J.R.C Enterprises Pty Ltd v Zoomlion Australia-New Zealand Pty Ltd
[2013] VSC 646
•25 November 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2013 01886
| J.R.C ENTERPRISES PTY LTD | Plaintiff |
| – and – | |
| ZOOMLION AUSTRALIA-NEW ZEALAND PTY LTD and ZOOMLION CAPITAL (AUSTRALIA) PTY LTD | Defendants |
---
JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 November 2013 | |
DATE OF JUDGMENT: | 25 November 2013 | |
CASE MAY BE CITED AS: | J.R.C Enterprises Pty Ltd v Zoomlion Australia-New Zealand Pty Ltd and anor | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 646 | |
---
PRACTICE AND PROCEDURE ― Judgment in default of appearance ― Application to set aside ― Applicable principles ― Unsatisfactory explanation for procedural default ― Exposure of arguable defence ― Significance of the case as pleaded on which default judgment was based ― Setting aside of judgment with indemnity costs for costs thrown away ― Order for payment of security for those costs
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Rollnik | Norton Gledhill |
| For the Defendant | Mr C M Archibald | Gilbert + Tobin |
HIS HONOUR:
The Court will grant the defendants’ application to set aside the interlocutory judgment obtained by the plaintiff on 15 May 2013 in default of the filing of a notice of appearance to the writ. The Court will do so despite its scepticism about the reason given for their procedural default as given by a manager Mr Pi. He says he did not realise the documents served by the plaintiff concerned legal proceedings because in China, Court documents emanate from the Court and not from the adversary, and he believed it was the same in Australia. For months beforehand there had been disputation and threats by the plaintiff to sue over this dealing which involved an export of substantial industrial machinery from China. In my assessment, assuming (as I have to) that the belief was honest, there were no reasonable grounds objectively for that belief. I think he acted irresponsibly in being unconcerned about the documents (the writ) sent to the registered office of his organisation in Queensland.
But an unsatisfactory explanation does not necessarily disqualify the application. The principle that prevails in the exercise of the discretion is the perceived injustice in not allowing a case to be determined on its merits if an arguable defence be shown. Here, the grounds of a defence (I put aside the strength) have been portrayed to the case as pleaded, which is the case on which default judgment has been entered. That judgment was obtained purely on the basis of an alleged deed which was apparently not signed by the first defendant and which, it is sworn, was signed on behalf of the second defendant by a person who lacked the authority. This raises a question to be tried.
But, it appears the defence has never been raised before. An early impression may be taken about the merits of the plaintiff’s case having regard to some extrinsic objective facts exposed extensively by the plaintiff about this dealing. Those facts, I cannot resist saying, appear to be consistent only with an assumption of a legal obligation by the defendants to replace a defective crane with a brand new one (which is the fundamental obligation under the deed sought to be impeached) and, moreover, near complete performance of that obligation. The replacement crane has arrived in Melbourne from China but a dispute arose about the performance of further obligations by the defendants before further delivery to Tasmania. By reference to what obligation has that major undertaking occurred if not by reference to the deed on which the plaintiff has sued? But, as I say, I am bound to judge the application by seeing if there is an arguable defence to the case as pleaded, and not to the commercial realities and the force of the objective facts.
In the circumstances I think corresponding justice must be done to the plaintiff by making indemnity costs orders and an order for security for all costs thrown away That includes the plaintiff’s costs in preparing affidavit evidence for an assessment of damages, as occurred in Lubura v Nezirevic.[1]
[1][2013] VSCA 215 esp. at [118] to [122].
An elaboration of my reasons follow. I start with the applicable principles.
Applications to set aside default judgments are common. Assuming the judgment was regularly entered (as this one was) the appellate authorities have endorsed the principle that if merits are shown it is undesirable to let a judgment pass on which there has been no proper adjudication: see Lubura.[2] The language of the test varies but if a “defence on the merits” or a “prima facie defence” or “some defence” or “adequate defence” is shown, the courts say the strength or weakness of the case does not matter, for it is not the function of the judge on the application to decide whether the defence would succeed. There will usually be matters of facts to be investigated, and it will be a miscarriage of discretion to make decisions about the credibility of factual assertions made by the defendant: see Lou v Citic Australia Commodity Trading Pty Ltd.[3]
[2][2013] VSCA 215 at [4], quoting Kostakanellis v Allen [1974] VR 596.
