Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Stankovic v Magee [2014] NSWCA 439
• Hearing dates: 2 December 2014
• Decision date: 18 December 2014
• Before: Basten JA at [1]; Macfarlan JA at [10]; Gleeson JA at [28]

Decision

(1) Set aside the default judgment granted in the District Court on 21 June 2013 against the appellant in favour of the respondent.

(2) Remit the matter to the District Court for further hearing.

(3) The respondent is to pay the appellant's costs in this Court.

(4) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs of the 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 - respondent solicitor obtained default judgment against appellant for recovery of legal fees incurred by appellant - judicial registrar rejected appellant's application to set judgment aside because application out of time - time to apply to set aside default judgment not restricted by UCPR r 36.16 - delay in application relevant to exercise of discretion but not to power to set aside default judgment - whether appellant adduced sufficient evidence of arguable defence to respondent's claim - default judgment set aside; PRACTICE AND PROCEDURE - pleading - short form pleading - pleading of facts in short form in respect of certain money claims - requirement to give particulars - need for strict compliance with rules permitting short forms of pleading - what constitutes condition precedent to cause of action to recover legal costs - UCPR rr 14.11, 14.12
• Legislation Cited: Civil Procedure Act 2005 (NSW), ss 56, 58; Legal Profession Act 2004 (NSW), ss 319, 331, 332, 332A; Suitors' Fund Act 1951 (NSW); Uniform Civil Procedure Rules 2005 (NSW), rr 14.3, 14.11, 14.12, 14.23, 14.28, 15.1, 16.2, 16.3, 16.6, 36.16
• Cases Cited: Dai v Zhu [2013] NSWCA 412; Hart v Nominal Defendant [1971] 1 NSWLR 147
• Texts Cited: Chitty on Pleading (6th ed, 1836); E Bullen and S M Leake, Precedents of Pleadings in Personal Actions in the Superior Courts of Common Law (3rd ed 1868, Stevens & Sons, London)
• Category: Principal judgment
• Parties: Milovan Stankovic (Appellant); Peter Michael Magee trading as Armstrong Legal (Respondent)
• Representation: Counsel: Appellant (self-represented); S Clemmett (Respondent); Solicitors: Appellant (self-represented); Armstrong Legal (Respondent)
• File Number(s): CA 2013/263313

Decision under appeal

• Jurisdiction: 9101
• Date of Decision: 2013-07-26 00:00:00
• Before: Judicial Registrar Howard
• File Number(s): DC 2013/134399

Judgment

1 BASTEN JA: I gratefully adopt the reasons given below by Macfarlan JA for the orders made on 2 December 2014. I would add the following observations as to the procedure adopted by the plaintiff (the present respondent) in the proceedings in the District Court.

2 The amount claimed in the District Court, with interest and fees, totalled, at the date of claim, a little over $112,000. In the section of the statement of claim headed "Pleadings and particulars" the following appeared:

"1. Work done or materials provided by the plaintiff or defendant at the defendant's request."

3 That statement was meaningless: the work was not identified, the materials not specified nor any times given. As counsel for the respondent correctly pointed out, a plaintiff is entitled to plead facts "in short form" in "certain money claims", pursuant to Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"), r 14.12. That was no doubt the pleader's intention, although the pleading in the rules makes somewhat better sense because that which is said to have been provided by the plaintiff is "for the defendant", not "or defendant". For reasons which will be noted below, strict compliance should be required where r 14.12 is called in aid for what would otherwise be a grossly inadequate pleading. The pleading in the present case was deficient in a further respect. It was required to be verified pursuant to r 14.23. The solicitor who purported to verify the claim certified that "the claim for damages in these proceedings has reasonable prospects of success." One may wonder how a reasonably competent solicitor could make such a statement with respect to a claim for a liquidated debt; there was no claim for damages.

