Finder Earth Pty Ltd v BN and SK Pty Ltd
[2017] VCC 1803
•7 December 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-16-03351
| Finder Earth Pty Ltd and Ximei Luo | Plaintiffs |
| v | |
| BN & SK Pty Ltd & Ors | Defendants |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 December 2017 | |
DATE OF RULING: | 7 December 2017 | |
CASE MAY BE CITED AS: | Finder Earth Pty Ltd v BN & SK Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1803 | |
REASONS FOR RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: Application to set aside default judgment – principles to be applied – no evidence of a defence on the merits
Legislation Cited: County Court Civil Procedure Rules 2008 (Vic) r21.02, 21.07, 24.05 and 24.06
Cases Cited:Jorgensen v Slater & Gordon [2008] VSCA 110; Kostokanellis v Allen [1974] VR 596 at 603-4; Lubura v Nazirevic [2103] VSCA 215, (2013) 42 VR 43
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiffs | Mr L E P Macgowan of counsel | Canaan Lawyers |
| For the defendants | Mr D Dudderidge, solicitor | Nevile & Co |
HIS HONOUR:
Background to application
1 The defendants in this proceeding have persistently failed to meet court imposed deadlines. They have sought and obtained many indulgences from the court, including on three occasions as a result of engaging new lawyers shortly before a directions hearing and those lawyers requesting additional time to familiarise themselves with the matter. Most recently, I made orders on 4 August 2017 on the application of the defendants vacating the trial date for the second time, to allow the defendants’ fourth firm of solicitors Nevile & Co (engaged the day before) time to familiarise themselves with the proceeding and brief counsel.
2 However, I also made orders that day for further discovery by the defendants and imposed the sanction of a self-executing order; if the defendants failed to meet the deadline for further discovery of 4pm on 6 September 2017, their defences would be taken to be struck out without further order and the plaintiffs entitled forthwith to enter judgment. The defendants failed to meet the 6 September deadline and the self-executing order took effect. On 10 October 2017, I entered judgment for the plaintiffs on their monetary claims, in default of defence. By summons dated 13 November 2017, the defendants applied to set aside that judgment and to have their defence reinstated. For the reasons below, that application is refused.
Claims in the proceeding
3 The claims in the proceeding arise from an alleged partnership entered into between the second plaintiff Ximei Luo (“Luo”) and either the first defendant BN & SK Pty Ltd (“BNSK”) or the second defendant Tao Yang (“Yang”). The first plaintiff (“Finder Earth”) was to be the partnership vehicle. There are two versions of the partnership deed; the first in English and the second in Chinese, both entered into in October 2015. The plaintiffs allege by their further amended statement of claim dated 5 September 2016 that the relationship of the parties was governed by the second partnership agreement and that the partners were Luo and Yang. The plaintiffs further allege in substance that:
· the terms of the partnership included that Luo would own 100% of the shares in Finder Earth, as this was necessary to ensure that Luo could use Finder Earth as a platform for obtaining a “888 migrant visa”;
· Luo would provide loan capital to Finder Earth of $500,000 at no interest;
· Yang would ensure that construction projects undertaken by entities he controlled were conducted through Finder Earth;
· Yang would be responsible for the daily management of Finder Earth, but Luo would have the right to be informed and the right to supervise the capital operation of Finder Earth;
· Yang agreed to guarantee repayment of the funds lent by Luo and to take responsibility for all the losses incurred by Finder Earth;
· Luo advanced $500,000 to Finder Earth;
· Luo advanced a further $200,000 to the third defendant (“Legendary Landers”) to be applied for the purposes of the partnership;
· Luo has been excluded from management of the Finder Earth and BNSK and/or Yang have failed to consult Luo or provide full information to Luo; and
· Yang and/or BNSK have applied the money lent by Luo to Finder Earth and Legendary Landers for purposes other than the partnership business and have made payments from the Finder Earth bank and credit card accounts for their own benefit or for the benefit of Legendary Landers.