[3][1999] VSCA 34.
A contiguous principle in forming the exercise of the discretionary judgment is whether the defendant has given an adequate explanation for the failure to file an appearance. The cogency of the explanation can reflect on the merits of the defence. A procedural default attributable to a mistake has been accepted as an adequate reason, but it depends on the particular facts, or the true nature of the mistake. In Lubura[4] the Court of Appeal accepted that “a plasterer from Noble Park with a non-English speaking background” might not have understood the difference between a criminal proceeding and a civil proceeding, especially when, as in that case, both proceedings were based on the same facts. Absent a testing by cross examination, a disbelief of an explanation given from which a conclusion is then reached that a defendant deliberately disregarded a legal obligation under court process, could miscarry unless it could be said that there was no other conclusion open on the evidence.
[4][2013] VSCA 215 at [75].
But the absence of a sufficient reason for the procedural default does not necessarily mean that the application to set aside the judgment must fail.[5] What dominates, in the end, is whether the defendant is able to show a prima facie defence on the merits. If so, the law’s attitude is not to inflict the serious prejudice of preventing a defendant from defending the claim especially if there is no actual prejudice to the plaintiff. The only compensatory measure available to the courts is an order for costs in the plaintiff’s favour. In more recent times, that no only includes the awarding of costs on an indemnity basis for costs thrown away but also a requirement that the defendant provide security for the costs payable, and a stay on the order to set aside judgment until the security for costs is lodged: see Lubura.[6]
The plaintiff’s case
[5]Kostokanellis v Allen [1974] VR 596 at [605].
[6]At [118]-[122].
The pleading is critical because first, the failure to file an appearance means there is an admission by the defaulting party of each of the allegations; and secondly, the judgment sought to be set aside has to be seen to be based only on the facts and the cause of action as pleaded.
It is unnecessary to make a copious reference to the statement of claim. It is sufficient to say that it is predicated purely on a settlement deed alleged to have been made between the plaintiff and the defendants on 14 March 2012. In essence, in December 2009 the plaintiff purchased for $346 500 a 20 tonne “Zoomlion” pick and carry crane from Dellgale Pty Ltd. The crane was manufactured in China by Changsa Zoomlion Heavy Industry Science and Technology Development Co Ltd. The plaintiff alleges the crane as delivered was defective and did not meet its stipulated requirements.
The settlement deed identified each of the two “Zoomlion” defendants and obliged them, by 30 August 2012, to supply and deliver at their expense to the plaintiff a crane of exactly the same specifications as the plaintiff had purchased from Dellgale. That obligation was expressed as being joint and several. The deed stated that upon delivery of the replacement crane, the plaintiff would waive all claims and proceedings against the manufacturer (who was not a party to the deed).
The plaintiff’s allegation is that the defendants failed to deliver a replacement crane to the plaintiff by 30 August 2012 or at all, and therefore repudiated the agreement. The plaintiff alleges it has accepted the repudiation. It sues for damages including the cost of having to purchase a replacement crane. Curiously, there is also a claim for specific performance of the settlement deed. I take it that in pursuing an assessment of damages, the plaintiff has elected not to seek a decree of specific performance. That matters not for present purposes. What matters is that the case is based wholly on a deed of settlement which the defendants now say is not binding.
As part of the opposition to the application, much evidence was adduced by the plaintiffs about events leading up to the making of the deed, to which I shall make some brief reference. For ease of exposure I shall also pass over the corporate identities within the “Zoomlion” group of companies.