4 As the respondent's counsel further pointed out, again correctly, a defendant is entitled to file a notice requiring the plaintiff to plead the facts relied upon: r 14.12(2). That statement must be taken within the time limited for the filing of a defence, namely 28 days. Although the "Notice to defendant" refers to the consequences which may follow if a defence is not filed within 28 days of the date of being served, it does not refer to the fact that the defendant is entitled to file a notice requiring a proper pleading. The rules then provide that if such a notice is filed and an amended statement of claim, properly pleaded, is served, the time limited for filing a defence is reduced from 28 days to 14 days: r 14.12(4)(b).

5 Paragraph (c) in r 14.12(1) is unique amongst the circumstances set out in that rule because it contains an internal disjunctive, namely the word "or" between "work done" and "materials provided". It is not clear whether a pleading which fails to discriminate between the two (or combines the two) is an adequate pleading. Further, the use of the second expression (materials provided) may limit the otherwise imprecise scope of the first (work done). It is by no means clear that, given that context, services provided by a solicitor (or possibly other professionals) would fall within this paragraph. It is also unclear whether a claim, such as a solicitor's entitlement to sue for costs, which is contingent upon satisfaction of statutory conditions falls within the paragraph. In any event, the Court was not taken to authority relating to the scope of such pleading provisions and it is not necessary to resolve such issues in order to dispose of the present case.

6 The importance of adequate pleadings is reinforced by the availability of a procedure by which a plaintiff may obtain a judgment without notice to the defendant where the defendant has failed to file a defence within the time limited by r 14.3(1): see r 16.2, the default procedure being available under r 16.3.

7 The proper construction of r 14.12(1) may depend to a significant extent upon its purpose: that is, for what purpose is it "sufficient" to plead the facts in the short form provided in the rule? One answer may be that it is sufficient to avoid the pleading being struck out pursuant to r 14.28(1) as disclosing no reasonable cause of action or as having a tendency to cause prejudice, embarrassment or delay or otherwise be an abuse of process of the court. However, the short forms appear to have derived from an intention to avoid prolixity and render pleadings concise, rather than imprecise: see, eg, Chitty on Pleading (6th ed, 1836) at 243, 261, 341 and 361. The modern concerns with pleading are somewhat different.

8 There is no doubt merit in rules which permit a quick and cheap process for obtaining a judgment in respect of a debt where there is no dispute between the parties as to the obligation or the amount. However, r 14.12(1) is not to be read as derogating from basic rules of procedural fairness, in circumstances where more is required to give a defendant proper notice of the claim. So much is expressly recognised by the statement of "guiding principles", referring to the just, quick and cheap resolution of the real issues in proceedings, to be found in the Civil Procedure Act 2005 (NSW), Pt 6, Div 1. Those principles apply to the plaintiff in proceedings, as well as to the court and the other parties: s 56(4). While court procedures should enable cheap and efficient debt collection in appropriate cases, it remains necessary to accord procedural fairness to defendants. Where the discretionary powers of the court are called upon by a defendant seeking to resist a claim, including by setting aside a default judgment, attention needs to be given to strict compliance with rules which allow for shortcut procedures. A party invoking such procedures should also consider whether that course is appropriate in the particular case. Failure to exercise discretion may result in a failure to comply with the "dictates of justice" in a particular case: s 58.

9 Strict compliance with rules permitting short forms of pleading may also be appropriate because the party seeking to avail itself of those benefits is a firm of solicitors suing on their own account. There will usually be little reason to grant latitude for non-compliance in such a case.

10 MACFARLAN JA: Mr Stankovic appealed, by leave, from the dismissal by Judicial Registrar Howard of the District Court of Mr Stankovic's application to set aside a default judgment for $119,071.09 entered against him and in favour of Mr Magee, a solicitor. The default judgment was entered on 21 June 2013 pursuant to the provisions of Part 16 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") under which, unless the Court orders otherwise, an application for default judgment may be dealt with in the absence of the parties and need not be served on the defendant (see r 16.3). Thus such an application ordinarily need not be, and was not here, dealt with in open court.

11 This judgment records my reasons for joining in the making of an order by this Court on 2 December 2014 that the default judgment be set aside.

