Summary Judgment Motion Against Solicitor Dismissed

The court dismissed a motion for summary judgment against a solicitor due to procedural defaults being remedied, emphasising the importance of providing a fair hearing on the merits.

New South Wales Supreme Court

CITATION : [NAME] v [COMPANY] [2006] NSWSC 1046

HEARING DATE(S) : 22 September 2006

JUDGMENT DATE : 6 October 2006

JURISDICTION : Equity Division Duty List

JUDGMENT OF : Brereton J

DECISION : Notice of motion for summary judgment dismissed.

CATCHWORDS : PROCEDURE – Procedure under Civil Procedure Act – Default – Remedies – Striking out and dismissal – Whether justified in denying party hearing on merits for procedural defaults - Dictates of justice – Summary judgment – need for evidence of belief in absence of defence.

LEGISLATION CITED : Civil Procedure Act 2005 (NSW), ss 56, 58, 61 Uniform Civil Procedure Rules 2005 (NSW), r 13.1

Cohen v McWilliam (1995) 38 NSWLR 476 Graham v Hall [2006] NSWCA 208 Kane v Wyllie [2006] NSWSC 710 [NAME] v [NAME] [2001] NSWCA 274 [COMPANY] v Tsai [2004] NSWSC 745 CASES CITED : Phornpisutikul v Mileto [2006] NSWSC 57 Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 Reliance Financial Services Pty Ltd v Criniti [2006] NSWSC 715 Stollznow v Calvert [1980] 2 NSWLR 749 Witten v Lombard Australia Ltd [1968] 2 NSWR 529 "Mortgage Law; What can solicitors do to reduce mortgage fraud?" (2004) Law Society Journal 52

[NAME] (first plaintiff) [NAME] (second plaintiff) PARTIES : [COMPANY] (first defendant) The Department of Lands (second defendant) [NAME] ([NAME] defendant)

FILE NUMBER(S) : SC 3261/06

[NAME] w Ms [NAME] (plaintiffs) COUNSEL : [redacted] [NAME] (second defendant) Mr [NAME] ([NAME] defendant)

[NAME] (plaintiffs) SOLICITORS : [redacted] Laurie Ryan, Solicitor for Registrar-General (second defendant) [NAME] ([NAME] defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

BRERETON J

Friday 6 October 2006

3261/06 [NAME] & anor v [COMPANY] & ors

JUDGMENT 1 HIS HONOUR: The plaintiffs [NAME] and [NAME], who are husband and wife, are the registered proprietors of [ADDRESS], Kingsford. On or about 1 April 2005, the [NAME] defendant [NAME], a solicitor in sole practice, received instructions from one [NAME], who claimed to be a friend of the plaintiffs, to apply for a new certificate of title. [NAME] did so, and a new certificate of title issued, which he provided to [NAME]. On 7 April 2005, a mortgage to the first defendant [COMPANY], securing all moneys advanced by [NAME] to the mortgagors, was registered on the title of the property. On 13 April 2006, [NAME] served on the plaintiffs notice of default under Real Property Act, s 57(2)(b), alleging that approximately $800,000 had been advanced on the security of the mortgage. On 16 May 2006, the plaintiffs lodged with the second defendant, the Registrar-General, a claim for compensation from the assurance fund. [NAME] has been arrested and charged with making or using a false instrument.

2 The plaintiffs have commenced these proceedings against [NAME] (for a declaration that there are no moneys secured by the [NAME] mortgage), the Registrar-General (for compensation from the assurance fund), and [NAME] (for damages for professional negligence). By the present motion, filed on 5 September 2006, which concerns only the [NAME] defendant [NAME], they claim an order that [NAME] be adjudged liable to indemnify them for the full amount of all money found to be payable to [NAME] under the mortgage.