By July 2010, the plaintiff was complaining about defects in the crane and had made contact with Zoomlion representatives. There were technical inspections undertaken. For the rest of that year correspondence occurred between the Dellgale (the vendor) and with Zoomlion concerning problems with the crane as delivered. In December 2010, the Dellgale was wound up. From August 2011 to about March 2012, the plaintiff’s lawyers were corresponding with Zoomlion in China looking to resolve the dispute about the defects in the crane. Broadly speaking, it appears that the Zoomlion organisation was willing to take the responsibility to try and overcome the customer’s grievances and find a solution to the problem. Come October 2011, Zoomlion was willing, rather than taking re-delivery of the crane and fixing it and upgrading it and returning it to the plaintiff and paying compensation, to supply a brand new AWD420 crane in “perfect condition”. That offer was accepted by the plaintiff “provided of course that the crane is delivered in a reasonable time and subject to agreement on a settlement deed.”
The plaintiff’s lawyers then prepared the settlement deed which was the subject of consideration between the parties. It is not an elaborate deed. At the end of 2011, Zoomlion told the plaintiff that a new crane would be ready by June 2012. It appears from the e-mail exchanges that consensus had been reached by February 2012. At about that time the plaintiff signed and delivered the settlement deed to the defendants and requested that the “authorised representative” execute the deed.
The evidence shows that the defendants apparently had lawyers scrutinising the settlement deed. Making allowances for the language differences, the plaintiff was told by the defendants that “our legal has amended the settlement deed a bit more”.[7] The amendments are more than perfunctory. They appear to me to be carefully made and directed towards the defendants’ interests, without changing their fundamental obligations under the deed. The plaintiff accepted the defendants’ changes to the deed.
[7]See Exhibit NER-9 to the affidavit of Nicholas Edward Roberts sworn 13 November 2013.
The fact was: this was a major transaction between established enterprises and the dispute was being handled by lawyers for the plaintiff and managers for the Zoomlion interests who also had the benefit of lawyers in their organisation.
The point had been reached by March 2012 where the defendants unequivocally stated there would be no more changes required to the deed by their “legal department” and it was ready to be signed. By this time the person identified as having the responsibility to sign the deed on behalf of the defendants was a Mr Gang (Tommy) Pi.[8]
[8]See Exhibit NER-10.
Delays were then experienced. Come May 2012 the correspondence shows impatience by the plaintiff as it awaited the settlement deed to be signed by Mr Pi. It is clear that the expectation was that the person to sign the deed on behalf of the defendants was Mr Pi because in readiness the execution clause identified “MR GANG PI GENERAL MANAGER” as the authorised representative for both defendants.
On 8 May 2012, the plaintiff received the signed settlement deed on which it has sued. There were oddities in the execution section. There was no signature by Mr Pi on behalf of the first defendant at all. As for the second defendant, the reference to Mr Pi is crossed out, and instead a signature appears identified in handwriting as being that of a Mr Zhenxing Huang. Over the top of his signature there is a common seal of the first defendant.
This prompted an email from the plaintiff’s lawyer on 8 May 2012 saying this:
I note that Zhenxing Huang has signed in the space provided for Zoomlion Capital (Australia) Pty Ltd, and that the common seal of Zoomlion Australia-New Zealand Pty Ltd has also been affixed.
For completeness, could you please arrange for the attached deed to be signed in the space provided for Zoomlion Australia-New Zealand Pty Ltd and the common seal of Zoomlion Capital (Australia) Pty Ltd affixed. Please then return the deed to me.
For the avoidance of doubt, we consider that both Zoomlion Australia-New Zealand Pty Ltd and Zoomlion Capital (Australia) Pty Ltd are bound by the terms of the deed. Please therefore ensure that a Replacement Crane is delivered to Ron’s Crane Hire by 30 August 2012 in accordance with clause 2 of the deed.[9]
[9]See Exhibit NER-11.
Mr Gang Pi has sworn an affidavit stating unequivocally he did not sign the settlement deed as the authorised representative for the first defendant. That appears so on the face of the document. He says he recognises the signature of Zhenxing Huang for the second defendant but says that he, Huang, was a former employee of Zoomlion China who worked for the first defendant who was not involved in the business of the second defendant. He says that Huang was never employed by the second defendant and was not authorised to sign on behalf of the second defendant. Huang was not a director of the second defendant.
