FEDERAL COURT OF AUSTRALIA

Hartnett Legal Services Pty Ltd v Ballantyne [2015] FCA 744

THE COURT ORDERS THAT:

1.    The application for leave to appeal is granted.

2.    The appeal is allowed.

3.    The orders of the Federal Circuit Court of Australia made on 16 February 2015 are set aside.

4.    The appellants file and serve a response pursuant to r 4.03(1) of the Federal Circuit Court Rules 2001 (Cth) within 7 days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The present respondent, James Cameron Ballantyne, commenced proceedings in the Federal Circuit Court of Australia against Hartnett Legal Services Pty Ltd and Beau Timothy John Hartnett.

2    The proceedings concern an employment dispute. Mr Ballantyne is a solicitor. Mr Hartnett is also a solicitor, who conducts a legal practice under the name “Hartnett Lawyers”. Mr Ballantyne performed work as a solicitor for Hartnett Lawyers for over 5 years before he resigned.

3    On 16 February 2015, the Federal Circuit Court gave default judgment against Hartnett Legal Services Pty Ltd and Mr Hartnett pursuant to r 13.03B(2)(c) of the Federal Circuit Court Rules 2001 (Cth). Those parties apply for leave to appeal against the default judgment.

4    The application was conducted on the basis that the application for leave to appeal and any appeal would be decided at the same time. I consider that leave should be granted and the appeal should be allowed for the reasons that follow.

The proceedings in the Federal Circuit Court

5    Mr Ballantyne’s statement of claim states that in February 2006 he entered into a written employment agreement under which he was described as “the Employee” and Mr Hartnett and Kentgale Pty Ltd were described as “the Employer”. The statement of claim alleges that the employment agreement was then varied by the conduct of the parties so that Kentgale Pty Ltd became his sole employer.

6    In May 2011, Kentgale Pty Ltd went into voluntary liquidation. The statement of claim alleges that Mr Ballantyne then entered into an employment agreement with Hartnett Legal Services Pty Ltd. It asserts that he is a “transferred employee” for the purposes of s 69 of the Industrial Relations Act 1999 (Qld) and that his former employment with Kentgale Pty Ltd counts towards his long service leave entitlements.

7    Mr Ballantyne resigned from his employment with effect from 28 August 2014. The statement of claim alleges that Hartnett Legal Services Pty Ltd, as his employer, has failed to pay him significant amounts of money he is owed for accrued annual leave and long service leave. It also claims that Hartnett Legal Services Pty Ltd contravened the Fair Work Act 2009 (Cth) and that Mr Hartnett was a party to the contraventions. The contraventions alleged are:

(a)    failing to pay his accrued annual leave entitlements;

(b)    failing to provide him with a Fair Work Information Statement;

(c)    failing to provide pay slips within the time required under the Fair Work Act on five occasions.

8    The statement of claim also alleges that restraint clauses in the written employment agreement are unenforceable.

9    The statement of claim seeks declarations, payment of specified amounts of money and pecuniary penalty orders.

10    I will refer to Hartnett Legal Services Pty Ltd and Mr Hartnett together as “the present applicants”.

11    The present applicants filed a defence in response to the statement of claim. The defence consists substantially of non-admissions and bare denials. One allegation repeatedly made in the defence is that Mr Ballantyne was employed by Mr Hartnett, and not by Kentgale Pty Ltd or Hartnett Legal Services Pty Ltd. The defence also alleges that as Mr Ballantyne did not give the period of notice required under the contract of employment, Mr Hartnett had affirmed the contract of employment and that his employment “continues with full force and effect”. The defence denies that Hartnett Legal Services Pty Ltd owes money to Mr Ballantyne and denies that it had any obligations under the Fair Work Act because it was not the employer.

12    The defence contains a section entitled “Certificate of lawyer”. Mr Hartnett certified that the factual and legal material available to him provided a proper basis for each allegation, each denial and each non-admission in the pleading.

