents suggests that the appellant's claim is for a liquidated sum. However, the specification of a precise amount does not convert what is otherwise a claim for unliquidated damages into a liquidated claim: Environmental Systems v Peerless Holdings , at 385 [81]. It is therefore necessary to examine the appellant's statement of claim to determine whether it can be characterised as pleading a claim for a debt or liquidated claim so as to satisfy r 16.6(1).

49 The respondents submitted that paras 3 and 4 of the statement of claim ([7] above) should be construed as pleading that upon execution of the Separation Agreement :

(a) the appellant acquired, without the need for any further action, the respondents' interest in the receivables and work in progress and the right to service particular clients; and

(b) the appellant immediately incurred an unconditional obligation to pay the respondents the sum of $203,459.31.

50 There are several difficulties with this interpretation of the statement of claim. The first is the conditional language used in the pleading. Sub-paragraph 3(b) of the statement of claim pleads that under the Separation Agreement the appellant would acquire the various interests and entitlements. The statement of claim does not allege that the appellant acquired those interests or entitlements upon execution of the Separation Agreement. Similarly, sub-paras 3(c) and (d) plead that the appellant would assume certain unspecified liabilities and would pay the respondents the sum of $203,459.31. While this language is not unambiguous, it suggests that the Separation Agreement (which was alleged to be partly in writing and partly oral) contemplated that the appellant would be obliged to pay the specified sum if and when the respondents took the necessary steps to assign or otherwise transfer the various interests and entitlements to him.

51 The second difficulty is that, as Mr Horowitz accepted, unless this interpretation of the statement of claim is adopted, the allegations in sub-paras 3(b) and (c) are surplusage. If the intent was to allege that the Separation Agreement contained a term requiring the appellant to pay a particular sum independently of any other term or condition, it was neither necessary nor appropriate for the statement of claim to plead the other terms or conditions in the Separation Agreement.

52 Thirdly, where a partnership is dissolved or one partner retires from the partnership (the statement of claim is not clear on this point), the acquisition by one former partner of the interests of the others is not a simple matter: see Livingston v Commissioner of Stamp Duties [1960] HCA 94; 107 CLR 411, at 453, per Kitto J; Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; 131 CLR 321, at 327-328, per curiam ; United Builders Pty Ltd v Mutual Acceptance Ltd [1980] HCA 43; 144 CLR 673, at 687-688, per Mason J; Lindley & Banks on Partnership (19 th ed, 2010), at [19-09]-[19-12]. Similarly, the mechanisms by which a retiring partner or former partner is able to assume the liabilities of his partners require careful consideration, starting with precise identification of the liabilities to be assumed.

53 There is no evidence as to whether the partners appreciated the potential complexity of the arrangements required to bring about the legal consequences contemplated in an agreement in the terms pleaded in sub-paras 3(b) and (c) of the statement of claim. Nonetheless, the complexity of those arrangements tends to suggest that the statement of claim, properly construed, does not allege that the appellant acquired the interests by virtue of the Separation Agreement itself, without the need for the respondents having to take any further steps to implement the arrangements in a legally effective manner.

54 Mr Horowitz sought to obtain comfort from the fact that the appellant's defence (which was subsequently struck out) appeared to demonstrate an understanding of how the amount claimed in the statement of claim had been calculated. It can be accepted that the appellant was able to follow how the respondents had arrived at the figure included in the statement of claim. But that does not establish that the pleaded claim was for a liquidated amount.

55 It follows from what I have said that the respondents' statement of claim should be read as alleging that the appellant incurred a binding obligation under the Separation Agreement to pay the respondents $203,459.31 if and when he acquired the interests referred to in sub-para 3(b). It follows that his obligation to pay this sum, as pleaded in the statement of claim, was dependent upon the respondents taking the steps necessary to assign or otherwise vest the relevant interests in the appellant.

An Irregularity

56 Construed in this way, the statement of claim does not comply with the rules of pleading. In particular, it does not allege that the respondents took all steps necessary or appropriate to vest the relevant interests in the appellant. While the pleading alleges that the balance of the sum of $203,459.31 " is now due ", it does not allege the material facts demonstrating that the appellant's liability to pay the balance of that sum had accrued.