4 The defendants admit the partnership, but say that it was governed by the terms of the first partnership deed between Luo and BNSK and that the parties did not intend to be bound by the second partnership deed. The defendants’ defence is otherwise largely made up of un-particularised denials and non-admissions. The defendants’ amended defence dated 12 April 2017 had contained a number of more substantive positive allegations in answer to the plaintiffs’ claims (including an allegation of illegality), but these were struck out by order of Judicial Registrar Tran made 28 July 2017, discussed further below.
Procedural history
5 It is convenient to begin the narrative of the procedural history of this proceeding with the order of Judicial Registrar Tran made 28 July 2017, where the Judicial Registrar set out in “Other Matters” the following:
“This proceeding was commenced by writ filed 29 July 2016. On 15 August 2016, Foster Nicholson Lawyers filed an appearance on behalf of the Defendants. The proceeding was initially listed for trial on 27 March 2017. On 4 November 2016, leave was given to Foster Nicholson Lawyers to cease to act. On 3 March 2017, Rigby Cooke Lawyers filed a notice of appointment for the Defendants and the trial date was vacated and re-fixed for hearing on 7 August 2017. On 3 July 2017, Rigby Cooke Lawyers was granted leave to cease to act. On 10 July 2017, Fairweather Legal filed a Notice of Solicitor acting for the First Defendant. On 17 July 2017, Fairweather Legal filed a Notice of Solicitor Acting for the Second and Third Defendants. On 17 July 2017, I refused an application by the Defendants to vacate the trial date. By email to the Associate to the Judicial Registrar sent 26 July 2017 at 6:52 PM, Fairweather Legal has applied for leave to cease to act on behalf of the Defendants.”
6 Judicial Registrar Tran went on to make a series of orders listing the matter for further directions and for a Judicial Resolution Conference on 1 August 2017, and facilitating notice to all parties of the hearing of the application by Fairweather Legal to cease to act and for other directions, scheduled for 1 August 2017. On that date, the Judicial Registrar made further orders granting the application by Fairweather Legal to cease to act, striking out parts of the defendants’ defence and confirming the trial date of 7 August 2017.
7 The matter came before me on 4 August 2017. At that hearing, the defendants relied on an affidavit affirmed on 3 August 2017 by Tao Yang. By that affidavit, Mr Yang deposed that he had appointed solicitors Nevile & Co to act for the first and second defendant in the proceeding, and sought an adjournment on the basis of the very recent appointment of new solicitors who had not yet had time to familiarise themselves with the matter and brief counsel and also on the basis that Mr Yang had been required to fly to China urgently to be with his grandmother who was dying. The plaintiffs opposed any order to vacate the trial date. I noted in “Other Matters” in the orders I made that day (and authenticated on 9 August 2017) that:
“The Court stated that it was concerned about the delays to date and the real doubts about whether the defendants had been acting consistently with their obligations under the Civil Procedure Act 2010 (Vic) (“CPA”), but was also concerned that the proceeding was both factually and legally complex and the purposes of the CPA also may not be served by proceeding with the trial in circumstances where the defendants were not represented by counsel or by a solicitor with any real knowledge of the issues in the proceeding.
The Court indicated that in all the circumstances, it would order that the trial date be vacated, but only on the basis that appropriate self-executing orders were made to both compensate the plaintiff for the costs of the delay and ensure that remaining interlocutory steps were completed. The Court also directed the solicitor for the defendants to inform Mr Yang that the Court would not countenance any further delays of the trial.”
8 The orders I made re-listed the proceeding for trial on 5 February 2018, awarded the plaintiffs’ costs thrown away by reason of the vacation of the trial date on an indemnity basis, required further discovery from the defendants and provided that if the defendants failed to give the discovery as ordered, “the defences will be taken to be struck out without further order and the plaintiffs will be entitled forthwith to enter judgment in default of defence on their claim”.