13    Mr Ballantyne’s counsel stridently criticised the defence both in the proceedings before the Federal Circuit Court and this Court. Much of that criticism is justified. The Federal Circuit Court Rules do not deal with the requirements of pleadings. However, s 43(2) of the Federal Circuit Court of Australia Act 1999 (Cth) and r 1.05 of the Federal Circuit Court Rules provide that if the Federal Circuit Court Rules are insufficient, the Federal Court Rules 2011 (Cth) apply with necessary modifications to the practice and procedure of the Federal Circuit Court. The defence does not comply with r 16.02 of the Federal Court Rules for reasons including that parts of it are evasive and ambiguous.

14    However, the statement of claim is itself hardly a model pleading. Substantial parts of the statement of claim are taken up with the recitation of evidence, rather than facts. Some of the allegations are irrelevant. For example, the statement of claim alleges that Mr Hartnett was married to Mrs Susan Lee Weel, that he holds himself out as having extensive commercial law experience and that he holds himself out as having a reputation for traditional values of integrity and excellence. Mr Ballantyne’s counsel criticised Mr Hartnett for not admitting these allegations which were said to be obviously true, apparently to suggest that the failure to admit them reflected poorly upon the truthfulness of the allegation that Mr Hartnett was the employer. However, it may be that non-admissions were pleaded as a way of dealing with allegations that were irrelevant. The point is that both the defence and the statement of claim are inadequate.

15    However, if the allegation in the defence that Mr Hartnett was Mr Ballantyne’s sole employer (and Hartnett Legal Services Pty Ltd was not the employer) proves to be true, then that would at least substantially defeat the claim.

16    Rule 13.03B(2) of the Federal Circuit Court Rules gives the Court a discretion to give judgment or make another order where a respondent is in default of a requirement to do an act required to be done under the Federal Circuit Court Rules. Mr Ballantyne alleged that the present applicants were in default by failing to comply with the requirement under r 4.03 to file a “response”, and sought judgment under r 13.03B(2)(c). A “response” is a document filed in response to an application. It is not the equivalent of a defence under the Federal Court Rules, but is a briefer document responding to the orders sought in the application.

17    Mr Ballantyne’s application for default judgment was listed for hearing in the Federal Circuit Court on 16 February 2015. The present applicants did not file any affidavits in the application. Their solicitors, Hartnett Lawyers, engaged a solicitor to appear as their town agent. A transcript of the hearing shows that the town agent was given quite inadequate instructions. The town agent’s submissions were largely confined to submitting that r 4.03 of the Federal Circuit Court Rules should be construed as giving a respondent a discretion as to whether to file a response where a defence is filed and there had therefore been no default. The town agent made no submissions as to the exercise of the Court’s discretion to give default judgment in the event that default was established.

18    In the course of the hearing before the primary judge, Mr Ballantyne’s counsel submitted that the Federal Circuit Court Rules required the filing of a response within 14 days of service of the application. He submitted that there had been default and that the Court’s discretion should be exercised in favour of giving judgment. He submitted that the situation was analogous to where a respondent seeks to set aside a regularly entered judgment and that similar considerations should guide the exercise of the discretion. Counsel submitted that there was no evidence explaining the failure to file a response. He submitted that the defence had been filed out of time and disclosed no basis for defending the claim. He strongly criticised the present applicants for pleading non-admissions in response to the allegations I have discussed above.

19    The primary judge gave ex tempore reasons for judgment. In his reasons, the primary judge found that the present applicants were in default because they failed to file a response within the required time. His Honour proceeded to consider the exercise of the Court’s discretion under r 13.03B(2).

20    In considering the exercise of the discretion, there were four matters the primary judge took into account. They were:

(a)    the absence of any explanation in admissible form for not filing a response;

(b)    the absence of any explanation in admissible form for the late filing of the defence;

(c)    the fact that Mr Hartnett had ignored a letter sent by Mr Ballantyne on 14 January 2015;

(d)    the absence of any tenable basis for the defence.

21    As to the absence of any tenable defence, the primary judge said:

14.    On 12 January 2015 a Defence was filed in this court. I use the word “Defence” in a very loose term because upon reading the document one actually has no idea as to what it is that either the First or the Second respondent are claiming to meet the Statement of Claim. In effect the defence refutes that the First Respondent was the employer of the Applicant. That plainly cannot be the case. It doesn’t do the Second Respondent any credit whatsoever to file a Defence like this in this Court. One might consider that this action illustrates both contempt for this Court and contempt for the proceedings. This is an alarming state of affairs given the oath that the Second Respondent must have taken upon his admission some, on what I’ve been told, 30 years ago.

