If a person (known as the ‘plaintiff’) commences legal proceedings against you, they must notify you of their claim. Providing you with notice is called service of the claim. If you ignore this notice and proceedings continue without your involvement, the court can rule against you without ever hearing your defence. This is known as a default judgment

However, in some cases, you may not have ignored the notice. Instead, you may have been genuinely unaware of the proceedings or had a valid reason for not responding. If this is the case, you may be wondering if there is any way to have a default judgment removed. This article will explain what you will need to do to set aside a default judgment in NSW. 

What Does ‘Being Served With Court Documents’ Mean?

The court document that sets out a plaintiff’s claim is called a statement of claim. A statement of claim has several purposes, including:

  • initiating formal court proceedings;
  • setting out details of the dispute or claim;
  • outlining the key outcomes wanted (for example, compensation); and
  • giving you an opportunity to respond.

There are clear rules setting out how a plaintiff must notify you that they are commencing legal proceedings against you. The usual methods of service are:

  • physically providing you with a copy of the claim; and
  • posting or leaving the claim at your company’s registered address.

However, a plaintiff may be able to serve you with court documents through other methods in particular circumstances.

Can I Avoid Being Served?

Avoiding service of legal documents can cause issues for you or your business. This is because there are many alternative ways for a court to accept that documents have been served. If you are seen to be intentionally avoiding documents or a person trying to serve them on you, a court will generally make an order for ‘substituted service’, which means that documents will be sent to you and considered served.

Even if I Am Served, Can I Ignore a Statement of Claim?

If you ignore a statement of claim, it is unlikely to go away. Instead, ignoring the claim is only likely to cause further issues for you.

The New South Wales (NSW) court rules require you to respond to a statement of claim within 28 days of service. This typically involves filing a defence, which provides your perspective on the dispute. At this stage, you may wish to engage a lawyer to help you file your defence correctly.

If you do not file a defence, the plaintiff can apply to the court to order a default judgment against you. In this case, the judge can rule in favour of the plaintiff by default.

Why Should I Be Concerned About a Default Judgment?

A court judgment should be taken very seriously, as it can have repercussions for both your personal and professional life.

The main reason for wanting to set aside a default judgment is that if you disagree with the plaintiff’s claim, it is in your interests to defend yourself. This is even more important if the judge awarded the plaintiff the right to a considerable amount of compensation. Clearly, you do not want to pay a large sum of money if you do not believe that you owe it.

Another important reason is that any court judgment against your name will appear on your credit rating. This may impact your ability to take out loans, mortgages or other financing in the future since it is an official record of your failure to settle a debt.

What Do I Need to Prove to Set Aside a Default Judgment?

There are three criteria you must satisfy to set aside a default judgment. These are set out below.

1. Reasonable Explanation

First, you must have a good reason for failing to file your defence within time. 

For example, you may not have been served with the statement of claim and so may have been unaware of the claim. Mistakes can happen in the service of documents. Not receiving the documents could a legitimate reason for your failure to file a defence.

It is important to note that you have a responsibility to ensure your registered business address is kept up to date with the Australian Securities and Investments Commission (ASIC). If there was an error in your business address, you can only make this excuse if the error was not your own fault. 

In certain other circumstances, you may have a valid reason for being unable to file a defence.

For example, you could have been hospitalised or overseas when your business was served with court documents. 

2. Evidence Supporting Your Claim

Second, you must have some evidence in support of your defence. Although you do not need to prove that you would definitely win the case if proceedings were to go ahead, you must be able to prove that your defencewarrants re-opening the case.

If you have already paid some of the debt, this payment could be used as evidence against you. A court may consider the fact you paid the debt as an admission that you owed it.

You can also choose to only dispute the judgment partially. For example, you might claim that you had already paid part of the debt, and therefore a judgment for the full amount is inaccurate. You must provide evidence of any such argument in the form of bank statements, cheque receipts or payment records.

3. You Did Not Delay

Finally, you must be able to indicate to the court that you made the application to set aside the default judgment as soon as possible.

If you have delayed making your application in any way, you must explain why to the court. The NSW court does not look favourably upon defendants who ignore legal proceedings, as this can often create difficulties for the other side. You should therefore be prepared to act fast or explain any delay. 

What Are the Possible Outcomes?

If the court decides not to set aside the default judgment against you, you can appeal the refusal. However, the court will usually only change its decision if there is new evidence or information available. A lawyer can help you to prepare your information and ensure that you include anything that might be relevant.

If the court decides to set aside the default judgment, you will need to file a defence. Typically, you will need to do so in a shorter time period, such as 14 days. 

It is key that you file a defence, otherwise the entire process may start again. Be sure to communicate any impending deadlines to your lawyers.

Do I Have to Cover the Plaintiff’s Costs?

If the evidence shows that you have no valid reason for failing to file a defence, you may need to cover the plaintiff’s costs. For example, these costs may include: 

  • fees for engaging lawyers to represent them at the various stages of the case proceedings; or 
  • further steps the plaintiff took to seek payment from you through enforcement actions.

However, if your failure to receive the statement of claim was not your fault, then any costs incurred so far may be:

  • covered by each party; or 
  • put on hold for determination at a later date.

What if the Plaintiff Has Begun Enforcing the Judgment Debt?

Once a default judgment has been entered against you, the plaintiff can take steps to enforce that judgment and seek payment. At this point, the plaintiff becomes known as a ‘judgment creditor’. Common methods to enforce a judgment include:

  • garnishee orders (where the court orders third parties that owe you money to pay the judgment creditor instead);
  • writs of possession of property (where the court allows the judgment creditor to take possession of property); 
  • bankruptcy proceedings (if you are an individual); or
  • winding up proceedings (if you are a company).

If a judgment creditor is taking steps to enforce a default judgment, you can make an application for a stay of proceedings together with your application to set aside a default judgment. If a stay of proceedings is granted, it will prevent the judgment creditor from taking any further enforcement steps against you until your application to set aside default judgment has been finalised.

Key Takeaways

It is important to take court proceedings and legal documents seriously. As court proceedings will inevitably catch up with you at some point, ignoring them can be a costly mistake.

If a default judgment is entered against you, you will need to show that you satisfy the three criteria required to apply to set aside a default judgment. These criteria are:

  • having a reasonable explanation for failing to file a defence;
  • being able to show evidence in support of your claim; and
  • making no delay in filing your application.

If you need help setting aside a default judgment in NSW, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

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