85 Degrees Coffee Australia Pty Ltd v Ji

[2021] NSWDC 99

District Court

New South Wales

• Amendment notes

Medium Neutral Citation:

85 Degrees Coffee Australia Pty Ltd v Ji [2021] NSWDC 99

Hearing dates:

17 March 2021

Date of orders:

31 March 2021

Decision date:

31 March 2021

Jurisdiction:

Civil

Before:

Scotting DCJ

Decision:

(1)   The default judgment entered on 27 April 2020 is set aside.

(2)   The defendant is directed to file and serve a Defence to the Statement of Claim on or before 5pm on Wednesday 14 April 2021.

(3)   The defendant is to pay 50% of the plaintiff’s costs of the Notice of Motion, as agreed or assessed.

(4)   The defendant is to pay any disbursements, but not professional costs, relating to the registration of the writ of execution.

(5)   Matter is listed for directions on Wednesday 28 April 2021 before the Judicial Registrar.

Catchwords:

CIVIL PROCEDURE — Default judgment — Setting aside — Bona fide defence on merits

Cases Cited:

Batiste v Gilmour-Latham [2001] NSWCA 392

Hoyts Pty Ltd v Spencer (1991) 27 CLR 133

J&M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd trading as Greenwood Group Realtors [2019] NSWCA 283

Texts Cited:

Australian Consumer Law

Category:

Procedural rulings

Parties:

Lanfang Ji (Defendant/Applicant)
85 Degrees Coffee Australia Pty Ltd (Plaintiff/Respondent)

Representation:

Counsel: D Smallbone (Plaintiff/Respondent)
J Clifton (Defendant/Applicant)

Solicitors: Accuro Maxwell (Sydney) (Plaintiff/Respondent)
Raymond Lee & Co (Defendant/Applicant)

File Number(s):

2020/31021

Publication restriction:

None

Judgment

Introduction

1. Lanfang Ji (the defendant) seeks an order setting aside the default judgment entered against her by 85 Degrees Coffee Australia Pty Ltd (the plaintiff).

2. The plaintiff resists the application on three grounds, namely that:

1. the defendant has not provided a satisfactory explanation for the delay;

2. the evidence relied on by the defendant does not support the contention that she has a bona fide defence to the plaintiff’s claim; and

3. if the application is granted that the order should be subject to conditions including the provision of security for the amount alleged to be owing to the plaintiff in the Statement of Claim.

Evidence on the Notice of Motion

3. The defendant read the following affidavits:

1. Affidavit of Lanfang Ji affirmed 30 July 2020;

2. Affidavit of Lanfang Ji affirmed 23 November 2020.

4. The plaintiff read the following affidavit:

1. Affidavit of Hao Fan affirmed 25 November 2020.

5. Neither of the deponents was cross-examined on the motion.

Factual Background

6. On 10 December 2016, Ji International Trading Pty Ltd (JIT), a company controlled by the defendant, entered into a franchise agreement with the plaintiff. The defendant executed a guarantee, guaranteeing the obligations of JIT under the franchise agreement. The plaintiff is a franchisor of a brand that operates a number of franchised bakeries and coffee shops.

7. In or about September 2017, JIT commenced to operate a franchised coffee shop at Shop 61 Ashfield Mall (the shop), pursuant to the franchise agreement.

8. In or about late 2019, JIT handed back the shop to the plaintiff, alleging that it had failed to generate the level of revenue that the plaintiff represented that it would. The plaintiff later found an alternative tenant for the shop.

9. On 30 January 2020 the plaintiff commenced proceedings against the defendant for recovery of debts it alleges were incurred by JIT under the franchise agreement, that were guaranteed by the defendant, relating to goods sold and delivered, unpaid licence fees, unpaid marketing fees and recovery costs.

10. The defendant accepts that she was served with the Statement of Claim in or about late February 2020. At the time the defendant was experiencing complications with her third pregnancy and was in hospital to receive treatment for high blood pressure. She felt under stress as a result of the failure of the shop and the consequent financial loss.

11. In or about early March 2020 the defendant had a miscarriage and was admitted to hospital on 14 March 2020 to remove the foetus, which caused her great distress. The defendant deposed that at the relevant time she felt unable to deal with the Statement of Claim.

12. In or about June 2020 she received notices from the Sheriff seeking recovery of the debt from her assets, particularly relating to real property held in her name.

13. The Notice of Motion to set aside the Default Judgment was filed on 30 July 2020.

Relevant Law

14. In J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd trading as Greenwood Group Realtors [2019] NSWCA 283, Gleeson JA (Brereton JA, Simpson AJA agreeing) summarised the relevant principles at [48]-[52] as follows:

1. It is well established that the considerations relevant to an application to set aside a default judgment include whether the applicant has a bona fide ground of defence, an adequate explanation for the failure to defend and the length of any delay: Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 at 506 (Hope JA; Glass JA agreeing). Whether the plaintiff will be prejudiced if the default judgment were set aside is also relevant.