9 On about 22 September 2017, the plaintiffs sought orders on the papers for judgment in default of defence. They relied on an affidavit of Erica Lee, a solicitor in the employ of the plaintiffs’ solicitors Canaan Lawyers. In that affidavit, Ms Lee deposed (among other things) that at 9:46am on 6 September 2017, she emailed the defendants’ lawyer, David Dudderidge of Nevile & Co, enquiring whether his clients intended to comply with my order of 4 August 2017. Ms Lee then deposed to further communications between her and Mr Dudderidge on 6 September 2017 and the receipt by her at 6.29pm that day of an unsworn affidavit of documents and bundle of further discovery, and at 7.29pm a copy of an affidavit sworn by Mr Dudderidge setting out reasons for non-compliance with the discovery orders. I comment below on the content of that affidavit.
10 Despite the acknowledgement in the affidavit of Mr Dudderidge of 6 September 2017 of a clear failure to comply with my orders, the defendants did nothing to seek to explain that failure to the court or otherwise forestall the entry of judgment in default of defence in the days following the 6 September 2017 deadline. Indeed, I have no confidence that the defendants’ solicitors would even have engaged with the plaintiffs’ solicitors (far less the court) on the impending deadline, if Ms Lee had not emailed Nevile & Co on the morning of 6 September 2017, to enquire of the defendants intentions in relation to my orders.
11 Again, the next step in the proceeding was taken not by the parties in default and facing imminent judgment, but by the plaintiffs. On 22 September 2017, Ms Lee of Canaan Lawyers on behalf of the plaintiffs sent an email to the court attaching her affidavit affirmed that day referred to above, and seeking judgment on the plaintiffs’ monetary claims. There were a series of further emails between Ms Lee and the court over the course of the following week addressing aspects of the default judgment and orders. Nevile & Co was copied on all of these emails.
12 However, it was not until 4 October 2017 that Nevile & Co first engaged with the correspondence, notifying the court by email at 7.15pm that day that they held instructions to make an application to set aside the default judgment sought by the plaintiff. Mr Dudderidge’s email stated:
“Please advise on His Honour’s return whether His Honour would consider it efficient to re-list the matter to deal with the plaintiff’s application for default judgment, and also deal with an application to set aside.
Otherwise we’ll wait to be served with any such default judgment and then follow the usual course in seeking to set it aside.”
13 The default judgment was duly entered on 10 October 2017 and emailed to the solicitors for both parties that day. The default judgment noted in “Other Matters” that: “It is not in dispute that the defendants failed to comply at least with order 4 of the orders of His Honour Judge Woodward made on 9 August 2017 and, accordingly, their amended defence dated 10 April 2017 is taken to be struck out”. The defendants do not allege that the judgment in default of defence entered on 10 October 2017 was irregular.
14 Despite apparently receiving a copy of the authenticated default judgment on 10 October 2017 and the seriousness of the predicament then faced by the defendants, the defendants delayed for over a month before issuing the summons dated 13 November 2017 now before the court. One consequence of that delay, and the inevitable further delay in allocating a suitable time for the hearing of that summons, is that the trial date of 5 February 2018 is again under serious threat.
Affidavits in support
15 The defendants rely in support of that summons on four affidavits. These include the affidavit of Mr Dudderidge affirmed on 6 September 2017 and a further short affidavit of Mr Dudderidge affirmed on 13 November 2017, adopting the 6 September affidavit and confirming that a copy of the sworn affidavit of documents of Mr Yang affirmed 7 September 2017 was sent to the plaintiffs’ solicitors that day.
16 The defendants have also filed an affidavit of Mr Yang affirmed on 12 November 2017 on behalf of the first defendant and himself (as second defendant), and an affidavit of Vi Can Mach affirmed on 15 November 2017 on behalf of the third defendant. These affidavits are in similar form. In particular, both affidavits include a paragraph in terms as follows:
“Between 9 August 2017 and 4 September 2017 I arranged for further discoverable documents to be provided to Nevile & Co Lawyers, together with unredacted copies of bank statements already discovered in this proceeding. The documents were provided to Nevile & Co Lawyers on 4 September 2017.”
17 The affidavits go on essentially to depose that the defendants collectively have no further documents to discover in response to my orders for particular discovery authenticated on 9 August 2017. I note that it is clear from the affidavit of Mr Lo, principal of Canaan Lawyers, in opposition to the defendants’ summons, that the adequacy of the discovery by the defendants continues to be a matter of substantial dispute between the parties. Importantly, the affidavits in support of the application deal only with the reasons for failing to meet the 6 September deadline and the adequacy of discovery. They say nothing about the merits of the defences.