If the matter stopped there, there might be no debate, at least on this application. That is, if the matter stopped right there, there is just an orthodox question of whether the defendants at law have bound themselves to the settlement deed on the principles of actual, implied or apparent authority. Had there been no other facts, the defendants’ case or defence on the merits would simply be that they were not the vendors of this equipment and should not be held to a deed by which they incurred the responsibility to provide a replacement claim unless it can be clearly shown that they had at law incurred the legal obligations under the settlement deed. Questions would also arise whether several liability could be imposed on the second defendant (putting aside the authority of Mr Huang) based upon the argument that as a matter of construction, the evident intention was that none of the defendants should be bound by this deed unless they both executed it: see Keith Murphy Pty Ltd v Custom Credit Corporation Limited.[10]
[10](1992) 6 WAR 332, especially at 342-3 and 344-5.
It seems from the affidavit material that the question of the signature of the deed by Mr Gang Pi on behalf of the first defendant was simply left up in the air and never pursued. I can only suppose that commercial imperatives prevailed and the parties became preoccupied with making arrangements for the delivery of the replacement crane. And that appears to be what happened, although further problems then ensued. Under the settlement deed, a replacement crane was due to be delivered by 30 August 2012 at the defendant’s expense. It was not. A letter from a “legal director” of Zoomlion sent on about 18 September 2012[11] made an apology, acknowledged an obligation to “face up and act positively for solving such problems ASAP in a best friendly way” and that the machine would be ready for delivery within a “couple of days”. According to the evidence, the plaintiff was told on 29 October 2012 that the replacement crane had left China and was on its way to Melbourne where an inspection would take place with a dealer there.
[11]See Exhibit NER-14.
The fact is that the crane arrived in Melbourne but disputations arose between the parties in December 2012 concerning the inspection of the replacement crane in Melbourne and the insistence by Zoomlion that it would not deliver the crane to Tasmania until the plaintiff signed documentation acknowledging that the replacement crane met all requirements. The email correspondence is all consistent with both parties wanting to ensure that the replacement crane as sent to Melbourne properly met the plaintiff’s requirements so as to put an end to any future disputation.
From the above, it is apparent from the evidence as adduced by the plaintiff (and none of this has been dealt with by the defendant on the basis that the defendant ought be concerned only with the case as pleaded) that the Zoomlion interests have conducted themselves in a way that is consistent only with their recognition of an obligation incurred under or somehow referable to the settlement deed. The supply and consignment of a substantial piece of equipment from China to Melbourne, avowedly to meet the plaintiff’s requirements under the deed, is consistent only with an assumption of legal responsibility under that deed. Or, if not an assumption of responsibility under that deed, an assumption of responsibility according to or by reference to that deed. And that is really the thrust of the plaintiff’s opposition to this application. It says the defence is meretricious. Its case is that the facts are so manifestly destructive of the point now being put that the deed was not properly executed that it should not be seen as a case where a defence on the merits has been shown. Moreover, amidst all that conduct, the Zoomlion interests have never raised until this application to set aside judgment a contention that the deed was not properly executed and is not binding.
As I said in the course of argument, the facts of the matter seem to very much favour the plaintiff. The accosting question to my mind was whether the plain facts about the actual delivery of the replacement crane and the absence of a prior contention about proper signing could so readily overcome the legal point now being taken by the defendants about the enforceability of the deed.
I am bound on principle to look to the defence of the case as pleaded. There is no doubt the case as pleaded, and on which judgment has been obtained, is based purely on the agreement. Mr Rollnik, counsel for the plaintiff urged the Court to view the statement of claim as being wide enough to contain the legal ingredients of a broader case in which the deed even if not properly executed was nevertheless part of the evidence by which it could be shown, by actual performance, that the defendants agreed to provide a replacement crane on the terms of the deed, and did so although not completely.