2. Fundamentally, the question is whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Dai v Zhu [2013] NSWCA 412 at [83] (Sackville AJA; Barrett and Leeming JJA agreeing), citing, with approval, the remarks in Reinher Industrial Lease & Finance Pty Ltd v Jordan (Court of Appeal (NSW), 4 June 1974, unrep).

3. Two further matters referred to by Sackville AJA in Dai v Zhu should be mentioned. One is the observation by his Honour at [89] that the rationale for the requirement that the applicant for relief demonstrate a bona fide ground of defence is that, “In the exercise of its ‘unfettered, though judicial, discretion’ the Court will consider … (a) whether any useful purpose would be served by setting aside the default judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained”.

4. The other matter, which is related to this, is his Honour’s observation at [92] that, “In determining whether the defendant has a bona fide defence on the merits, the Court does not embark on a hearing of the full merits of the case … [A]ll that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue. His Honour continued at [92]:

   The nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant’s explanation for the delay or failure to comply with orders of the Court.

5. It is also to be accepted that the application of these principles must now be subject to the provisions of the Civil Procedure Act 2005 (NSW). In Dai v Zhu, Sackville AJA gave as an example at [93], that there may be circumstances where it would be contrary to “the just determination of the proceedings”, referring to s 57(1)(a) of the Civil Procedure Act 2005 (NSW), to require a defendant to adduce affidavit evidence demonstrating a bona fide defence and in such cases the Court would be unlikely to reject the defendant’s application to set aside a default judgment solely on the ground that no such affidavit had been filed whilst emphasising each case must of course depend on its own facts.

Consideration

Delay

15. At the time that the defendant was served with the Statement of Claim in February 2020 she was experiencing complications with her pregnancy and she was suffering from high blood pressure. This was overlaid on the stress she had suffered as a result of the failure of the franchise business.

16. When she eventually lost the child, she was hospitalised to remove the foetus. The defendant’s medical condition was corroborated by independent medical evidence.

17. The defendant became aware of the entry of default judgment against her in about June 2020. This application to set aside the default judgment was filed on 30 July 2020. The progress of the application to hearing has been delayed by interlocutory processes to obtain documents and the plaintiff made no complaint as to the delay caused by that aspect of the proceedings.

18. I have also taken into account that the period in which the delay occurred was at the beginning of the COVID-19 pandemic. Ordinary access to legal services and the courts were significantly affected from late March 2020 and continuing through the relevant period.

19. I am satisfied that the delay involved in failing to attend to the Statement of Claim was relatively short and that it has been adequately explained.

Bona fide defence to the Claim

20. At the hearing of this application, the defendant provided a comprehensive draft Defence to the Statement of Claim. In short, the defendant alleges that the plaintiff engaged in misleading and deceptive conduct and/or unconscionable conduct and seeks to rely on s 243 Australian Consumer Law to fashion an appropriate remedy. Further or in the alternative, the defendant pleads that there was a collateral contract that was breached by the plaintiff causing loss that should be set off against the money owed to the plaintiff pursuant to the franchise agreement.

21. The defendant has deposed in her affidavits to the conversations with the plaintiff’s agents, which she says gives rise to the representations that she relied on and were likely to mislead or deceive her and the terms of the collateral contract. At [62]-[64] of the draft Defence the defendant has pleaded the material facts she relies on to establish unconscionable conduct. In her affidavits, she has given evidence of or relating to those facts.

22. The plaintiff was highly critical of the defendant’s evidence, contending that it did not support a finding that she has a bona fide defence to the plaintiff’s claim. I am not persuaded that any of the plaintiff’s criticisms are made good for the reasons that follow.

23. The Court is not required to embark on a full hearing of the merits of the case to be satisfied that the defendant has a bona fide defence. All that is required is that the defence asserted is bona fide and that there is an arguable or triable issue.

24. The plaintiff’s first complaint was that the defendant had failed to provide evidence of trading losses to demonstrate that the equitable set off would be a complete answer to the plaintiff’s claim. The defendant’s evidence was that the shop’s gross revenue was about $500,000 per year under what the plaintiff had represented that it would be, for the two relevant years of trading. I anticipate that the evidence required to establish the plaintiff’s loss will depend on a significant volume of documents and perhaps require expert interpretation. I do not presently see how the presentation of that evidence in this application is relevant, or efficient. I also note that the precise trading figures of the shop are probably known to the plaintiff pursuant to the obligations of both parties under the franchise agreement.