12 Mr Magee's claim in the District Court was for legal fees incurred in acting on behalf of Mr Stankovic in Family Court proceedings between Mr Stankovic and his wife. Mr Magee's statement of claim adopted the short form of pleading permitted by r 14.12 of the UCPR in respect of a claim for work done by the plaintiff for the defendant at the latter's request. It did not therefore plead, as would otherwise have been necessary, that 30 days had elapsed since the service by Mr Magee on Mr Stankovic of a bill of costs conforming with s 332 of the Legal Profession Act 2004 (NSW) (see s 331). Consistently with r 16.6 of the UCPR, Mr Magee's affidavit in support of his application for default judgment did not deal with that topic either.

13 Mr Stankovic's application to set aside the default judgment was supported by three affidavits that he swore in relevantly identical terms.

14 The affidavits stated that Mr Magee had agreed to act for him on the basis that Mr Magee would only be paid for his services when the development of a property owned by Mr Stankovic (and his wife) at Kellyville had been "complete[d], built and sold" by Mr Stankovic (par [10]). The affidavits also included many other assertions about his relationship with Mr Magee.

15 The Judicial Registrar rejected Mr Stankovic's application to set aside the default judgment on two bases. The first basis was that Mr Stankovic's application had been filed six or seven days outside the 14 day period delimited by UCPR r 36.16(3A) and that the Court had no power to extend that time (see sub-rule (3C)).

16 This decision was erroneous as sub-rule (3A) expands, in a qualified way, the operation of the general power conferred on the Court by sub-rule (1) but does not affect the operation of sub-rule (2) which is a separate provision empowering the Court to set aside or vary a default judgment, other than a default judgment given in open court. Rule 36.16 does not impose any time limit in relation to the exercise of the power conferred by sub-rule (2). As a result, a default judgment that, as here, was not given in open court may be set aside at any time. Delay in application will be relevant to the exercise of the Court's discretion but not to its power.

17 The Judicial Registrar then indicated that, if he were wrong in rejecting Mr Stankovic's application because it was out of time, he would nevertheless still reject it as a matter of discretion. He accepted that Mr Stankovic had adequately explained his delay in applying to set aside the default judgment but concluded that Mr Stankovic had not identified any defence to the action that was available to him.

18 In reaching this conclusion, the Judicial Registrar stated that there needed to be "some demonstration by the defendant by clear evidence that [he has] a good defence on the merits". This put the bar too high. As Sackville AJA (with the agreement of Barrett and Leeming JJA) said in Dai v Zhu [2013] NSWCA 412 at [89], "a defendant who seeks to set aside a judgment by default regularly obtained must show that he or she has a bona fide defence". His Honour continued:

"92 In determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case: Adams v Kennick Trading, at 507; CBA v Humphreys, at [3]. All that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue. The nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant's explanation for the delay or failure to comply with the orders of the court: Adams v Kennick Trading, at 506; Nash v Swinburne.

93 The application of these principles must now be subject to the provisions of the [Civil Procedure Act 2005 (NSW)]. If, for example, the circumstances of a particular case are such that it would be contrary to 'the just determination of the proceedings' (s 57(1)(a)) to require a defendant to adduce affidavit evidence demonstrating a bona fide defence, the Court would be unlikely to reject the defendant's application to set aside a default judgment solely on the ground that no such affidavit had been filed. Each case must of course depend on its own facts. But it is fair to say that the principles articulated in the cases decided before the enactment of the [Civil Procedure] Act are consistent with the criteria laid down in the legislation" (emphasis added).

19 The Judicial Registrar referred to Mr Stankovic's evidence concerning the time at which Mr Magee's fees were to be payable (see [14] above) but, for reasons that are not apparent, did not consider that the evidence identified a defence that was arguably available to Mr Stankovic.

20 However, in my view that evidence was in fact sufficient to identify an arguable defence to Mr Magee's claim for fees as the evidence is not manifestly untenable and it is apparent that the contingency for payment to which Mr Stankovic referred had not, and has not, been satisfied. Moreover, the agreement alleged by Mr Stankovic is not in obvious conflict with the Costs Agreement signed by Mr Stankovic and on behalf of Mr Magee, and there is no reason to regard the proposed defence as otherwise than bona fide.