3 Although not apparent on the face of the motion, [NAME], who with Ms [NAME] appears for the plaintiffs, sought to support it by reference to Civil Procedure Act 2005 (NSW), s 61(3)(c), and alternatively as an application for judgment in the absence of an arguable defence. It is therefore necessary to review the procedural history. 4 The plaintiffs filed a summons on 15 June 2006, pursuant to leave granted by [NAME] that day, to which only [NAME] and the Registrar-General were joined as defendants. When the summons returned before the court on 16 June 2006, [NAME] granted leave to join [NAME] as [NAME] defendant and to file a statement of claim, which was filed the same day, and directed that the defendants file and serve their defences and cross-claims within 28 days after service of the statement of claim, adjourning the proceedings to 25 July 2006 before the Registrar. His Honour noted [NAME]'s undertaking by its counsel to the court that it would not take any step under Real Property Act 1900 (NSW), s 58, unless and until the amount if any secured by the mortgage of determined by the court or otherwise agreed between the parties.

5 It is admitted that the statement of claim was served on [NAME] on 19 June 2006. An appearance was filed on his behalf by [NAME] on 29 June 2006. The 28 days for service of a defence (in accordance with [NAME]'s direction, as well as in accordance with the rules) expired on 17 July 2006. [NAME]'s defence was filed on 25 July, eight days late. That was the day on which the matter returned before the court, when it was referred to [NAME], who extended time for [NAME] to file a cross-claim to 9 August, and directed that all defendants serve their affidavits by 9 August. The proceedings were adjourned to 22 August before the Registrar. 6 The directions made on 16 June did not provide for any further affidavit evidence on behalf of the plaintiffs. It would seem that on 26 July 2006, [NAME] sent to the plaintiffs' solicitors [NAME] a letter requesting service of the plaintiffs' evidence, to which [NAME] replied the same day serving an affidavit of [NAME] sworn 15 June 2006, and advising that it was proposed to file an affidavit to be sworn by [NAME] shortly. The affidavit sworn by [NAME] on 15 June 2006 had been used on the original ex parte application, but presumably had not previously been served, at least on [NAME].

7 Meanwhile, on 8 August 2006, the solicitors for [NAME] sought to exercise the liberty to apply on three days' notice, which [NAME] had reserved to the parties, by requesting that the matter be re-listed for Friday 11 August, in order to seek an extension of time for filing [NAME]'s evidence. This attempt was unsuccessful, the Registrar declining to relist the matter.

8 On 10 August 2006, [NAME] sent a facsimile letter to [NAME] requesting copies of documents purportedly attached to the application for compensation from the assurance fund, which was an exhibit to [NAME]'s affidavit, but were not contained in the exhibit as served. Another letter from [NAME] of 10 August 2006 expressed a requirement for a further two weeks to file and serve cross-claims, and proposed that the defendants' serve their lay affidavit evidence by 8 September 2006. On 11 August 2006, [NAME] replied that a draft affidavit of [NAME] had been sent to her to be sworn, a draft copy of which was enclosed, as were copies of the documents requested, and a draft of the present motion. On 21 August 2006, Ebsworths responded to [NAME], to the effect that the court had declined to relist the matter for the purpose of establishing a revised timetable, and that their request for an extension of time was made in the context that both other defendants had also required extensions.

9 When the proceedings came before the Registrar on 22 August 2006, directions were made that [NAME] file and serve any cross-claim by 25 August, and that he (and the other defendants) serve their lay evidence by 1 September. The matter was stood over to 5 September for further directions. 10 No cross-claim was filed or served on behalf of [NAME] by 25 August, nor any affidavit by 1 September. On 4 September, the plaintiffs' solicitors served an unsealed copy of the present motion, together with the supporting affidavit of [NAME], solicitor, which they foreshadowed filing. Also on 4 September 2006, [NAME]'s solicitors provided to the other parties an unsealed copy of his proposed cross-claim (against the Justice of the Peace whose name appears as a witness to the purported signatures of the plaintiffs on a statutory declaration as to the loss of the original certificate of title, which [NAME] relied on to obtain the new certificate of title, as well as on the [NAME] mortgage). 11 On 5 September 2006, the Registrar made an order by consent as between all parties that [NAME] have leave to file an amended first cross-claim. As between [NAME] and [NAME], an order was made that [NAME] provide discovery of certain categories of documents. By consent as between all parties, the Registrar-General was given leave to file an amended defence by 6 September 2006. However, the plaintiffs would not consent to [NAME] having leave to file his proposed cross-claim, nor to an extension of time for his affidavits. Ebsworths sent a facsimile letter to [NAME], relevantly as follows:

5. More importantly, we are most concerned by [NAME]'s proposal to seek default judgment against our client. The affidavit sworn by [NAME] in support of [NAME]'s motion does not enlighten us as to the basis on which a court could order default judgment against our client. We note our client filed his defence in these proceedings on 25 July 2006.

