Default Judgment

Further to our recent article regarding issuing a Statement of Claim, you may recall that there are several ways that defendants usually respond:

1. Pay the Statement of Claim amount, which is the debt amount plus the legal costs and interest, within 28 days of being served.
2. Apply to the court to acknowledge the debt and make an application to pay by instalments.
3. Contact the solicitor acting for the Plaintiff creditor to negotiate settlement.
4. File a defence to the Statement of Claim with the court. If this happens then the court will list a hearing date for a pre-trial review or defence call over, so that the parties can discuss the merits of their respective cases and attempt to reach a settlement.
5. A Defendant debtor will often fail to respond. If the debtor fails to respond or settle the debt, the creditor can proceed with further legal action, such as obtaining default judgment and initiating legal enforcement procedures.

In NSW, a defendant has twenty-eight (28) calendar days from being served with a statement of claim to file a defence. If a defendant fails to file their defence within these 28 days, the plaintiff has the option to apply for default judgment.

Default Judgment

In any legal proceedings, the Plaintiff’s first goal when issuing the initiating process is to obtain judgment. The plaintiff can then rely on the judgment to take further legal action to enforce payment.

Default judgment is an order made by the court determining the proceedings in favour of the plaintiff without having a hearing in court.

The application for default judgment is heard ex parte. That means that the parties do not need to appear. Therefore, default judgment may be entered, and the plaintiff may begin the enforcement processes, without the knowledge of the defendant.

Applying for Default Judgment

If a plaintiff initiates a claim in NSW, they can apply to the court for default judgment after 28 days have passed from the date the defendant was served with the claim. They can only apply for default judgment if the defendant:

1. has been properly served with the claim, and
2. has not filed a defence, and
3. has not paid the full debt they owe including the costs and interest owed.

Once judgment has been made, further legal costs will be added to the claim and interest will continue to accrue on the judgment debt until the defendant has paid in full. This can increase the amount of the original claim substantially.

After default judgment has been entered, if the defendant wants to challenge the claim by filing a defence, they will first need to apply to have the default judgment set aside. However, to set aside default judgment the defendant will need to demonstrate to the court that they had a good reason for not filing a defence within the requisite time and that they have a genuine defence to the claim. If default judgment is set aside, the defendant will have a limited time to file their defence with the court. Usually 14 days.

What are the Consequences of Default Judgment?

As soon as default judgment has been entered, the plaintiff can begin enforcement action against the defendant to enforce payment, which may include seizing property, garnishing wages or bank accounts, or a court hearing to financially examine the defendant. A plaintiff might also decide to begin insolvency or bankruptcy proceedings if the balance of the debt is great enough to meet the insolvency/bankruptcy thresholds.

We will look at enforcement procedures in more detail in our subsequent articles.

Should you have any queries about this article or any other articles published by NSW Credit Law please contact Paul Thorndike on 0429 008 247 or by email at paulthorndike@nswcreditlaw.com.au