21 Clause 11 of the Costs Agreement relevantly provided that:

"Unless otherwise arranged, these accounts [for work performed by Mr Magee] should be paid strictly within seven (7) days of the date of the account".

22 The words "unless otherwise arranged" contemplated that there might be, or might have been, some agreement as to payment such as that alleged by Mr Stankovic. Furthermore, Clause 12 suggests that there must have been some discussion between Mr Stankovic and Mr Magee (or someone on his behalf) concerning payment and the property at Kellyville, although whether the discussion was in the terms alleged by Mr Stankovic is another matter. Clause 12 is in the following terms:

"Recovery of legal costs

The law provides that a legal practitioner cannot take action for recovery of legal costs until thirty (30) days after a bill has been given to the person charged with their payment. We confirm that should the bill not be paid within thirty (30) days after it has been given to you we will not seek Orders to have Lot B President Road, Kellyville, NSW 2155 sold until after final judgment of your family law matter".

23 For these reasons, I consider that Mr Stankovic adduced sufficient evidence of an arguable defence to Mr Magee's claim which, when coupled with the Judicial Registrar's acceptance that he had explained his delay, warranted the default judgment against him being set aside.

24 In these circumstances, it is not necessary to consider whether any of the matters in Mr Stankovic's affidavits apart from that concerned with the time for payment of Mr Magee's accounts would constitute an arguable defence to Mr Magee's claim. That question may have to be answered if Mr Magee applies to strike out parts of the defence. As Mr Magee contends, of relevance to that question would be the fact that in separate proceedings in the Common Law Division of the Supreme Court, in proceedings brought by Mr Stankovic against Mr Magee claiming damages for professional negligence, Davies J concluded that apparently identical allegations to those made by Mr Stankovic in his defence in the present proceedings were doomed to fail. His Honour accordingly dismissed the proceedings.

25 The statement of claim with which Davies J dealt included the same allegation as that to which I have referred in [14] above concerning the time for payment of Mr Magee's accounts. The fact that his Honour regarded that, and the other allegations in the statement of claim, as doomed to fail in the context of a claim for damages does not conflict with the conclusion which I have reached that Mr Stankovic's allegations concerning the time for payment constitute an arguable defence to Mr Magee's claim in the District Court for payment of his fees. Mr Stankovic's differing claims for relief render the issue different in the two proceedings.

26 In conclusion, I note that an issue may arise when Mr Magee's claim is heard in the District Court as to whether there has been compliance with ss 331 and 332 of the Legal Profession Act (see [12] above). There was no evidence before this Court, one way or the other, as to whether those sections were complied with.

27 For these reasons, it was appropriate for the Court to make the following orders on 2 December 2014:

(1) Set aside the default judgment granted in the District Court on 21 June 2013 against the appellant in favour of the respondent.

(2) Remit the matter to the District Court for further hearing.

(3) The respondent is to pay the appellant's costs in this Court.

(4) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW) in respect of the costs of the appeal.

28 GLEESON JA: Subject to one qualification, my reasons for agreeing to the orders made by the Court on 2 December 2014 accord with those of Macfarlan JA.

29 My qualification relates to the matter referred to in the third sentence of [12] of the reasons of Macfarlan JA. This concerns whether, in the absence of adopting the short form pleading permitted by r 14.12 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), it would have been necessary for Mr Magee, the plaintiff in the proceedings in the District Court, to expressly plead satisfaction of the statutory conditions precedent to the enforcement of his cause of action to recover legal costs. For the reasons which follow, I doubt whether this would have been necessary. However, as this issue was not argued by the parties, and is otherwise not essential for the disposition of the appeal, it is unnecessary to express a concluded view on it.

30 Historically claims on a common money count for work done and materials provided (of the type now reflected in r 14.12(1)(c)) were available to a solicitor to recover his or her fees: see E Bullen and S M Leake, Precedents of Pleadings in Personal Actions in the Superior Courts of Common Law (3rd ed 1868, Stevens & Sons, London) at 40-41.

