Perpetual v Dilati [2011] NSWSC 891

A mortgagor owner of a house entered into an agreement with a purchaser to buy a house in two instalments over three years, with the purchaser permitted to occupy immediately. The mortgagee obtained default judgment for possession of the land and the occupier sought to have that set aside and be joined as second defendant.

Setting aside default judgment
Rule 36.16 provides that in the case of proceedings for possession of land, the court may set aside or vary a judgment or order after it has been made if it was done in the absence of a person whom the court has ordered to be added as a defendant, whether or not the absent person had notice of the hearing or of the application for the judgment.

The court must look to the whole of the relevant circumstances which include inter alia any bona fide grounds of defence on the merits, an adequate explanation for the failure to defend and any delay; and in determining whether there are bona fide grounds of defence the court must not try the issues to be determined at the trial: The court must simply determine whether the facts providing a defence, if established at the trial, would afford a defence.

The court found that delay was not in issue because the occupier acted quickly once he became aware of the judgment. The court also found that the occupier had an arguable defence based on the past performance of a contract of sale between himself and the mortgagor and two unauthorised redraws by the mortgagor. The occupier argued that the mortgagee’s right to possession was not just contingent upon the mortgagor’s default but also subject to the occupier’s right to possession pursuant to the sale agreement. The first registered mortgagee argued that it had indefeasible title and was entitled to legal possession and that at best the occupier may have an equitable interest and right to occupation. The court found it unnecessary to decide and simply noted that it was arguable that the occupier may be entitled to remain in possession of the property and should be given the opportunity to argue this at trial.

The court ordered the occupier be joined as second defendant and that the default judgment for possession be set aside.

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