Rapp v Lee No. DCCIV-01-1448

[2002] SADC 134

RAPP & ORS v LEE
[2002] SADC 134

Judge Lunn
Civil

APPEAL AGAINST A DECISION OF A MASTER TO SET ASIDE THE JUDGMENT IN DEFAULT OF APPEARANCE

1. In their summons the plaintiffs have claimed $377,500 plus interest which they allege is due and payable to them by the defendant under the terms of an agreement dated 19 February 1999 (“the Loan Agreement”).  On 25 October 2001 the plaintiffs obtained a judgment against the defendant in default of her having filed an appearance within the requisite time after service.  On 27 June 2002 the defendant applied to set aside this default judgment.  This was opposed by the plaintiffs.  For reasons which were published on 30 August 2002, a Master ordered that the default judgment be set aside.  On 9 September 2002 the plaintiffs appealed against that order.

2. In the summons the plaintiffs named the defendant as “Ping Lee”.  In the Loan Agreement and her affidavits her name is shown as “Ping Li”.  The plaintiffs have the right under Rule 53.01(a) to amend the spelling of the defendant’s surname if they so wish.

3. The plaintiffs have filed affidavits setting out various conversations and communications which could constitute admissions of liability by the defendant. The defendant’s counsel objected to the admissibility of this material on the grounds of privilege. It raises issues under s67c of the Evidence Act 1929. I have ignored this material in dealing with the appeal.

4. The Master’s order of 30 August 2002 was an interlocutory, and not a final, order: Janair Pty Ltd v Ives, Full Court, 26/11/1993, Jud No S4288, unreported.  Hence, DCR 97.01 applies to this appeal which means that it is to be by way of rehearing and that I have to exercise my own discretion afresh without regard to how the discretion was exercised by the Master.

5. The default judgment was regularly obtained by the plaintiffs.  Under R23.04 the Court has a discretion to set it aside where the defendant has shown a bona fide intention of being able to defend the claim on the merits: Battiste v Mulvaney, Doyle CJ, 7/11/1997, Jud No S6419, unreported; Watson v Anderson (1976) 13 SASR 329. In a claim for in excess of $400,000 a defendant should not lightly be deprived of a full trial on all of the issues where there is some, albeit possibly slight, prospect of her having a good defence to the claim. I take the view that it is not desirable for the Court at this interlocutory stage to say more than is necessary to identify one proper ground on which the judgment should be set aside. A detailed canvassing of all of the issues at this stage is not in the interests of justice as they will be gone into in far more detail at the trial. The Court should avoid making any unnecessary pronouncements at this juncture which might embarrass one or other of the parties, or itself, in the light of other evidence which may be adduced at the trial. Accordingly, I go no further in these reasons than to identify one ground which is sufficient to justify setting aside the default judgment. No point was taken by the plaintiffs’ counsel on the appeal about the alleged reason for the defendant not having filed her appearance within the prescribed time. The essence of the plaintiffs’ case on the appeal was solely that none of the issues raised by the proposed defence could possibly provide an answer in law to the plaintiffs’ claim.

6. The plaintiffs were the owners of the shares in a company, Ocean Foods Pty Ltd (“Ocean”), which carried on a fish processing and exporting business in this state.  (They also owned the shares in South Australian Lobster Exporters Pty Ltd.  The sale of the shares in that company proceeded in tandem with the sale of the shares in Ocean, but for present purposes it is sufficient to deal with the sale of the shares in Ocean.)  There were extended negotiations for the sale of the shares in Ocean which were carried on principally between the plaintiffs and the defendant’s husband, Kevin Cheung, and Ke Li, an agent of the purchasers.  There is a dispute about how much involvement the defendant herself had in the negotiations.  She claims in her affidavits that she left the negotiations to her husband and signed whatever documents he requested her to sign without her having read or understood them.