57 It may be that if the statement of claim had pleaded that the respondents had fulfilled their promise and that the promise was the quid pro quo for the appellant's obligation to pay a specified amount, the respondents' claim would have been for a liquidated sum. This is consistent with the principles to which I have referred ([46]-[47] above). It is also consistent with the general principle applicable to contracts for the purchase of land that:

"on the failure or refusal of a purchaser to complete an executory contract for the purchase of land the vendor is not entitled to sue for the purchase money as a debt. He is entitled merely to sue for specific performance or for damages for the loss of his bargain. It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly."

McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457, at 473, per Dixon J (citing Sir John Salmond). The same principle applies to the sale of goods: McDonald v Dennys Lascelles, at 473-474.

58 However, the statement of claim does not plead that the respondents' promise was the quid pro quo for the appellant's obligation to pay an agreed sum of money. More importantly, it does not plead that the respondents fulfilled their promise, thus enlivening the appellant's obligation. In these circumstances, the statement of claim does not plead a claim for a debt or liquidated sum within the meaning of UCPR r 16.6(1).

59 It is not necessary to decide whether the claim is correctly described as a claim for unliquidated damages for breach of contract. It is enough for present purposes to conclude that, as the pleaded claim is not for a debt or liquidated claim, it could not support a default judgment against the appellant pursuant to r 16.6(1). Thus the judgment against the appellant was given or entered irregularly for the purposes of r 36.15(1).

Respondents' Alternative Arguments

60 Mr Horowitz submitted that even if the default judgment had been given or entered irregularly, this Court should not make an order setting it aside. Mr Horowitz contended that:

(i) since the appellant's counsel did not raise the issue of the respondents' non-compliance with r 16.6(1) at the hearing at which the default judgment was entered, the appellant had waived any entitlement to rely on any failure to plead a claim for a liquidated amount;

(ii) the appellant in any event could not rely on the irregularity because of s 63 of the Civil Procedure Act 2005 (" CP Act "); and

(iii) if all else failed, the judgment should be set aside only insofar as it related to the respondents' claim for $199,500 and judgment for the separate claim for $60,967.60 should remain on foot as the judgment, to that extent was for a liquidated amount.

Waiver

61 In support of the respondents' contention that the appellant had waived his entitlement to rely on the respondents' failure to plead a liquidated claim, Mr Horowitz relied on Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394. In Verwayen , the Commonwealth, which was the defendant in an action for personal injuries, made a conscious and deliberate decision not to plead a limitations defence that was open to it. The Commonwealth communicated its decision to the plaintiff, who took steps in the proceedings on the faith of the decision. The Commonwealth subsequently resiled from its decision and was granted leave to amend its pleadings to rely on the limitations defence. The High Court, by majority, held that the Commonwealth was not entitled to rely on the limitations defence (Deane, Dawson, Toohey and Gaudron JJ; Mason CJ, Brennan and McHugh JJ dissenting).

62 Of the majority, Deane J (at 449) and Dawson J (at 457) did not consider the case to depend on the doctrine of waiver, but on estoppel. Dawson J held (at 451) that waiver, except where it is used in the sense of election between mutually exclusive remedies, is indistinguishable from estoppel. Gaudron J applied (at 484-485) a principle " analogous to ... estoppel ", that a party to litigation will be held to a position previously taken, if that position is taken intentionally and with knowledge and if, as a result of that position, the relationship of the parties has changed. Toohey J (at 472-473) said that the doctrine of waiver, as it exists within the adjudicative process, applies where a defendant deliberately " renounces " a defence which is available and is for his or her benefit. See the discussion of Verwayen in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570, at 589-590 [60]-[61], per Gummow, Hayne and Kiefel JJ.

63 As the plurality observed in Agricultural and Rural Finance v Gardiner (at 590 [62]), the analysis of waiver in Verwayen depended on the particular setting in which the issue arose. Within that setting two elements were critical to the various strands of reasoning in the case. One was that the Commonwealth had made a deliberate decision not to plead a limitations defence and had communicated that decision to the plaintiff. The second was that the plaintiff had acted to his detriment in reliance on the Commonwealth's decision. Neither element is present in this case.

64 It is true that the appellant's counsel made no submission to the primary Judge on 30 September 2010 that, since the respondents had not pleaded a claim for a liquidated amount, they were not entitled to a default judgment against the appellant pursuant to r 16.6. But the respondents have not suggested in this Court that the appellant's failure to make any such submissions was the consequence of a deliberate decision to forego a contention available to him. There is no basis for concluding that the failure to put the argument was due to anything more than inadvertence.