18 Turning to the explanation for the defendants’ failure to comply with the self-executing orders, this is the subject of the affidavit of Mr Dudderidge affirmed on 6 September 2017 referred to above. Omitting formal parts, Mr Dudderidge commences that explanation in the following terms:
“Between 9 August 2017 and 6 September 2017 it was my intention to review the bank statements previously discovered in this proceeding by the defendants which were redacted and compare to the unredacted copies. It was also my intention to obtain any other discoverable documents from the defendants, including any which may have been in the category set out in Order 4 of His Honours Orders of 9 August 2017, and then prepare and serve an affidavit of documents prior to 4 PM on 6 September 2017.”
19 In the following two paragraphs of his affidavit, Mr Dudderidge sets out in some detail the reasons for his inability to give this proceeding the necessary attention in the period 9 August 2017 to 6 September 2017. He then states: “On 4 September 2017 my clients, the defendants in this proceeding, provided me with copies of documents for further discovery”. This is consistent with the affidavits of Mr Yang and Vi Can Mach which also confirmed that the documents were provided to Mr Dudderidge on 4 September 2017. The documents provided that day apparently included the unredacted bank statements. Mr Dudderidge’s affidavit concludes by setting out details of his urgent commitments on 5 and 6 September 2017 leading to his missing the 4pm 6 September 2017 deadline.
20 Despite Mr Dudderidge’s apparent willingness to take responsibility for the defendants’ default, his explanation is unconvincing. Although the passages from the affidavits of Mr Yang and Vi Can Mach set out above commence by suggesting documents were provided progressively to Mr Dudderidge from 9 August 2017, the conclusion of the passage contradicts this by confirming that in fact no documents were sent until 4 September 2017, a mere two days before the court imposed deadline.
21 Mr Dudderidge accepted in argument that he could not have undertaken any of the tasks that he said he intended to undertake in the period 9 August to 6 September 2017, including reviewing redacted bank statements against the unredacted versions, until after the documents were supplied on 4 September 2017. However, he argued that the documents sent to him were not voluminous and if it were not for the other urgent matters he was required to attend to on 5 and 6 September combined with the loss of staff referred to in his affidavit, he could have completed the discovery in the time left to him.
22 In my view, notwithstanding Mr Dudderidge’s submission to the contrary, the failure to meet the 6 September 2017 deadline for further discovery lies primarily at the feet of the defendants and their delay until 4 September 2017 to provide any documents to their solicitors. I agree with Mr Dudderidge that the documents were not voluminous. Why it took the defendants the best part of a month to locate and forward them to Mr Dudderidge is unexplained. The defendants’ conduct again has the hallmarks of leaving things to the last minute, perhaps in the hope of garnering sympathy for the plight of their legal advisers and thereby securing a further indulgence from the court.
23 The position faced by the defendants following the late provision of the documents to Nevile & Co might have been ameliorated had they approached the plaintiffs or the court at any time between receipt of the documents on 4 September and 4pm on 6 September 2017, to seek to pre-empt the consequences of the self-executing order. Failing that, their prospects of securing a further indulgence would have been greatly enhanced had they sought it as soon as practicable after that deadline had passed. Again, no explanations are offered for the defendants’ failure, until 4 October 2017, to take any step to notify the plaintiff or the court of any intention to reinstate their defence or prevent a default judgment being entered, nor their delay until 13 November 2017 to issue the application first foreshadowed on 4 October 2017.
The application
24 The defendants commenced their submissions by taking me to the decision of the Court of Appeal in Jorgensen v Slater & Gordon [2008] VSCA 110 and, in particular, the principles set out at [9] to [12] of that decision. The first thing to note about Jorgensen is that it was a case where the appellant (Jorgensen) was making application pursuant to r24.06 to set aside or vary a self-executing order dismissing Jorgensen’s appeal. I accept that principles of the kind stated in Jorgensen and relied on by the defendants, can generally inform the exercise of my discretion as to whether to set aside the judgment entered on 10 October 2017. However, the defendants’ application is made pursuant to r21.07, not r24.06. The principles that I am required to apply to an application under r21.07 are generally more prescriptive.