7. A comprehensive Share Sale Agreement dated 19 February 1999 (“the Share Sale Agreement”) was entered into by the plaintiffs for the sale of the shares in Ocean.  The document as originally typed showed the defendant as the fifth party and an abbreviation of “(“PL”)” as to how she was to be referred to in the other parts of the document.  However, shortly before its execution a handwritten alteration was made to the document crossing out the defendant’s name and her identifier of “PL” and substituting in handwriting the name of her husband.  The definition of “purchaser” in the interpretation clause stated it meant “PL”, which with the deletion of that identifier was meaningless.  That interpretation clause also stated that “Completion Date” meant “10 February 1999 or as agreed otherwise by the parties”.  It was not explained how 10 February 1999 could be the completion date when the Share Sale Agreement itself was dated 19 February 1999.  That clause also defined the “Purchase Price” to mean $410,000.  Clause 2.1 provided that the plaintiffs as vendors would sell their shares in Ocean to “the Purchaser”.  Clause 2.2 provided that “the Purchaser” was to pay the plaintiffs the purchase price on completion subject to amounts of $42,500 apparently already having been paid.  Clause 7.3 provided that on completion the purchaser was to grant a mortgage over the shares “in the form of the draft agreement annexed to Schedule 16 with the said mortgage being dated the date of completion and the Borrower referred to in the said mortgage being defined as the purchaser under the SALE Agreement .......”.  There were numerous schedules to the Share Sale Agreement.  In respect of each of the Schedules 1-14 there was a page stating the Schedule number with a description of it and then a copy of the document which was the Schedule was inserted immediately after that page and before the page referring to the next Schedule.  There was a page 40 which contained the words “SCHEDULE 15 Shareholders Agreement”.  Immediately after that appeared an unexecuted and undated copy of the Loan Agreement.  Immediately after the Loan Agreement appeared a page headed “SCHEDULE 16 Mortgage”.  No document appeared after that page.  As far as I can ascertain there is no reference to a Schedule 15 in the Share Sale Agreement.  It seems likely that the reference in clause 7.3 to Schedule 16 is in fact an incorrect reference to Schedule 15 and means the Loan Agreement.  The Share Sale Agreement was executed by all of the parties on its last page.  An execution clause typed for the defendant had her name crossed out and the name of her husband substituted in handwriting.  It was signed in the appropriate place by her husband, but strangely the defendant also signed immediately under her husband’s signature.  She said she did this because her husband had told her that they were jointly purchasing the shares in Ocean.

8. The Loan Agreement was made between the plaintiffs on the one hand and the defendant on the other hand.  It recited that the plaintiffs had agreed to advance by way of loan to the defendant $377,500.  It specified when the loan was to be repayable by the defendant.  By its terms the defendant secured the loan by mortgaging the shares owned by her in Ocean to the plaintiffs.  The defendant’s husband is not mentioned in the Loan Agreement.  Because of the incorporation of the Loan Agreement into Schedule 15 in the Share Sale Agreement it would seem that the Loan Agreement can be interpreted in the context of the Share Sale Agreement and that they all form part of the one transaction.  How precisely they inter-relate is unclear.  The defendant said she signed the Loan Agreement at the request of her husband.  She asserted she did so without understanding its contents and in the belief that her husband was to pay in full for all of the shares being purchased in Ocean.

9. By two share transfer forms each also dated 19 February 1999 the plaintiffs transferred all of their shares in Ocean to transferees who were named as the defendant and her husband.  The defendant and her husband each signed both the share transfer forms as transferees.  Also on 19 February 1999 two new share certificates were issued by Ocean for its shares which had been transferred.  They each stated that the defendant “by her Attorney Kevin Cheung” was the registered holder of all of the shares.  This designation of the shareholder appears to be legal nonsense.  A share register of Ocean shows the shares being put into the name of the defendant only.  On the evidence which I have there is uncertainty whether the legal owner of the shares in Ocean after 19 February 1999 was the defendant or the defendant and her husband jointly.  There is certainly a reasonable argument that the legal owner of the shares was the defendant and her husband jointly.  I do not accept the arguments of the plaintiffs’ counsel that it has been established beyond argument the defendant has received 100% of the beneficial interest in all of the shares in Ocean.

10. The plaintiffs’ argument on the appeal in essence was that if the defendant had received all of the shares in Ocean she had no basis in law to challenge her obligation to pay the agreed purchase price for them.  However, if, as may reasonably be the case, the defendant has only received a joint interest in the shares with her husband, there is some prospect that the law on unconscionability in Equity may relieve her from the obligation to pay the plaintiffs for all of the shares including that part of the shares which went to her husband.  I do not intend to go into the law on unconscionable transactions of this type.  The law is still developing and the defendant should have a proper opportunity to extend the operation of existing principles if she so wishes.  I am satisfied that on the evidence before me, and assuming that her version of the facts is substantially accepted, she has some sufficient prospect of success in defending the plaintiffs’ claim to justify the delay, expense and inconvenience of allowing this action to proceed to trial.

11. Accordingly, the appeal is dismissed.  I endorse the proposal of the Master in the last paragraph of his reasons that directions should be given for an early trial of the action.  The defendant also should forthwith consider the adequacy of her pleaded Defence in the light of the requirements of R46A.05, and in particular properly plead any statutes she relies on and the facts relating to any misrepresentations.  It was agreed at the conclusion of argument that the costs would follow the event of the appeal.

12. The order of the Court is –

    1.     Appeal dismissed.

    2.     Plaintiffs to pay to the defendant her costs of this appeal in any event.

    3.A further directions hearing is to be listed before Master Norman as soon as practicable.