I am afraid I cannot accept this. The question for me on an application of this nature is whether there is a defence on the merits to the case as pleaded. If the case as pleaded is based upon the deed of settlement as a legal instrument, then I am bound to conclude that, on the principles as I have stated them, there is a legal issue to be determined about the enforceability of that agreement; that is, whether it is enforceable in and of itself as against the defendant. A defence that the deed was not binding may be met with a case based on the facts as I have outlined them. That will either be a matter for reply or a re-composition of the statement of claim to broaden the cause of action at law or possibly equity.
I turn now to the explanation for the procedural default. The plaintiff says this is another demonstration of the defendants avoiding realities. The evidence is that on 16 April 2013 the plaintiff’s solicitors in Melbourne sent by post and by email to the first defendant in Queensland a letter enclosing the writ and statement of claim. Under the Service and Execution of Process Act, an appearance was due within 21 days. In an affidavit affirmed on 8 November 2013, Mr Pi states:
(a)from 9 April 2013 to 17 May 2013 he was away from the Zoomlion office on business outside Australia;
(b)whilst he was overseas he received scanned copies of the writ and statement of claim, and he knew that they were sent from lawyers acting for the plaintiff; and
(c)he did not understand that the letters included documents from the Court or required the Zoomlion defendants to take any action.
I shall seize on that last statement. Paragraph 22 of his affidavit says he lacked that understanding because:
(a)I am a native Mandarin speaker and English is my second language. I have difficulty understanding complicated documents;
(b)in Chinese proceedings, documents from the Court are sent directly to the party by the Court, not by other lawyers. As the document came from Norton Gledhill and not the Court I was not aware that the documents related to legal proceedings that had already been commenced in the courts or that they required any action; and
(c)the letter appeared similar to previous letters I had received from Norton Gledhill.
Paragraph 24 of his affidavit says:
Had I been aware that court proceedings had already commenced and that judgments of the Court would be made if the Zoomlion defendants did not send documents to the Court in time or attend court, I would have taken action to send documents to the Court or attend court. I apologise to the Court and the Plaintiff for this oversight.
This explanation lacks conviction. A mistake or error or oversight can be a ground to excuse a defendant from procedural default. Ignorance might fall into the same category depending on the personal circumstances of the defendant. I cannot make findings on Mr Pi’s credibility. And I have no basis for saying that it was not his honest belief. But in my view the belief was not reasonable in the circumstances. I think it not reasonable for Mr Pi to believe that process or procedural obligations in the Australian legal system are no different to the Chinese legal system. There are no grounds for that belief stated. On what grounds could it be reasonably believed the litigation processes under the two legal systems are the same? Moreover, he is not the “plasterer from Noble Park” as in Lubura. He is a general manager within an apparently large Chinese enterprise in a protracted dealing that had involved Zoomlion internal lawyers in the resolution of a dispute which had reached the point of litigation. He took no steps to understand what the legal process in Australia entailed. It is more likely that he assumed commercial factors would prevail and he did not have to concern himself too much with legal process.
Troublesome as all that is, the question for me is the just course to be taken. What must prevail is the need for a case to be adjudicated on its merits despite the conduct of Mr Pi which I would say has not reached the proportions where it might be said that the defendants have somehow forfeited the right to have their case properly adjudicated. The judgment will be set aside because there is a question about the enforceability of the deed and that part of the case, as it is currently pleaded, must be decided on its merits. Now that the question of the enforceability of the deed has been raised, it is expectable that the issues in the case will enlarge according to the totality of the dealing, not just the deed.
Disposition and Orders
Although in one sense the defendants have been successful in setting aside judgment, the Court has granted them an indulgence. The plaintiff must be put in the position, as best as the Court can with its power to make costs orders, to compensate it for the costs that have been incurred in obtaining interlocutory judgment and taking steps to have the damages assessed including the preparation of evidence.
The interlocutory judgment for damages given by the Prothonotary required the first defendant to pay $2850 and the second defendant to pay $1150. That is the amount fixed ministerially at the Court Registry, presumably by reference to the scale of costs, for the costs of filing and serving the writ, searching for an appearance and applying for default judgment. The defendants say they are willing to pay the $4000 and that is sufficient to meet costs thrown away. They do not concede they ought pay costs of the application. They say that the costs of preparing the evidence on the assessment of damages may come to be reused in some way ultimately and therefore they are not “thrown away”.