65 Nor have the respondents shown that they suffered detriment in a relevant sense by reason of the appellant not raising the liquidated claim argument at the default judgment hearing. Mr Horowitz submitted that if the appellant had submitted that the respondents had not pleaded a claim for a liquidated amount they could have read an affidavit from Mr Forsythe (one of the respondents), which had been sworn prior to the hearing. According to Mr Horowitz, the affidavit would have demonstrated that the respondents were putting forward a liquidated claim.

66 Mr Horowitz did not explain how Mr Forsythe's affidavit, if read, would have cured the respondents' failure to plead a liquidated claim. The affidavit annexes the minutes of a meeting which are said to constitute the written part of the Separation Agreement. But neither this document nor the remainder of the affidavit addresses or remedies the failure of the respondents to plead a liquidated claim.

67 I should add that no submission was made that the appellant's conduct during the respondents' application for summary judgment satisfied any of the three different principles identified (at 588 [55]) in Agricultural and Rural Finance v Gardiner under the rubric of waiver, namely election, forbearance and abandonment or renunciation. It is difficult to see how the appellant's conduct could attract any of these principles.

68 For these reasons, the respondents have not shown that the appellant waived his entitlement to rely on the respondents' failure to plead a liquidated claim as a ground for setting aside the default judgment.

Section 63 of the CP Act

69 Section 63(1) applies to proceedings in which there is a failure to comply with the CP Act or the UCPR. Such a failure is to be treated as an irregularity and, subject to sub-section (3), does not invalidate the proceedings or any order in the proceedings: s 63(2). Section 63(3) preserves the power of the court to set aside any order where there is an irregularity. However, s 63(4) provides that the court may not set aside an order by reason of an irregularity

"unless the application is made within a reasonable time and... before the party takes any fresh step in the proceedings after becoming aware of the failure".

70 Assuming the giving or entry of the default judgment in the present case was the consequence of an " irregularity " within the meaning of s 63(2) of the CP Act, the appellant promptly filed a motion seeking to set aside the judgment. He therefore acted within a reasonable time and did so before taking what could be described as taking " a fresh step in the proceeding ". The filing of the motion to set aside the judgment was not relevantly a fresh step in the proceeding.

Severing the Judgment

71 The appellant submitted that once the Court concluded that the default judgment had been given or entered irregularly, the judgment and any consequential orders made by the primary Judge should be set aside. Mr Pritchard SC, who appeared with Ms Nolan, contended that the irregularity was fundamental, in that the District Court simply had no power to enter a default judgment under r 16.6 since the pleaded claim was not for a liquidated sum. It followed, so he argued, that the appellant was entitled to have the judgment set aside ex debito justitiae : cf Cameron v Cole [1944] HCA 5; 68 CLR 571, at 579, 581 per Latham CJ. Mr Pritchard added that, in any event, there was no dispute that the appellant had an arguable defence in each aspect of the respondents' claim.

72 Mr Horowitz did not dispute that the appellant, once the irregularity I have identified was established, was entitled to have the judgment for $260,467.60 set aside. However, as I have noted, he submitted that the judgment should be set aside only insofar as it related to the claim for the sum of $199,500, and not insofar as it related to the separate claim for the sum of $60,967.60. He contended that the latter claim, as pleaded, was for a liquidated sum and thus was severable from the first claim. Mr Horowitz accepted that the appellant had an arguable defence to the claim for $60,967.60. However, he pointed out that UCPR r 16.8(1) provides that:

"If the plaintiff's claim against a defendant in default includes any 2 or more of the claims referred to in this Part, and no other claim, judgment may be given for the plaintiff against the defendant on any of those claims as if it were the plaintiff's only claim for relief against that defendant."

73 The default judgment obtained by the respondents was for a single amount. They did not rely on r 16.8 in order to distinguish between the two amounts said to be due by the appellant under the Separation Agreement.

74 On the hearing of the appellant's motion in the District Court to set aside the default judgment, the respondents again did not distinguish between the two amounts claimed in the statement of claim. In particular, they made no submission that if the judgment for $260,467.60 was irregularly made, it should be set aside only to the extent of $199,500 and should remain on foot as to the balance. On the contrary, the application before the primary Judge was conducted by the respondents on the express basis that if her Honour concluded that the judgment had been made or entered irregularly, it had to be set aside in its entirety. The respondents' written submissions in this Court did not depart from the position they had adopted in the District Court. It was only in oral submissions that Mr Horowitz belatedly sought, in effect, to divide the judgment into two parts. He referred to r 16.8 in supplementary written submissions.