6. Despite the fact that orders have been made for the service of affidavits by the defendants, and although there have been prior breaches in respect of the court timetable, the normal sequence of events is to serve evidence after the close of pleadings.

7. We are not aware of any basis upon which the court would order default judgment against our client.

8. As stated in our facsimile to you of 21 August 2006 we put you on notice that should you persist with your motion against our client and not succeed, we will, upon final determination of the motion, be seeking costs on an indemnity basis from 21 August 2006 until the date of final determination of the motion. 12 [NAME] responded by serving a sealed copy of the motion, which was filed on 5 September, returnable on 22 September 2006, and the supporting affidavit of [NAME]. In a facsimile letter sent to Ebsworths on the same day, [NAME] stated that the essential basis of the application for default judgment was that [NAME] had without any explanation or apparent excuse failed to comply with two successive orders of the court limiting the time by which his affidavit evidence was to be filed, adding that it would also be submitted that in any event upon admitted facts [NAME] simply had no defence to the claim that he was liable in negligence for the whole of the plaintiff's loss.

[NAME] filed its amended defence on 6 September 2006, and its amended first cross-claim on 11 September 2006. [NAME]'s affidavit was served on 8 September 2006, seven days outside the time permitted by the direction of 22 August 2006. Another motion has been filed, on behalf of [NAME], on 18 September 2006, in which he seeks leave to file his cross-claim and to file an amended defence, directions for the plaintiffs to respond to a request for particulars, an extension of time to 8 September 2006 for serving his affidavit, and orders for discovery against the other parties. That motion remains outstanding. 14 In an affidavit sworn on 18 September 2006, the solicitor having conduct of the matter for [NAME] deposes:

30. The [NAME] defendant did not comply with the order made on 25 July 2006 that he serve his affidavit by 9 August 2006 because the plaintiff had not completed service of their evidence by that stage. The plaintiffs served their evidence as follows: (a) On 26 July 2006 an affidavit of the first plaintiff sworn on 15 June 2006 was served; (b) On 11 August 2006 an unsworn affidavit of the second plaintiff was served.

31. An order was made on 22 August 2006 that the [NAME] defendant serve his affidavit by 1 September 2006. A seven day extension of time in which to serve that affidavit was sought on 5 September 2006. It was explained to the parties on that occasion that the [NAME] defendant's affidavit was in an advanced state of preparation, that it had been considered by counsel and that a further seven days was required to finalise the affidavit. The first and second defendants consented to that extension on 5 September 2006. The [NAME] defendants affidavit was served on 8 September 2006. 15 One basis on which the application is put is that there is no tenable defence.

16 [NAME]'s defence does not deny that he owed the plaintiffs' a duty of care, though he denies that the content of that duty was as extensive as the plaintiffs contend. Although neither party has referred to authority as to the content of the duty that a solicitor inveigled by a rogue may owe to putative clients who never in fact authorised the purported retainer, the decision of the Court of Appeal in Graham v Hall [2006] NSWCA 208, coupled with a November 2004 article from the Law Society Journal "Mortgage Law; What can solicitors do to reduce mortgage fraud?" (2004) LSJ 52, which the plaintiffs have tendered, afford the plaintiffs a strong case on duty and breach. While it has also been suggested on behalf of [NAME] that any negligence on his part was not causative, as it seems to me, his conduct armed the fraudster with the muniments of title, and as his conduct was at least a contributing cause, without which the [NAME] mortgage could not have been registered, that suggestion does not have apparent force.

17 Nonetheless, it seems that [NAME] was deceived by a fraudster. The investigation of the facts on behalf of [NAME] is incomplete, and the evidence shows that some investigations – including as to the possible involvement of the plaintiffs' son - are still under way. It remains possible, at this relatively early state of the proceedings, that facts will emerge which affect [NAME]'s liability, or its proportionate extent vis-à-vis others, including the JP against whom he proposes to bring a cross-claim. If that cross-claim is permitted, a trial which explores [NAME]'s conduct will be necessary in any event.