15.    The certificate of lawyer at page 5 of the Defence is, quite frankly, not worth the paper it’s written on. Notwithstanding that, it was a document that was filed in this Court.

(Underlining added)

22    His Honour’s finding that Mr Hartnett was not Mr Ballantyne’s employer was based upon pay slips showing that Mr Ballantyne had initially been paid by Kentgale Pty Ltd and then later by Hartnett Legal Services Pty Ltd. His Honour seems to have taken the view that the pay slips plainly showed that Mr Ballantyne had been employed by Hartnett Legal Services Pty Ltd and demonstrated that the principal allegation made in the defence was untrue.

23    The primary judge held that the restraint clauses were unenforceable, and even if they were enforceable, they would not be enforceable for more than six months after the employment had ended. They were not operative at the time of the judgment. His Honour also held that the restraint clauses arose under the written contract between Mr Ballantyne and Kentgale Pty Ltd and could not operate in favour of Hartnett Legal Services Pty Ltd.

24    His Honour held that there were clear breaches of the Fair Work Act, namely the non-payment of leave entitlements, the non-provision of five pay slips and the non-provision of a Fair Work Information Statement. His Honour’s finding as to the second of those matters was not correct, the allegation in the statement of claim being that Hartnett Legal Services Pty Ltd failed to provide the pay slips within the required time, not that it had failed to provide the pay slips at all. However, the present applicants expressly disclaim reliance upon any error in that finding.

25    His Honour set out a number of factors relevant to the question of penalty. Those included his Honour’s view that there had been deliberate defiance of Commonwealth legislation and that there had been no remorse for the present applicants’ behaviour and the disregarding of a letter from Mr Ballantyne dated 17 November 2014. His Honour held:

30.    With regard to civil penalties, in my view one starts by looking at the letter at Exhibit 19 of the affidavit of Mr Ballantyne filed in this Court on 10 February 2015. … The fact is that the First and Second Respondent ought to have known that the monies that I’ve spoken of, were well and truly due and owing as at the time of the cessation of employment. The fact that they have had to be ordered by this Court to pay them, as I say, does nothing for Mr Hartnett’s standing as a solicitor of this Court and brings the profession into disrepute.

26    His Honour held that the present applicants had acted “in an unreasonable and frivolous way” and should be ordered to pay costs on an indemnity basis.

27    His Honour made 14 orders. They include orders:

(a)    that Hartnett Legal Services Pty Ltd pay Mr Ballantyne $35,013.44 in respect of unpaid accrued annual leave entitlements, unpaid accrued long service leave entitlements and interest;

(b)    that Hartnett Legal Services Pty Ltd pay penalties totalling $20,000 for contraventions of the Fair Work Act;

(c)    that Mr Hartnett pay Mr Ballantyne the sum of $20,287.30 for unpaid accrued annual leave entitlements and interest;

(d)    that Mr Hartnett pay penalties totalling $11,000 in respect of contraventions of the Fair Work Act;

(e)    making various declarations, including a declaration that restraint clauses in the written employment agreement have been unenforceable since at least 25 May 2014;

(f)    that the present applicants pay Mr Ballantyne’s costs on an indemnity basis.

Consideration

28    The present applicants submit the appeal should be allowed because the primary judge erred, at least, by:

(a)    finding that the present applicants were in default by failing to file a response;

(b)    finding that the defence was not filed within the time required under the Federal Circuit Court Rules;

(c)    proceeding on the basis that the discretion to award judgment in default was to be exercised on the same basis as a discretion to set aside a judgment entered in default;

(d)    failing to take into account the lack of seriousness of any default;

(e)    failing to give adequate reasons for the judgment.

Whether the present applicants were in default

29    The primary judge held:

20.    I am satisfied that pursuant to Rule 13.03A(2)(b)(ii) the Respondents have failed to file a response before the time for the Respondents to file a response has expired. Therefore the Respondents are in default.