75 In my opinion, there is a strong argument that the respondents should not be permitted to resile from the basis on which the District Court hearing was conducted. Because the issue was not raised in the District Court on the motion to set aside the judgment, no arguments were advanced as to whether the claim for $60,967.60 was for a liquidated sum or whether an irregularity in giving judgment for a single sum can be said to affect only part of the judgment. The respondents did not file or seek to file a cross-appeal or notice of contention in this Court: cf rr 50.10, 11. The issue only arose in oral argument on the appeal.

76 In any event, I do not think that the respondents' argument should be accepted. The respondents applied for and were given default judgment for a single sum, in accordance with the case pleaded in the statement of claim. They did not seek a default judgment in respect of each of the amounts claimed in the statement of claim, as r 16.8 contemplates. They did not file an affidavit specifically addressing the claim for $60,967.60, as required by r 16.8(2).

77 The appellant applied pursuant to r 36.15(1) to set aside the default judgment for $260,967.60 that the respondents had obtained. As I have explained, that judgment was given irregularly within the meaning of r 36.15(1). The Court's power to set aside the default judgment was therefore enlivened. In any event, the respondents did not comply with the requirements laid down by r 16.8(2) in respect of the claim for $60,967.60.

78 To leave standing the default judgment to the extent of $60,697.60 would give the respondents the benefit of a default judgment which is affected by an irregularity. That is so whether the judgment is seen as for a single sum ($260,467.60) or for a portion of that sum, namely $60,697.60. Since the respondents accept that the appellant has an arguable defence to the claim for $60,697.60, I see no proper basis on which this Court should make orders her Honour was not asked to make.

Irregularity: Defect in Pleading

79 The appellant submitted that if a plaintiff obtains a default judgment on the basis of a statement of claim that omits any material facts necessary to support the pleaded cause of action, the judgment is given irregularly and is thus liable to be set aside under r 36.15. According to Mr Pritchard, this principle operates independently of any entitlement to set aside a default judgment arising from a failure to plead a liquidated claim. It follows, so he argued, that the respondents' failure to plead all material facts necessary to establish its entitlement to be paid $199,500 pursuant to the Separation Agreement constituted an irregularity. Accordingly, the default judgment was also liable to be set aside on this ground.

80 Because I have concluded that the respondents obtained the default judgment irregularly in any event, I need not decide whether this contention should be upheld. However, had it been necessary to do so, I would have concluded that the pleading defects constituted an irregularity and that the Court's power in r 36.15(1) to set aside the default judgment was attracted.

81 The appellant's contention receives support from Fenato v Chief Commissioner of State Revenue [2010] NSWCA 80; 78 NSWLR 20. In that case, the Chief Commissioner obtained a default judgment on a statement of claim seeking an order for unpaid land tax and interest. The statement of claim did not plead the fact of service of the notices of assessment, nor the due date for payment specified in the notices.

82 Gzell J, with whom Beazley and Macfarlan JJA agreed, held that:

• the service of the assessments and specification of the due date for payment were essential elements in the Chief Commissioner's action for money due pursuant to a statute (at 26 [39]);
• by failing to plead these matters, the statement of claim omitted essential elements in the cause of action (at 28 [61]-[63]);
• the pleading deficiencies constituted an irregularity in giving the judgment and attracted the Court's power under r 36.15(1) to set aside the judgment (at 30 [75]); and
• the defendant was entitled to have the material facts pleaded in order to know the case alleged against him and the Chief Commissioner's failure to do so justified setting aside the default judgment (at 30-31 [84]).

Gzell J did not need to decide whether a failure to plead material facts entitles a defendant to have a default judgment based on that pleading set aside ex debito justitiae (at 29 [71]-[72]).

83 I do not read the decision in Fenato v Chief Commissioner as establishing that a failure to plead any material fact in a statement of claim will necessarily constitute an irregularity for the purposes of r 36.15. The significance of such a failure may depend on the nature of the material facts omitted and whether the pleading, despite the omission, sufficiently identifies the case pleaded against the defendant. If it were otherwise, challenges to default judgments could be made in cases where the pleading defects were of little practical importance and created no prejudice to the defendant. If a pleading defect entitles a defendant as of right to set aside a default judgment based on the pleading (a matter left open in Fenato v Chief Commissioner ), applications to set aside judgments are likely to turn on fine pleading points in a context divorced from that in which the relevant principles were developed.