25. As to reliance, the defendant seeks to interpret the plaintiff’s evidence by reference to the fact that she was legally represented for some of the relevant period and by ascribing alternate meanings to the alleged representations of the plaintiff’s agents. The plaintiff’s argument is that if the evidence is construed in a certain way then the defendant could not have relied on the representations by the plaintiff. The Court is not in a position to make the decisions contended for by the plaintiff in the absence of a full hearing on the merits of the action. The plaintiff’s argument in fact demonstrates the opposite. That is, that there are alternative imputations that need to be authoritatively determined by the Court before a decision can be made in favour of either party. The plaintiff’s argument demonstrates that there are triable issues of fact and law on the issue of reliance.

26. As to unconscionability, the plaintiff argues that there is no evidence led of the matters pleaded by the plaintiff in paragraph 63 of the draft Defence. In my view, the plaintiff’s argument is put too high. In general the facts alleged in paragraph 63 of the draft Defence are established on the documents. In this argument the plaintiff repeats its attempt to impose particular constructions on the relevant matters. For the reasons already given, the plaintiff’s argument establishes that there are triable issues of fact and law.

27. As to the collateral contract the plaintiff quite rightly points out that the terms of the collateral contract cannot be inconsistent with the principal contract: Hoyts Pty Ltd v Spencer (1991) 27 CLR 133 at 146. However, whether the terms of the alleged collateral contract are in fact inconsistent with the terms of the Franchise Agreement is a triable issue of fact or law. Without evidence of the surrounding circumstances required to construe the terms of the Franchise Agreement and/or the collateral contract, the Court is not in a position to be able to accept the argument put forward by the plaintiff in reliance on the authority cited.

28. For all of these reasons I am satisfied that the defendant has an arguable and bona fide defence to the plaintiff’s claim.

Appropriate conditions to the exercise of the Court’s discretion

29. After obtaining judgment, the plaintiff was successful in obtaining a writ of execution against real property owned by the defendant. The plaintiff contended that an appropriate condition for setting aside the judgment would be that the defendant provide security for the amount sought by the plaintiff, because the effect of setting aside the default judgment will be to remove the basis for the writ of execution and thereby prejudice the plaintiff’s interests. The plaintiff cited Batiste v Gilmour-Latham [2001] NSWCA 392 as authority for the proposition that security for a judgment sum was an appropriate condition to be imposed when setting aside a default judgment.

30. The evidence discloses that the defendant owns more than one parcel of real property. The property on which the writ of execution has been lodged, is unencumbered. Whilst there is no direct evidence of the value of the property, it is likely to substantially exceed the value of the plaintiff’s claim of approximately $250,000. There is no evidence that the defendant has engaged or will engage in any dissipation of assets.

31. Whilst it is fair to say that the plaintiff has pointed to authority in support of its argument for security, it should also be noted that the imposition of a security condition in these cases is rare.

32. The registration of the writ of execution occurred in the same period of time as the default judgment was entered. For the reasons already given I am satisfied that the defendant had an explanation for that delay by reference to her medical condition. On all of the evidence, I am not satisfied that the plaintiff is prejudiced by reason of the fact that the setting aside of the judgment will result in the removal of the writ of execution. There is no evidence that the defendant is impecunious, or alternatively that she has sought to dissipate her assets. On the contrary, I am satisfied that the defendant is a natural person who has assets sufficient to be able to satisfy the plaintiff’s claim, if a judgment was to be entered in its favour.

33. I am satisfied that it is appropriate for the defendant to pay some of the costs of this application and the registration of the writ of execution. However, I think it is appropriate to make some adjustment to the usual costs order because the plaintiff’s arguments in this application were substantially unsuccessful. In addition, the plaintiff sought to re-agitate a claim for waiver of privilege that had largely already in substance been rejected by Judge Abadee in a former application relating to the production of documents.

ORDERS

34. The orders I make are as follows:

1. The default judgment entered on 27 April 2020 is set aside.

2. The defendant is directed to file and serve a Defence to the Statement of Claim on or before 5pm on Wednesday 14 April 2021.

3. The defendant is to pay 50% of the plaintiff’s costs of the Notice of Motion, as agreed or assessed.

4. The defendant is to pay any disbursements, but not professional costs, relating to the registration of the writ of execution.

5. Matter is listed for directions on Wednesday 28 April 2021 before the Judicial Registrar.

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Amendments

14 April 2021 - - Amended Order 3 to read "The defendant is to pay 50% of the plaintiff's costs of the Notice of Motion, as agreed or assessed".

- Amended Order 4 to read "The defendant is to pay any disbursements, but not professional costs, relating to the registration of the writ of execution".

Decision last updated: 14 April 2021