30    The present applicants acknowledge that they did not file any response to the application. However, they submit they were not in default because r 4.03(1) of the Federal Circuit Court Rules gave them a discretion as to whether or not to file a response in circumstances where they filed a defence.

31    Rule 4.01(1) indicates that, unless otherwise provided, a proceeding must be started by filing an application in accordance with the approved form. Under r 4.02, an application must precisely and briefly state the orders sought and, for a general federal law proceeding, state the basis on which the orders are sought.

32    The application in the present case is in the approved form and contains a section headed “Important Notice to Respondents”. It states:

You should seek legal advice about this application. You may file a response. If you file a response, you must file and serve the response within 14 days of receiving this application. You may also need to file an affidavit; see Rule 4.05 of the Federal Circuit Court Rules 2001. If you do not file a response, you must file and serve a notice of address for service before the hearing.

33    Rule 4.03 provides:

(1)    A respondent to an application may file a response in accordance with the approved form.

(2)    A response must be filed and served within 14 days of service of the application to which it relates.

34    Rule 4.04 then sets out the purpose and requirements of a response:

(1)    A response may:

(a)    indicate consent to an order sought by the applicant; or

(b)    ask the Court to make another order; or

(c)    ask the Court to dismiss the application; or

(d)    seek orders in a matter other than the matter set out in the application; or

(e)    make a cross claim against the applicant, or another party.

(2)    A response must precisely and briefly state any orders sought and (if the proceeding is a general federal law proceeding) the basis on which the orders are sought.

35    Rule 4.05 provides:

(1)    A person filing an application or response, whether seeking final, interim or procedural orders, must also file an affidavit stating the facts relied on.

(2)    However, an affidavit is not required:

…

(b)    in a proceeding that is not a child support proceeding or family law proceeding—if the person filing an application files a statement of claim or points of claim; or

(c)    in an application filed in the Fair Work Division in accordance with rule 45.04, 45.06, 45.07, 45.08 or 45.12; or

…

(3)    If a statement of claim or points of claim are filed under paragraph (2)(b), a respondent:

(a)    must file a defence or points of defence instead of an affidavit; and

(b)    may file a cross claim.

36    The parties accept that the statement of claim was filed under r 4.05(2)(b), so the present applicants were required to file a defence.

37    Rule 13.03A deals with default by a respondent and provides, relevantly:

(2)    For rule 13.03B, a respondent is in default if the respondent:

(a)    has not satisfied the applicant’s claim; and

(b)    fails to:    

(i)    give an address for service before the time for the respondent to give an address has expired; or

(ii)    file a response before the time for the respondent to file a response has expired; or

(iii)    comply with an order of the Court in the proceeding; or

(iv)    file and serve a document required under these Rules; or

(v)    produce a document as required by Part 14; or

(vi)    do any act required to be done by these Rules; or

(vii)    defend the proceeding with due diligence.

38    Rule 13.03B gives the Court a discretion to make particular orders where a respondent is in default. It provides, relevantly:

(2)    If a respondent is in default, the Court may:

(a)    order that a step in the proceeding be taken within the time limited in the order; or

(b)    if the claim against the respondent is for a debt or liquidated damages—grant leave to the applicant to enter judgment against the respondent for:

(i)    the debt or liquidated damages; and

(ii)    if appropriate—costs; or

(c)    if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings—give judgment against the respondent for the relief that:

(i)    the applicant appears entitled to on the statement of claim; and

(ii)    the Court is satisfied it has power to grant; or

(d)    give judgment or make any other order against the respondent; or

(e)    make an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time limited in the order.

39    The primary judge considered that the present applicants were in default because they had not satisfied Mr Ballantyne’s claim and had failed to “file a response before the time for the respondent to file a response has expired” within r 13.03A(2)(b)(ii). His Honour then gave judgment against the present applicants under r 13.03B(2)(c).

40    The present applicants submit that r 4.03(1), which provides that a respondent “may file a response”, gives a discretion to a respondent as to whether to file a response and that no response is necessary in circumstances where the respondent files a defence or points of defence.