84 In the present case, however, the omissions in the statement of claim went to the very foundations of the respondents' cause of action against the appellant. By reason of the omissions, the case the appellant was required to meet was not clear. On the authority of Fenato v Chief Commissioner , this would have been a sufficient reason to conclude that the default judgment had been given irregularly. In a case where the appellant has an arguable defence, the appropriate order would have been to set aside the default judgment.

Irregularity: The Supporting Affidavit

85 Because I have already upheld the appellant's contention that the default judgment was given or entered irregularly, it is not strictly necessary to consider whether the judgment was also given irregularly because the supporting affidavit did not comply with r 16.6(2). However, I should say something briefly about this issue, which relates to the respondents' case that it should retain the default judgment to the extent of $60,697.60.

86 It should be noted that the appellant's counsel made no submission on the hearing of the application for default judgment on 30 September 2010 that the affidavit in support of that application did not comply with r 16.6(2). Nor was that point raised before the primary Judge when the appellant applied for orders setting aside the default judgment. The argument was raised for the first time on the appeal.

87 It will be recalled that the respondents accepted before the primary Judge that if the appellant established the irregularity on which he relied at that hearing (that the claim was not for a liquidated amount), an order should be made setting aside the default judgment. Since the appellant did not rely before the primary Judge on any defects in the affidavit, the respondents' concession did not extend to an irregularity arising by reason of the affidavit not complying with r 16.6(2). Thus, the concession would not necessarily mean that success by the appellant on this point (unlike success on the liquidated claim issue) would result in the setting aside of the default judgment.

88 In summary, my views on this aspect of the case are as follows:

(i) If a plaintiff obtains a default judgment pursuant to r 16.6(1) without filing an affidavit in support that substantially complies with the requirements specified in r 16.6(2), the judgment is liable to be set aside under r 36.15(1) since the judgment would have been given or entered irregularly. This follows from the mandatory language used in r 16.6(2). See Gregory's Transport Pty Ltd v Ray's Haulage Pty Ltd [2008] NSWCA 333, at [17], [18], [23], per Macfarlan JA (with whom Allsop P and Campbell JA agreed), a case in which no affidavit in support was filed.

(ii) This principle is attracted if the affidavit in support fails to state the source of the deponent's knowledge of the matters stated in the affidavit as concerning the debt, as required by r 16.6(2)(c).

(iii) The affidavit relied on by the respondents (extracted at [29] above) purported to comply with r 16.6(2)(c) but did not in fact comply. The deponent (a solicitor employed by the solicitors on the record for the respondents) said that his source of knowledge of the relevant matters was that he had care and conduct of the matter for the respondents. This statement merely indicated that the deponent might have had access to information that could be said to be a source of knowledge for his claim that the appellant owed the respondents amounts totalling $347,951.19. The deponent did not address in his affidavit how, in the course of conducting the matter on behalf of the respondents, he acquired the knowledge that these amounts were due by the appellant to the respondents. The information provided in the affidavit is insufficient to enable the court determining the application (which need not be served on the defendant and may be dealt with in the absence of the parties) to ascertain whether the source of knowledge is likely to be reliable. A solicitor acting for a plaintiff is unlikely to have personal knowledge of the matters underlying the plaintiff's claim.

(iv) The same reasoning applies to the affidavit insofar as it relates to the respondents' claim for $60,967.60.

(v) The failure of the appellant's counsel to object to the reading of the solicitor's affidavit at the hearing of the application for a default judgment does not preclude the appellant relying on the failure to comply with r 16.6(2)(c) on the application to set aside the judgment. The fact that the affidavit did not comply with r 16.6(2)(c) did not necessarily make the relevant paragraphs inadmissible.

(vi) There is a question as to whether the appellant should be permitted to rely in this Court on the defect in the supporting affidavit, given that he did not raise the issue before the primary Judge: Coulton v Holcombe [1986] HCA 33; 162 CLR 1, at 8, per Gibbs CJ, Wilson, Brennan and Dawson JJ. Had it been necessary to do so, I would have permitted the appellant to rely on the argument, which involves only a question of law and was adverted to (if somewhat obliquely) by the primary Judge in any event on the respondents' application for the default judgment.

(vii) If this had been the only ground made out by the appellant, it would have justified this Court allowing the appeal and making orders setting aside the default judgment.