18 Moreover, the plaintiffs allege as against [NAME] that there are no moneys secured by the mortgage. That proposition enjoys the support of the decision of Young CJ in Eq in [COMPANY] v Tsai [2004] NSWSC 745. Although the plaintiffs entertain a concern that that decision might not prevail, it provides at least an arguable basis for the proposition that the plaintiffs may have suffered no loss. In that event, the [NAME] crucial element of a cause of action in negligence – damage – might not be established against [NAME]; alternatively the damage might be limited to costs.

19 Uniform Civil Procedure Rules 2005 (NSW), r 13.1 provides for a plaintiff to obtain judgment where there is no triable defence, relevantly as follows: 13.1 Summary judgment (cf SCR Part 13, rule 2; DCR Part 11A, rule 2; LCR Part 10A, rule 2)

(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires. (2) Without limiting subrule (1), the court may give judgment for the plaintiff for damages to be assessed. 20 There is no evidence before me of the type described in sub-rule (1)(b). Although the plaintiffs' case is prima facie a strong one, I am not satisfied at this stage that [NAME]'s liability, or its extent, is not a real issue in dispute, and particularly in the absence of the evidence under r 13.1(1)(b) necessary to found an application for summary judgment, I would not give judgment to the plaintiffs on that basis.

21 The other basis on which the application is put is Civil Procedure Act, s 61, which empowers the court to make directions as to practice and procedure generally, for the speedy determination of the real issues between the parties, and to make a wide range of consequential orders, including dismissing proceedings or striking out defences, in the event of default in compliance with such directions, relevantly as follows: 61 Directions as to practice and procedure generally (cf SCR Part 23, rule 4; Act No 9 1973, section 68A)

(1) The court may, by order, give such directions as it thinks fit (whether or not inconsistent with rules of court) for the speedy determination of the real issues between the parties to the proceedings. (2) In particular, the court may, by order, do any one or more of the following: (a) it may direct any party to proceedings to take specified steps in relation to the proceedings, (b) it may direct the parties to proceedings as to the time within which specified steps in the proceedings must be completed, (c) it may give such other directions with respect to the conduct of proceedings as it considers appropriate. (3) If a party to whom such a direction has been given fails to comply with the direction, the court may, by order, do any one or more of the following: (a) it may dismiss the proceedings, whether generally, in relation to a particular cause of action or in relation to the whole or part of a particular claim, (b) it may strike out or limit any claim made by a plaintiff, (c) it may strike out any defence filed by a defendant, and give judgment accordingly, (d) it may strike out or amend any document filed by the party, either in whole or in part, (e) it may strike out, disallow or reject any evidence that the party has adduced or seeks to adduce, (f) it may direct the party to pay the whole or part of the costs of another party,

(g) it may make such other order or give such other direction as it considers appropriate. (4) Subsection (3) does not limit any other power the court may have to take action of the kind referred to in that subsection or to take any other action that the court is empowered to take in relation to a failure to comply with a direction given by the court. 22 Thus, pursuant to s 61(3)(c) is that where the court has given directions, including as to the time within specified steps in the proceedings must be completed, and a party fails to comply with such a direction, the court may strike out the defence and give judgment accordingly. Before the discretion to make an order under s 61(3) arises, there must first have been a direction under s 61(1) and a failure to comply with it. When that condition is satisfied, there is a discretion to make an order under s 61(3).

23 In the exercise of that discretion, the court must give effect to the overriding purpose of the Act, namely facilitating the just, quick and cheap resolution of the real issues in the proceedings [CPA, ss 56(1), (2)]. In deciding whether to make any such order, the court must seek to act in accordance with the dictates of justice [CPA, s 58]. CPA s 58(2)(b) lists a number of considerations to which the court may have regard in determining the "dictates of justice".