41    The language of r 13.03A(2)(b)(ii) is in absolute terms. It provides that “a respondent is in default if the respondent…fails to… file a response before the time for the respondent to file a response has expired”. Its language does not suggest that a respondent may choose whether or not to file a response. The issue is how that provision is to be reconciled with the language of r 4.03(1) which plainly indicates that there is such a choice.

42    While r 4.03(1) does allow the respondent to choose whether or not to file a response, it does not indicate the consequence of not filing a response. Rule 13.03A(2) does indicate the consequence, namely that the party is taken to be in default; which then invokes the discretion of the Court to make an order of the kind set out in r 13.03B.

43    Rule 4.03(1) appears to be designed so that a party which does not wish to defend the proceeding need not file a response. That party is then in default under r 13.03A and liable to default judgment under r 13.03B. It is true that a party which is permitted to choose whether or not to file a document would not in ordinary language be regarded as being “in default” when choosing not to file the document. However, this seems to be the effect of r 13.03A(2)(b)(ii).

44    This conclusion is consistent with the scheme of rr 4.03, 4.04 and 4.05 as a whole.

45    The starting point is that a respondent who wishes to defend the proceeding must file a response. The response must be filed and served within 14 days of service of the application: r 4.03(2). The response may indicate consent to one or more of the orders sought by the applicant or ask the Court to make other orders or ask the Court to dismiss the application or make a cross claim: r 4.04(1). The response must state any orders sought, and for a general federal law proceeding, state the basis on which those orders are sought: r 4.04(2).

46    In addition to the filing of a response, a respondent who wishes to defend the proceedings must file an affidavit, except where an affidavit is expressly not required: r 4.05(1) and (2). Where a statement of claim or points of claim is filed under r 4.05(2)(b), a defence or points of defence must be filed instead of an affidavit: r 4.05(3)(a).

47    Under r 6.01(1) and (2) of the Federal Circuit Court Rules a party to a proceeding must give an address for service by either filing a relevant document that includes an address for service or filing a notice of address for service in accordance with the approved form. Rule 11.06 of the Federal Court Rules requires a notice of address for service to be filed before the return date fixed in the application. Rule 6.01 envisages that a party will give its address for service either by including the address in the response, which is to be filed within 14 days of service, or by filing a notice of address for service before the first return date if that date is earlier than the date for the filing of the response.

48    The present applicants’ argument that a response is not required to be filed in circumstances where a defence is filed is not supported by the language of r 4.05. Where r 4.05(3) applies, a respondent must file a defence or points of defence instead of an affidavit. The rule does not indicate that a defence or points of defence must be filed instead of a response.

49    In summary, I consider that r 4.03(1) does give a respondent a choice as to whether or not to file a response. However, if the respondent wishes to defend the proceeding, then the respondent must file a response. If the respondent does not file a response, then the respondent is taken to be in default pursuant to r 13.03A(2)(b)(ii).

50    I should say that it is quite understandable that the present applicants would interpret r 4.03(1) as they did. The rule is confusing. The confusion is added to by the “Important Notice to Respondents” in the approved form for an application, which: suggests that a respondent may file a notice of address for service instead of a response; does not state that it is necessary to file a response if the respondent wishes to defend the application; and does not indicate a respondent will be taken to be in default if a response is not filed within the required time.

51    The primary judge was correct to conclude that the present applicants were in default by failing to file a response.

Whether the present applicants filed their defence within the prescribed time

52    The primary judge considered that the defence had been filed outside the time prescribed for the filing of the defence, but did not explain why that was so. The present applicants argue that as the Federal Circuit Court Rules do not prescribe any time for the filing of a defence, r 16.32 of the Federal Court Rules operates to require that it be served within 28 days after service of the statement of claim; and that the defence was filed within that time. Mr  Ballantyne argues that rr 4.03(2) and 4.05 require the defence to be filed and served within 14 days of service of the application; and that the defence was filed outside that time.

53    Rule 4.03(2) provides that a response must be filed and served within 14 days of service of the application. Rule 4.05(3)(a) provides that if a statement of claim or points of claim are filed under r 4.05(2)(b), a respondent must file a defence or points of defence instead of an affidavit.

