Yang v Finder Earth Pty Ltd
[2019] VSCA 22
•15 February 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0057
| TAO YANG | Applicant |
| v | |
| FINDER EARTH PTY LTD (ACN 607 690 577) | First Respondent |
| and | |
| XIMEI LUO | Second Respondent |
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| JUDGES: | MAXWELL P, TATE and EMERTON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 31 January 2019 |
| DATE OF JUDGMENT: | 15 February 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 22 |
| JUDGMENT APPEALED FROM: | [2018] VCC 288 (Judge Woodward) |
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PRACTICE AND PROCEDURE – Entry of judgment – Judgment in default of defence – Self-executing order – Non-compliance – Defence struck out – Entry of judgment in default – Judgment for fixed sum – Whether irregularly entered – Whether claim ‘for recovery of a debt’ – Characterisation of claim – Scrutiny of pleading – Properly characterised as ‘claim for recovery of damages’ – Respondent entitled only to interlocutory judgment – Appeal allowed – County Court Civil Procedure Rules 2008 rr 21.02, 21.03, 21.07.
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| APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr D G Collins QC | Nevile & Co |
| For the Respondents | Mr P H Solomon QC with Mr C Lum | Canaan Lawyers |
MAXWELL P
TATE JA
EMERTON JA:
Summary
Under the Civil Procedure Rules, which apply in the Supreme and County Courts,[1] the failure of a defendant to serve a defence within the required time entitles the plaintiff to ‘enter or apply for judgment’. The Rules expressly extend that entitlement to the case like the present, where a defence is struck out by order of the Court.[2]
[1]Supreme Court (General Civil Procedure) Rules 2015; County Court Civil Procedure Rules 2008.
[2]As this case was commenced in the County Court, the applicable rule is r 21.02 of the County Court Civil Procedure Rules 2008.
Rule 21.03 governs the procedure for the entry of judgment in default. The nature of the judgment which may be entered is expressed to depend on the character of the claim which the plaintiff makes. If the claim is for the recovery of a debt, a plaintiff may enter final judgment ‘for an amount not exceeding the amount claimed’, together with interest.[3] If, on the other hand, the claim is for the recovery of damages, the plaintiff may enter ‘interlocutory judgment … for damages to be assessed’.[4]
[3]Ibid r 21.03(1)(a).
[4]Ibid r 21.03(1)(b).
In the present case, as will appear, the plaintiffs (the respondents to this application) applied to enter judgment following the striking out of the defence under a self-executing order. The judge entered judgment in favour of the second respondent (‘Luo’) against the second defendant, the present applicant (‘Yang’), for the amount of $700,000 together with interest and costs.
His Honour subsequently refused an application by Yang to set aside the default judgment as irregular. He held that the claim as pleaded was properly characterised as a claim ‘for the recovery of a debt’ and not as a claim ‘for the recovery of damages’. Yang now seeks leave to appeal from that decision.[5]
[5] Finder Earth Pty Ltd v BN & SK Pty Ltd [No 2] [2018] VCC 288 (‘Reasons’).
For reasons which follow, we would grant leave to appeal, allow the appeal and set aside the default judgment. Properly characterised, the claim as pleaded on behalf of Luo was a claim for the recovery of damages, not a claim for the recovery of a debt. Accordingly, the only judgment to which she was entitled was an interlocutory judgment for damages to be assessed.
As both sides accepted in this Court, r 21.03 defines the conditions respectively applicable to the entry of judgment in the various forms specified. Its application may involve careful scrutiny of the pleading in order to ascertain the true character of the claim made.[6]
[6]Arnold v Forsythe [2012] NSWCA 18 (‘Arnold’).
The case is also instructive for those preparing statements of claim. If for any reason the contingency of judgment in default is to be anticipated, the pleader must take care to ensure that any claim for the recovery of a debt is clearly pleaded as such. As in every case, care must be taken to ensure that all of the material facts necessary to establish the cause(s) of action are pleaded.
Background
According to the allegations in the Further Amended Statement of Claim (‘FASOC’), the agreements on which the present action is founded came into existence in unusual circumstances. The principal agreement, entered into by Luo and Yang in October 2015 (the ‘agreement’), declared its purpose as being:
to successfully obtain the 888 visa for Luo and her family to migrate to Australia and to be granted the Permanent Resident Visa (hereinafter referred to as ‘the Immigration Project’).
What was described as a partnership between Luo and Yang had a defined ‘project’, namely, the establishment of the first respondent company (‘Finder Earth’). According to the agreement:
Yang holds 100 per cent company shares in practice. In order to obtain the 888 migrant visa (PR) by using the Company as a business platform, 100 per cent of the Company shares were held by Luo at the time of Company registration.