24 In Phornpisutikul v Mileto [2006] NSWSC 57, proceedings under the Family Provision Act 1982 (NSW) had been listed for hearing before [NAME] on 7 February 2005. That hearing was vacated because the plaintiff had sworn affidavits as late as 3 February 2005 with which the defendant was unable to deal. His Honour directed the plaintiff to file any further affidavit evidence by 24 March 2005. Thereafter, the plaintiff repeatedly failed to comply with directions given for the filing of her further evidence. The matter eventually came before [NAME] on 10 February 2006. In circumstances where a year had passed since the direction had first been made, and there had been repeated breaches, His Honour said (at [9]): The substantive provisions of the Civil Procedure Act 2005 commenced on 15 August of 2005. That Act alters in significant ways the power of the Court to give directions concerning the conduct of proceedings, and in broad terms expects the Court to take a firmer hand in the preparation of matters than had previously been the case. Section 56 requires the overriding purpose of any decision made under the Act to be the just, quick and cheap resolution of the real issues in the proceedings. As well, though, s 57 allows the Court to have regard to not only the just determination of proceedings but also the efficient disposal of the business of the Court, the efficient use of judicial and administrative resources, timely disposal of the proceedings and all other proceedings in the Court at a cost affordable by the parties. Section 61(1) and (2) confers on the Court a wide power to give pre trial directions. Section 61(3) specifically provides that if a party to whom a direction has been given fails to comply with the direction the Court may, amongst other things, dismiss the proceedings. I would accept that the powers under s 61 should be exercised bearing in mind the principle that (to adopt the words used by s 62(4) in relation to directions as to the conduct of a hearing) each party is entitled to a fair hearing and must be given a reasonable opportunity to lead evidence, make submissions, present a case and, at a trial, to cross-examine witnesses. However, a reasonable opportunity does not mean multiple repeated opportunities. Litigants and the profession should not expect that failure to comply with pre trial directions will be accepted lightly by the Court. There is some reluctance on the Court to dismiss a case when there has not been a hearing on merits. However, if a party, by repeated failures to comply with directions, demonstrates that she is not prepared to play her role in the expeditious advancing of the proceedings, it is that party's own conduct which has prevented a hearing taking place. The power to dismiss proceedings for failure to comply with directions is one which will be used in appropriate cases. 25 [NAME] emphasises his Honour's statement to the effect that a reasonable opportunity does not mean multiple repeated opportunities, that is redolent of the dissenting judgment of [NAME] in Cohen v McWilliam (1995) 38 NSWLR 476, 503, in which his Honour said that "a proper opportunity does not mean multiple opportunities"; the majority ([NAME]), however, held that when considering an application for an adjournment to enable a new issue to be raised notwithstanding non-compliance with court rules, procedures and directions, the court must decide the application on its merits and that the primary emphasis was on the question whether there is an arguable case to be tried on the merits, although a number of other matters including court efficiency may be taken into account, but in a non-decisive way [482A, 491B]. The substance of what [NAME] said is that ordinarily the dictates of justice require that, despite procedural defaults, cases be heard and determined on their merits, although sustained, repeated or persistent default might result in a party being deprived of such a hearing. That is illustrated by the outcome: notwithstanding that in more than a year since [NAME] first made a direction for the plaintiff to file her affidavits she had not filed a single document, but influenced by the facts that the proceedings had been on foot since 2003, and that preparation of an affidavit was apparently well advanced, his Honour granted a final indulgence of a further month, on terms of a self-executing order for dismissal of the proceedings otherwise. 26 In Kane v Wyllie [2006] NSWSC 710, [NAME] said that in dealing with an application under s 61(3) for dismissal of proceedings for default in compliance with a direction, the court must strike a balance between the parties and decide whether or not on balance justice demands that an action should be dismissed [His Honour referred to Witten v Lombard Australia Ltd [1968] 2 NSWR 529, 534; Stollznow v Calvert [1980] 2 NSWLR 749, 751; and [NAME] v [NAME] [2001] NSWCA 274 [51]]. His Honour made a self-executing order for dismissal of the proceedings if the plaintiffs failed to serve a further amended statement of claim and file an application for leave to file it by the following day. 27 [NAME] repeated the observation about the requirement to strike such a balance in Reliance Financial Services Pty Ltd v Criniti [2006] NSWSC 715, in which the plaintiffs had failed on three occasions to comply with directions for service of their further evidence. Having regard to the inability of the plaintiffs' new solicitors to obtain the file from former solicitors, and difficulties associated with taking instructions from the plaintiffs' former director who was incarcerated, his Honour concluded that, on balance, justice demanded that the plaintiff not suffer its proceedings to be dismissed. 28 The ultimate aim of a court is the attainment of justice, and that aim is not surpassed by any principle of case management or efficiency in the procedures of the court. In particular, the achievement of efficiency in procedures, while a relevant consideration, is generally of less weight than the injustice of precluding the determination on the merits of a genuine issue between the parties [[NAME] (1997) 189 CLR 146]. The Civil Procedure Act does not alter this. It continues to give primacy to the dictates of justice. The dictates of justice are determined by weighing the injustice of denying a party a hearing on the merits against the injustice of requiring the other to tolerate the first's procedural defaults. But while in evaluating what are the dictates of justice it is relevant to take into account such procedural defaults, it will only be in exceptional cases that the injustice they occasion to the other party is such as to justify the injustice of denying a hearing on the merits.