54    Although r 4.05 does not specify that the defence must be filed within 14 days of service of the application, I accept that is the way it is to be interpreted. Under r 4.05(1) a person filing a response must also file an affidavit except where, relevantly, a defence is filed in response to a statement of claim. The heading to r 4.05 is “Affidavit to be filed with application or response.” Section 13(3) of the Acts Interpretation Act 1901(Cth) formerly provided that “no heading to a section of an Act, shall be taken to be part of the Act”, but that sub-section was repealed under schedule 1 of the Acts Interpretation Amending Act 2011 (Cth) with effect from 27 December 2011. The heading is part of the Federal Circuit Court Rules: ss 13(1) and 2(1) of the Acts Interpretation Act, s 81(3) of the Federal Circuit Court of Australia Act and s 13(1) of the Legislative Instruments Act 2003 (Cth).

55    The language of r 4.05 and the heading to that provision indicate that where an affidavit is required to be filed, it is to be filed with the response. Correspondingly, where a defence is required to be filed instead of an affidavit, the defence must be filed with the response. In other words, it must be filed and served within 14 days of service of the application.

56    Therefore, the primary judge was correct to find that the defence had been filed out of time. I acknowledge that this aspect of the rules is also confusing.

Whether the primary judge applied wrong test to the exercise of the discretion

57    Counsel for Mr Ballantyne made written and oral submissions to the primary judge that the Court’s discretion to grant default judgment under r 13.03B(2)(c) should be guided by the considerations applicable to the exercise of the Court’s discretion to set aside a regularly entered default judgment. Counsel submitted that these considerations required an explanation for failing to file the response and the demonstration of a defence on the merits. The present applicants submit that his Honour adopted that approach, but was wrong to do so.

58    In his reasons, the primary judge did not expressly state that he adopted the submission that the discretion should be guided by the considerations relevant to an application to set aside a regularly entered default judgment. However, an indication that his Honour took that approach is found in his Honour’s extensive reference to a letter written by Mr Ballantyne to Hartnett Lawyers dated 14 January 2015. That letter referred to the application for default judgment and continued:

We apprehend from the defence that despite their default, your clients intend to defend the application proper and oppose the making of the orders sought in the said application. If that is the case, please serve on us affidavit material addressing the usual matters in respect of setting aside default judgment and any other material you intend to rely on, by 23 January 2015.

(Underlining added)

59    His Honour said:

18.    The Second Respondent has totally ignored the letter of 14 January 2015. There is no material before me from either Respondent to clarify the matter for the Court.

I consider that his Honour must have been referring to the absence of “affidavit material addressing the usual matters in respect of setting aside default judgment” that had been sought in the letter of 14 January 2015. This indicates that his Honour did adopt the approach he was urged to take by Mr Ballantyne’s counsel, namely that the considerations relevant to setting aside a regularly entered default judgment should guide the discretion to award default judgment under r 13.03B(2)(c).

60    An application to set aside a regularly entered default judgment must be supported by an affidavit demonstrating a defence on the merits: see, for example, Rubin v Eacott (1912) 15 CLR 386 at 388 per Barton J, at 389 per Isaacs J; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 at 450 per McPherson J; Rosing v Ben Shemesh [1960] VR 173 at 176, per Herring CJ, O’Bryan and Dean JJ. As the primary judge noted, there was no such affidavit filed by the present applicants.

61    However, I consider that his Honour was incorrect to apply the principles relevant to an application to set aside a default judgment to an application for default judgment.

62    In Wiedenhofer v Commonwealth (1970) 122 CLR 172, the Commonwealth had failed to file a defence within the time required under the Rules of the High Court, although a defence was delivered outside that time. Order 28 r 11 provided that where a defendant made default in delivering a defence, the plaintiff could set down an action or motion for judgment and recover the judgment to which upon the writ or statement of claim the plaintiff was entitled. Gibbs J (as his Honour was then) rejected a submission that the principles applying to an application to set aside a default judgment ought to be applied to the application for a default judgment. His Honour said at 174:

It was however submitted on behalf of the plaintiff in the present case that judgment ought to be given for the plaintiff and that an extension for time should be refused because the defendant has failed to file an affidavit showing that it has a good defence on the merits. It was said in reliance on the remarks of the Earl of Selborne L.C., in Gibbings v. Strong (1884) 26 Ch. D. 66, at p. 69, that the reason why regard is had to a defence delivered out of time is to avoid the circuity which would result if judgment were given by default and subsequently set aside, and that therefore the general principle applicable to the setting aside of default judgments ought to be followed, namely, that a respondent ought not only to explain his default but ought also to file an affidavit of merits–that is an affidavit which shows that he has a prima facie defence.