31 In the 3rd edition of Bullen and Leake, the common indebitatus count for work done was expressed to be "for work done and materials provided by the plaintiff for the defendant at his request". There was no disjunctive "or" between "work done" and "materials provided" as now appears in r 14.12(1)(c). The authors stated (at 40) that work under this count included labour of all kinds, whether mental or physical, or both, and included the services of attorneys. A precedent short form pleading of the common money count for work done as an attorney (at 82-83) referred to "work done ... as the attorney and solicitor of and for the defendant ... and for materials and necessary things by the plaintiff provided in and about the said work for the defendant at his request".

32 Whether the disjunctive "or" in r 14.12(1)(c) has the possible effects suggested by Basten JA at [5] of his Honour's additional observations, is a matter on which I have some doubt, but again it is unnecessary to determine those questions to dispose of this appeal.

33 The entitlement of a solicitor to proceed to recover his or her costs by an action is now subject to statutory restrictions. No action shall be brought to recover any costs due to a solicitor until 30 days has elapsed since the service of a bill of costs conforming with s 332 of the Legal Profession Act 2004 (NSW) (see s 331). If the solicitor delivers a lump sum bill, and a request is made for an itemised bill by any person who is entitled to apply for an assessment of the legal costs, no action shall be brought to recover any costs due to the solicitor until 30 days has elapsed after complying with the request: s 332A Legal Profession Act.

34 Since an action by a solicitor to recover any costs due is contingent upon satisfaction of statutory conditions, attention needs to be given to the terms of r 14.11 of the UCPR which provides:

If it is a condition precedent necessary for a party's case in any pleading that:

(a) a thing has been done, or

(b) an event has happened, or

(c) a state of affairs exists, or has existed at some time or times, or

(d) the party is ready and willing, or was at all material times ready and willing, to perform an obligation,

a statement to the effect that the condition has been satisfied is taken to be implied in the party's pleading.

35 The question which arises is whether the statutory conditions in the Legal Profession Act are of the type referred to in r 14.11, such that a statement to the effect that the condition has been satisfied is taken to be implied in the party's pleading. This depends upon whether the statutory conditions requiring delivery of a bill of costs and the lapse of 30 days before action is brought to recover any legal costs, are viewed as a condition precedent to, rather than an essential part of, the cause of action to recover legal costs. If the latter, they must be pleaded if a short form money claim is not adopted, or is otherwise not available: Hart v Nominal Defendant [1971] 1 NSWLR 147 at 149 (Jacobs JA; Holmes JA agreeing) and at 155 (Mason JA).

36 My tentative view is that the statutory conditions are a condition precedent to, rather than an essential part of, the cause of action for recovery of legal costs. It would follow that implied in Mr Magee's pleading must therefore be an averment or statement that the conditions precedent in the Legal Profession Act (as the case may be) are satisfied.

37 One further matter should be mentioned. A plaintiff relying upon a short form money claim must comply with the requirements of the rules to give such particulars of any claim as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet: r 15.1(1). The requirement to give all proper and necessary particulars is not dispensed with merely because the pleading of facts in short form is authorised by r 14.12(1).

38 In the case of the short form money claim for "work done", proper particulars would require identification of (a) the relevant period covered by the "work done"; (b) the invoice or bill of costs containing particulars of the work done and the date on which it was delivered to the defendant; and (c) the "request" made by the defendant for the work or services the subject of the invoice or bill of costs.

39 If proper particulars are provided, it should be clear on the face of the short form money claim (assuming a claim by a solicitor falls within r 14.12(1)(c)) whether the statutory conditions on an action by a solicitor to recover any costs have been satisfied. Provision of particulars of the defendant's "request" would also make clear whether the claim is based on a costs agreement, or for the fair and reasonable value of the legal services provided: s 319(1)(b) and (c), Legal Profession Act.

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Decision last updated: 18 December 2014