25 Both these rules of court fall into the category of rules discussed in Civil Procedure Victoria at [21.07.1], that avoid the operation of the general rule that, except by way of appeal, the court had no power to review or set aside any judgment or order that had been authenticated. Rule 24.06 might have been available to the defendants had they acted before default judgment was entered. However, once that occurred, the appropriate course was the one the defendants took; namely to seek relief pursuant to r21.07.
26 Rule 24.02 provides that:
(1) Where a party fails to comply with an order to give particulars of any pleading or with an order for the discovery or inspection of documents or for answers to interrogatories, the Court may order—
(a)if the party is the plaintiff, that the proceeding be dismissed;
(b)if the party is a defendant, that the defendant's defence, if any, be struck out.
(2) A defendant whose defence is struck out in accordance with paragraph (1)(b) shall, for the purpose of Rule 21.02(1), be taken to be a defendant who, being required to serve a defence, does not do so within the time limited for that purpose.
27 Rule 21.02 relevantly provides:
(1) Where any defendant, being required to serve a defence, does not do so within the time limited, the plaintiff may enter or apply for judgment against that defendant in accordance with this Order.
…
(3) Paragraphs (1) and (2) shall apply, with any necessary modification, where—
(a) the defendant has served a defence; and
(b) by or under an order of the Court the defence is struck out.
28 The final step in the process is found in r21.07 which provides that:
The Court may set aside or vary any judgment entered or given in accordance with this Order.
29 For completeness, r24.06 relevantly provides that:
The Court may set aside or vary—
…
(b) a judgment entered or given upon the failure of a party to do any act or take any step which under these Rules the party is required to do or take or to comply with an order that the party do any such act or take any such step.
30 Although in this case the defendants failed to comply with an order that the defendants give further discovery which may have attracted the operation of r24.06, that failure led to an anterior step to the entry of judgment; namely, the striking out of their defence. In my view, the entry of judgment in default of defence in effect superseded that earlier failure, thereby invoking r21.07. The defendants rightly identified that they needed to apply pursuant to that rule to set aside the judgment in default, before they could seek to reinstate their defence.
31 Rule 21.07 gives the court a discretion to set aside the judgment, and in exercising the discretion a distinction is drawn between a judgment which is regularly entered, that is, in accordance with the rules or an order of the court, and one which is not. As mentioned above, it is not in dispute that the judgment authenticated on 10 October 2017 was regularly entered. It has been long established (see Kostokanellis v Allen [1974] VR 596 at 603-4, Lubura v Nazirevic [2103] VSCA 215; (2013) 42 VR 43 (“Lubura”), per Warren CJ at [3]) that in the case of a default judgment which is regularly entered, while the discretion is unconditional, the circumstances relevant to the exercise of the discretion of the court to set aside the judgment in default of defence may include:
· whether the defendant has a defence on the merits;
· the reason for the default of the defendant in consequence of which the judgment was obtained;
· whether the application to set aside the judgment was made promptly after the judgment came to the knowledge of the defendant; and
· whether if the judgment was set aside the plaintiff would be prejudiced in any respect which could not be adequately compensated for by a suitable award of costs and the giving of security.
32 The first of these matters was (unsurprisingly) the first argument relied on by the plaintiffs in opposition to the defendants’ application. Although the rule that requiring an affidavit of merits is not inflexible, in my view this does not fall into the category of case where I should make an exception. For example, in Lubura the Warren CJ confirmed that a defendant is ordinarily required to file an affidavit of merits which discloses a prima facie defence. She considered that the affidavit filed by the applicant was deficient in that, while it set out the reasons for delay, it gave little information as to the defence the defendant relied on. The Chief Justice nevertheless held that:
“The court was obliged to sift through the exhibits to the affidavit, in particular the Crown opening and submission at the appellant’s criminal trial, as well as transcripts from the criminal trial. A court should not have to search for a defence. Ultimately, in light of the material available to the court from the criminal trial as described by Osborne JA, I am satisfied that there is a defence on the merits in this case and accordingly error has been made out.”