63    Gibbs J continued at 174–175:

In my opinion. however, the discretion of the Court is not limited in that way. In the present case, where I have before me not only a motion for judgment but also a motion for extension of time for filing the defence, and where a defence has in fact been delivered although out of time, and there is no ground to suggest that this defence is merely frivolous or filed for the purpose of delay and an explanation has been given of the failure to deliver it within time, in my opinion it would lead to injustice to take any other course than to grant a reasonable extension of time and to refuse the motion for judgment.

64    In the present case, the primary judge did appear to conclude that the defence was frivolous or filed merely for the purpose of delay. His Honour reached that conclusion by finding that the allegation in the defence that Mr Ballantyne was employed personally by Mr Hartnett was untrue (his Honour appeared to go further than merely concluding that the allegation was incorrect). His Honour reached that conclusion because pay slips showed that Mr Ballantyne had been paid by Kentgale Pty Ltd and later by Hartnett Legal Services Pty Ltd. His Honour decided that there was “an implied contract” that Mr Ballantyne would provide his labour to Hartnett Lawyers and that he would be renumerated by Hartnett Legal Services Pty Ltd.

65    It is the case that r 13.03B(2)(c) allows the Court to give judgment against the respondent for the relief that “the applicant appears entitled to on the statement of claim”. Once jurisdiction is established, the rule merely requires that on the face of the statement of claim there is a claim for relief sought: see, for example, Maylord Equity Management Pty Ltd v v Parazelsus Ltd [2014] FCA 979 at [11]–[13] per Gleeson J, and the cases cited therein. Default judgment may even be given where the respondent has filed a defence but failed to pursue its defence with reasonable diligence: Luna Park Sydney Pty Ltd v Bose [2006] FCA 94 at [19] per Jacobson J.

66    In the present case the primary judge went beyond the face of the statement of claim. His Honour also considered the defence, but held that the lawyer’s certificate that there were reasonable grounds for the defence is “not worth the paper it’s written on”. His Honour rejected the allegation in the defence that Mr Ballantyne was employed by Mr Hartnett and found as a fact that he was employed by Hartnett Legal Services Pty Ltd.

67    In my opinion, it was not open to the primary judge to make findings of fact of this kind in the application before him. Even on an application to set aside a default judgment, it would not have been a matter for his Honour to make findings as to who was the employer, but only whether there was a prima facie defence on the merits. In the circumstances of the case, the question for his Honour was whether the defence was frivolous or filed merely for the purpose of delay.

68    In deciding whether an entity is an employer, the totality of the relationship must be considered, not merely the fact that wages are paid by the entity: Hollis v Vabu Pty Ltd (2001) 207 CLR 21 at 41 [44], 42 [48] – 44 [57]; Andonovski v Park Tec Engineering Pty Ltd (2009) 191 IR 250 at 259–260 [57]; Silcar Pty Ltd v Victorian Workcover Authority [2012] VSC 357 at [9]–[18]. It was pleaded in the statement of claim, and there was evidence before the primary judge in the form of a written agreement, that Mr Ballantyne’s original employer was both Kentgale Pty Ltd and Mr Hartnett, although his wages were paid only by Kentgale Pty Ltd. It was pleaded in the statement of claim, and there was evidence, that Mr Ballantyne’s employment involved the provision of services to Hartnett Lawyers, and that Mr Hartnett was the principal of that firm. It was not completely implausible that Mr Hartnett might have become Mr Ballantyne’s sole employer upon the winding up of Kentgale Pty Ltd, although his wages were subsequently paid by Hartnett Legal Services Pty Ltd. While his Honour was understandably sceptical about the defence, it was not open to find that it was frivolous or filed merely for the purpose of delay.