I do not accept those submissions.
The plaintiff deserves to be put in the position, as best as a costs order can, as if an appearance had been filed. As a direct result of the defendants’ procedural default it has incurred the expense of obtaining the default judgment and then taking steps to prove its damages.
I would hold, first, that to do justice, the matter calls for an order for indemnity costs. The principles in this field of broad discretion were considered in Colgate Palmolive v Cussons and need not be restated.[12] The defendants have done themselves no credit in the way they have approached this litigation. It is unjust for the plaintiff to be out of pocket and the nearest measure the Court can take is an order for indemnity costs. That was the approach taken in Lubura and it applies equally here.
[12](1993) 46 FCR 225.
Secondly, the amount of $4000 does not necessarily stand as the measure of costs thrown away. It will be a matter for taxation or assessment.
Thirdly, I think costs thrown away should include the cost of preparing the evidence for the assessment of damages. It may be that the evidence prepared will in some way come to be used in any event at the trial. It is difficult to assess now how much of that effort has been thrown away, or the shape of the case to come. I think the course least productive of uncertainty for future assessment purposes is to view this case as, in effect, having to restart because of the defendants’ default. The plaintiff should be put in the position, as far as a costs order can, as if it never had to prepare a case to have its damages assessed. Of course, what cannot happen is “double dipping” on the costs of preparing the evidence. The plaintiff cannot ultimately seek costs for preparing evidence on damages unless those costs are over and above those for which it will be compensated under these orders. This will be a matter for the ultimate taxation of costs.
Further, I think the case also calls for the approach taken in Lubura to require the defendants to provide security for the payment of the costs thrown away by the plaintiff as a result of a judgment being set aside. To that end, the plaintiff sought $30 000. I think that is too much. The evidence to prove damages has come within the plaintiff’s organisation from Jan Coleman a director, based on quotes and business records. There has to be admittedly a broad brush approach to this, based roughly on the Court’s approach in security for costs application and the tariffs that come to be applied in practice. I would allow $15 000, that is, security to cover all costs thrown away.
I propose making the following orders:
1.The interlocutory judgment (for damages to be assessed) obtained by the plaintiff against the first defendant on 15 May 2013 in default of appearance, be set aside.
2.The interlocutory judgment (for damages to be assessed) obtained by the plaintiff against the second defendant on 15 May 2013 in default of appearance, be set aside.
3.The defendants shall pay the plaintiff’s costs of the application to set aside the interlocutory judgments (by summons filed 11 November 2013) on an indemnity basis under rule 63.30.1.
4.The defendants shall pay, on an indemnity basis under Rule 63.30.1, the plaintiff’s costs incurred in obtaining the default judgments.
5.The plaintiff’s summons filed 16 October 2013 (seeking an assessment of damages) may be withdrawn.
6.The defendants shall pay, on an indemnity basis under Rule 63.30.1, the plaintiff’s costs thrown away in seeking an assessment of damages, that is:
(a)all costs of preparing, filing and serving its summons filed 16 October 2013;
(b)the costs of the affidavit of Jan Maree Coleman sworn 15 October 2013 in support of that assessment of damages.
7.The defendant shall by 14 December 2013 pay into Court or in a form acceptable to the Associate Judge who is the Senior Master, security for the plaintiff’s costs which under these orders the defendants are bound to pay.
8.There be a stay on the orders to set aside judgment until the security for costs is paid to the satisfaction of the Senior Master.
There are two other questions I ask the parties to consider.
The first concerns pleadings. Ordinarily I would require the defendant to file and serve a defence promptly. I shall abstain from making such an order without first giving the plaintiff the opportunity of deciding whether it wishes to first amend its statement of claim.
Secondly, given the current state of commercial affairs, the parties may wish to consider, before restarting the interlocutory legal process and its attendant expenses, whether they ought to proceed to an early mediation, or whether the Court should order it anyway. To that end I shall list this matter for a mention hearing on a date to be advised.
---
4
3
0