ORDERS

89 It follows from the conclusions I have reached that the following orders should be made:

1. Appeal allowed.

2. Orders made by Truss DCJ on 4 March 2011 be set aside.

3. The default judgment and orders made by Truss DCJ on 30 September 2010 and 14 October 2010 be set aside.

Further Issues

90 The appellant's notice of appeal seeks an order that the appellant be at liberty to file a defence and cross-claim in the District Court proceedings (Prayer 2(b)). As Mr Pritchard accepted in argument, it is not appropriate for this Court to determine whether the appellant should have the leave he seeks. That application should be determined by the District Court.

91 Accordingly, the following order should be made:

4. Remit to the District Court for hearing and determination Prayer 2(b) of the notice of appeal dated 19 August 2011.

Costs

92 The appellant accepts that orders should be made requiring him to pay the costs of the respondents thrown away by reason of entry of the default judgment on 30 September 2010 (including the hearing on 30 September 2010) and of the notice of motion to set aside the default judgment filed on 28 October 2010 (including the hearing on 10 February 2010). In addition, as the respondents submit, the appellant should be required to pay the respondents' costs thrown away by reason of the entry of the default judgment on 14 October 2010 (including the hearing on 14 October 2010).

93 The respondents submit that the appellant should be ordered to pay the costs thrown away forthwith. They say that such an order is appropriate because:

• the applications in respect of which the costs orders are to be made represent the determination of separately identifiable matters and may be viewed as the completion of discrete aspects of the proceedings;
• the respondents' application for default judgment was occasioned by the appellant's unreasonable conduct of the proceedings; and
• it may be a considerable time before the proceedings are finally disposed of.

94 The appellant says that the usual rule should apply, namely that the costs orders in respect of the interlocutory proceedings should be payable only at the conclusion of the proceedings. The appellant also submits that some costs were incurred because the respondents' pleading was deficient and that the appellant's conduct of the proceedings cannot be characterised as unreasonable. Furthermore, so the appellant argues, the proceedings can be expected to be heard and determined reasonably promptly and the appellant should have the opportunity of setting off any costs orders in his favour against the costs orders in favour of the respondents.

95 Section 98(1) of the CP Act provides that, subject to the rules, costs are in the discretion of the court and the court has full power to determine by whom, to whom and to what extent costs are to be paid. UCPR r 42.7(1) provides that unless the court otherwise orders, the costs of any application or other step in the proceedings are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. Furthermore, unless the court orders otherwise, costs referred to in r 42.7(1) are not payable until the conclusion of the proceedings: r 42.7(2).

96 Rule 42.7 does not provide guidance as to when it is appropriate for the court to " order otherwise ", so as to make an interlocutory order for costs payable forthwith: cf Supreme Court Rules 1970, Pt 52A r 9(3), discussed in Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; 55 NSWLR 1, at 3 [4]-[6], per Barrett J. The matters identified by the respondents can be taken into account in determining whether costs should be payable forthwith in a particular case: Morningstar , at 4-5 [11]-[13] and authorities cited there. However, the ultimate question is whether the demands of justice require that there be a departure from the general rule that costs are not payable until the conclusion of the proceedings.

97 But for one matter, I think that the respondents would have a powerful case for an order requiring the appellant to pay forthwith the costs thrown away in the proceedings leading to the default judgments. The respondents must bear some responsibility for the setting aside of the default judgments. The defects in their pleading resulted in the default judgments being given irregularly and thus being liable to be set aside. On balance, I do not think that the interests of justice require the appellant to be ordered to pay the costs thrown away forthwith.

98 The appellant submits that as he has been successful on the appeal, the respondents should be ordered to pay the costs of the appeal, including the costs of the application for leave to appeal. The respondents say that the appellant should pay their costs of the appeal because of what is said to be his repeated failure to comply with court orders.

99 The appellant's failure to comply with court orders does not bear on the conduct of the appeal. The respondents chose to contest the appeal, and they have not succeeded. Accordingly, they should pay the appellant's costs of the appeal.

100 The following costs orders should be made:

5. The appellant pay the costs of the respondents:

(a) thrown away by reason of the entry of default judgment on 30 September 2010, including the costs of the hearing on 30 September 2010;

(b) thrown away by reason of the entry of default judgment on 14 October 2010, including the costs of the hearing on 14 October 2010; and

(c) of and incidental to the appellant's notice of motion to set aside default judgment filed on 28 October 2010, including the costs of the hearing on 10 February 2011.

6. The respondents pay the appellant's costs of the appeal, including the costs of the application for leave to appeal.

**********

Decision last updated: 23 February 2012