69    I make no comment upon the merits of the defence, but merely point out that neither were the merits a matter for the primary judge. His Honour seems to have been influenced by the fact that no affidavit as to the merits of the defence had been filed on behalf of the present applicants. However, this was not an application to set aside a default judgment or an application for summary judgment.

70    In my opinion, the primary judge erred by applying to the application for default judgment the considerations his Honour understood to be applicable to an application to set aside a default judgment.

Whether the primary judge failed to take into account the seriousness of the defaults

71    In his written submissions before the primary judge, the default relied upon by Mr Ballantyne was the failure of the present applicants to file any response to the application. He also took the point that the defence was filed late, although that was not relied upon as an act of default.

72    In his reasons, the primary judge did not advert to the seriousness or significance of the default. The seriousness or significance of the default is a matter relevant to the question of whether default judgment should be given: Deppro Pty Ltd v Daly [2006] FCA 1727 at [45]; Jianshe Southern Pty Ltd (ACN 007 031 905) v Turnbull Cooktown Pty Ltd (ACN 069 894 275) (No 2) [2007] FCA 903 at [26]; ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27].

73    The present applicants had filed a notice of address for service and had filed a defence. They had done so prior to the first return date. There was very little, if any, information that would be provided by a response that was not provided by the notice of address for service and the defence.

74    Although there was no affidavit on behalf of the present applicants providing explanation for why they had not filed a response, that reason was apparent from the very nature of the argument before the primary judge. The present applicants contended that on a proper construction of the Federal Circuit Court Rules they were not required to file a response in circumstances where they filed a defence. This was not a case of unwillingness to comply with the rules or conduct occasioning unnecessary delay or prejudice to the opposing party: cf Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 at 396 per Wilcox and Gummow JJ.

75    In my opinion, the seriousness or significance of the default is a relevant matter that ought to have been considered by the primary judge. His Honour erred by failing to do so.

Whether the primary judge’s reasons were adequate

76    I do not propose to consider the adequacy of the primary judge’s reasons in detail. It is necessary to make allowance for the fact that they were given ex tempore: Morris v Hanley & Ors [2001] NSWCA 374 at [22] per Heydon JA (with whom Foster and Rolfe AJJA agreed). I do not consider that the reasons were inadequate.

Indemnity costs

77    The primary judge awarded costs against the present applicants on an indemnity basis. His Honour considered that the present applicants had acted “in an unreasonable and frivolous way”.

78    The primary judge indicated that he was conscious of s 570(2)(b) of the Fair Work Act, which provides that in proceedings in a court in relation to a matter arising under that Act, a party may only be ordered to pay costs if the Court is satisfied that the other party’s unreasonable act or omission caused the other party to incur the costs.

79    His Honour appears to have taken the view that the present applicants’ conduct of the application was unreasonable and frivolous because of their failure to respond to the letter from Mr Ballantyne dated 17 November 2014, because of the limited instructions given to the town agent, because no affidavits had been filed by the present applicants and because of the lack of any defence on the merits. The first of those matters did not cause Mr Ballantyne to incur costs, since he had already commenced the application for default judgment before he wrote the letter. Similarly, as to the second of those matters, the paucity of instructions given to the town agent did not cause Mr Ballantyne to incur costs. As to the third and fourth matters, they cannot stand in view of my earlier findings.

80    I consider that his Honour erred in awarding costs on an indemnity basis. The parties indicated that they wished to be heard as to the appropriate orders that should be made as to costs.

81    I can certainly understand the primary judge’s view that the Court and Mr Ballantyne had been treated with a degree of high-handedness and contempt by the present applicants. However, I consider the primary judge’s strong comments concerning Mr Hartnett’s conduct were not justified in circumstances where he was not required to swear an affidavit as to the merits of the defence. While the question of veracity of the allegations in the defence will no doubt arise in the proceedings in the future, the comments are not presently justified and should not have been made.

82    I propose to grant the present applicants leave to appeal and to allow the appeal and set aside the orders of the primary judge. I will hear the parties as to costs.

Associate:

Dated:    22 July 2015