29 Turning to the present case, the direction for filing a defence made by [NAME] on 16 June, the direction for filing of affidavits made by [NAME] on 25 July, and the direction for filing of affidavits made by the Registrar on 22 August, were all directions within s 61(1) and (2). [NAME] has failed to comply with each of those directions, and accordingly the discretion to make an order under s 61(3)(c) has been enlivened.

30 Of the relevant considerations under s 58(2)(b), I do not consider the first - the "difficulty or complexity of the issues" [s 58(2)(b)(i)] - particularly relevant in the context of the present application; it is not suggested that the defaults or delay, such as they are, have been occasioned by any difficulty or complexity of the proceedings.

31 As to the second - the degree of expedition by the parties [s 58(2)(b)(ii)] - although there has been default on the part of [NAME], that default must be seen in context. His defence was eight days late only, and the evidence does not suggest that that raised any particular concern at the time. Such default was promptly rectified. His affidavit was ultimately served a month after it was first required to be served, and seven days after the extended time for its service, and in the context that the need for further time had been foreshadowed and sought but declined, notwithstanding that the plaintiffs did not serve their evidence until 26 July, with a draft further affidavit on 11 August, and the final sworn version on 18 September. As to the fulfilment of the parties' duties under s 56(3) [s 58(2)(b)(iv)], although as has been said there has been default, the defaults have now been remedied. I would not conclude that [NAME] has declined to participate in the processes of the court. 32 As to the degree of injustice that would be occasioned [s 58(2)(b)(vi)], if the court accedes to the plaintiffs' motion, [NAME] will be held liable without a hearing on the merits. To deny him a hearing on the merits, on account of defaults in compliance with directions which have been cured, before ordinary interlocutory processes have been completed, would be a serious degree of injustice. I accept that in evaluating the degree of injustice, it is relevant to have regard to the apparent strength of the plaintiffs' case, even though I have declined summary judgment; but there is injustice in denying a party an opportunity to present even an apparently weak case, particularly at an early stage, where that party was himself the victim of a fraudster, and when relevant investigations are still underway. 33 In the balancing exercise to be undertaken, it is noteworthy that [NAME]'s defaults have not substantially delayed the proceedings; the defaults have not been lengthy; the defaults have all been cured; and the proceedings are not yet ready to be heard, because there are other outstanding interlocutory issues including discovery to be addressed. The striking out of his defence and the giving of judgment against him without a hearing on the merits would be an extraordinarily disproportionate response to those defaults. 34 Accordingly, the plaintiffs' notice of motion will be dismissed.

35 While one can understand the plaintiffs' concern that the proceedings be prosecuted expeditiously, the filing of the motion on 5 September when service of the affidavit by the end of the week had been foreshadowed might be considered somewhat precipitous. But even if the view be taken that so much was justified, its pursuit after the service of [NAME]'s affidavit on 8 September was not. In my view there should be no order as to the costs of the motion, to the intent that each party bear its own costs.

36 My orders are:- 1. Order that the plaintiffs' notice of motion filed 5 September 2006 be dismissed.

2. No order as to the costs of the motion, to the intent that each party bear its own costs.

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