33 Even if the more substantive positive allegations in the defendants’ amended defence dated 12 April 2017 had not been struck out, there would have been insufficient material in the pleadings or otherwise on the court file for me to form any view about the merits of that defence. But with the amended defence pared back as a result of the striking out to essentially non-admissions and denials, the need for an affidavit of merits in this case is even more acute. As indicated above, none of the affidavits filed by the defendants in support of their application address the merits of their defence.
34 The defendants submitted that I should be satisfied of the merits of the defence, because the plaintiffs had twice applied for summary judgment in the proceeding and been refused on both occasions. This submission is misconceived. Although some of the materials referred to these applications as being for “summary judgment”, they were in fact applications for judgment in default of compliance by the defendants with one or more court directions in the proceeding. They did not involve any consideration of the merits of the case of any party. For completeness, I should add that the applications were not refused in the sense that the plaintiffs lost the applications. In both cases, the court gave fresh directions and ordered costs against the defendants.
35 In my view, in the absence of any affidavit or other material disclosing the nature and prospects of the defendants’ defence, their application to set aside judgment in default of defence must fail. While this is sufficient to dispose of the application, I should say something briefly about the other matters relevant to the exercise of my discretion identified in the authorities referred to above.
36 Turning first to the reason for delay, the solicitor for the defendants argued strongly that the responsibility for missing the deadline lay at his door. In general, a party should not suffer the penalty of being shut out from litigating his or her claim or defence where the solicitor for the party, not the party themselves, was responsible for the default in question. However, as discussed above, I am not satisfied that the solicitor’s mea culpa in respect of the late preparation of the affidavit of documents was justified in this case. And while he may have played a part in the failure to act quickly to remedy the default, including the delay in the issuing of this application, whether he did so is a matter of pure speculation.
37 On the other hand, I accept the defendants’ submission that they missed the deadline by less than a day, and the delays since then in responding to the default and commencing this application were not inordinate. Importantly, there is some force in the defendants’ submission that there is no prejudice to the plaintiffs from setting aside the default judgment that could not be remedied by a suitable award of costs. In particular, as the defendants submitted, the plaintiffs were fully prepared for trial on the last date fixed for trial (7 August 2017) and the proceeding remains listed for trial commencing on the revised date of 5 February 2018. I note in this context, that the defendants made clear in the course of argument that they were seeking only to reinstate their defence as it stood after the orders striking out particular paragraphs and passages.
38 Against this, the plaintiffs rely on a number of factors. First, they argue that the defendants’ failure to comply with the orders for discovery is continuing. Secondly, they point to the fact that the defendants were well aware of the seriousness of the self-executing order and their failure to provide documents to their solicitors until two days before the deadline should not be excused. Third, they rely on the defendants’ delay in bringing the application to set aside the default judgment. And, finally, they identify the prejudice to the plaintiffs arising from the fact that their advisors have effectively put down their pens since default judgment was entered and there was now a real possibility that the 5 February 2018 trial date will be lost.
39 Had the defendants adduced evidence of a prima facie defence in support of their application, the question whether I should otherwise exercise my discretion in favour of setting aside the default judgment would have been finely balanced. In my view, the fact that the existing trial date could be maintained would have been a significant factor weighing in favour of acceding to the defendants’ application. However, in the absence of an affidavit of merits, it is unnecessary for me to say more. I have considered whether there might be grounds for departing from the usual order for costs of the application and am satisfied that such grounds as there may be do not justify such a departure.
40 I will order that:
1. The defendants’ application made by summons dated 13 November 2017 is dismissed.
2. The defendants pay the plaintiffs’ costs of and incidental to the summons on the standard basis in default of agreement.
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Certificate
I certify that these 14 pages are a true copy of the reasons for Ruling of His Honour Judge Woodward delivered on 7 December 2017.
Dated: 7 December 2017
Simon Bobko
Associate to His Honour Judge Woodward
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