For her part, Luo agreed to:
Provide capital which the Company requires on the basis of no interest lending. The highest total lending amount is AUD500,000; first transfer the amount of AUD300,000; the remainder AUD200,000 will be transferred into the account in three months. It is to firstly meet the requirement of Immigration, secondly to start the Company operation as soon as possible due to the imminent beginning of the project construction.
Luo agreed to lend the funds ‘as Company operation capital’, and the agreement provided that she was not allowed to take back the loan funds ‘during the course of partnership’.
For his part, Yang agreed to:
Provide guarantee for the fund lent in advance by Luo and ensure the safety of the fund. Return the AUD500,000 to Luo after three years upon termination of the partnership.
Take full responsibility of all losses occurred (sic) during Company operation.
Under the heading ‘Liabilities’, the agreement provided as follows:
Upon termination of the agreement Yang returns the fund of AUD500,000 to Luo and holds ownership of the Company assets.
…
During the course of partnership, if Yang breaches the agreement, all funds lent to the Company in advance by Luo will be returned to Luo. If Luo breaches the agreement, Yang will not request compensation.
The pleading contained the following allegation:
By reason of the terms alleged [set out in paras 10 and 11 above] and by necessary implication:
(a)Yang has guaranteed and indemnified Luo for the monies she advanced pursuant to her loans (see below) together with any further loss and damage she sustained by reason of her involvement with the partnership and/or Finder Earth (Yang/Luo Guarantee and Indemnity); …
It was common ground that the phrase ‘her loans’, as used here, referred to the two loans pleaded, namely, the loan of $500,000 to Finder Earth and a separate loan of $200,000 to a company called Legendary Landers Pty Ltd (‘LL’). Each of those loans was alleged to be governed by a loan agreement which included a term that the borrower ‘must apply the loan solely for the purpose of the partnership business’.
Under the heading ‘Conduct and Causes of Action’, the pleading alleged that since September 2015:
Yang and/or BNSK [a defendant company of which Yang was the sole director] have applied the monies loaned … for purposes other than the partnership business in that they have made payments of expenses from Finder Earth’s bank accounts and credit card accounts for their own benefit (or the benefit of LL) and have not deposited any or any significant monies for work performed into Finder Earth’s bank accounts, such that the credits for work performed have been applied for Yang, BNSK and/or LL’s benefit rather than for the benefit of Finder Earth and/or the partnership.
It was then alleged that this conduct ― the misapplication of the loan funds ― constituted
a breach of the [respective loan agreements] in that the monies were not applied solely for the purpose of the partnership business such as to constitute an Event of Default, thereby making respective borrowers immediately liable for the Outstanding Balance …
And further:
The effect of the conduct alleged … is that the $700,000 loaned by Luo for the benefit of the partnership has not been spent for the benefit of the partnership but rather, Yang, BNSK and/or LL’s.
The critical allegations in the pleading for present purposes are the following:
Further, by reason of the conduct alleged, Luo has suffered loss and damage being:
(a) a loss of the $700,000; and
(b)exposure to creditors of Finder Earth for which she has provided personal guarantees and has or will need to compensate.
Particulars
Further and better particulars in relation to paragraph 30.b will be provided prior to trial.
Luo claims such sums as against Yang under Yang/Luo Guarantee and Indemnity.[7]
[7]Emphasis added.
The prayer for relief in respect of Luo’s claims was broken into two sections. The first was headed ‘And Luo claims against Yang and/or BNSK [partnership]’. Relevantly, Luo claimed:
F. $700,000 owing to [Luo] under the Finder Earth Loan Agreement and LL Loan Agreement.
The second section of the prayer for relief was, relevantly, in these terms,
And Luo claims against Yang (non-partnership):
A.A declaration as to the validity of the Yang/Luo Guarantee and Indemnity and an order for such loss and damage owing pursuant to the Yang/Luo Guarantee and Indemnity.
B. Damages.[8]
[8]Emphasis added.
The proceeding at first instance
As noted earlier, the defendants in the proceeding applied to set aside the default judgment as irregular. As recorded in his Honour’s reasons, their submission was as follows:
[Luo] does not plead a claim for recovery of a debt against the second or third defendant thereby entitling the entry of final judgment under Rule 21.03(1)(a) … Whilst it may have been open to [Luo] to plead a claim for a contractual debt for breach of a guarantee or indemnity given by the second defendant that is not how [Luo’s] claim is actually pleaded.[9]
[9]Reasons [21].
The defendants had pointed out — correctly — that paragraph F of the first prayer for relief (set out above) referred to amounts owing to Luo under the two loan agreements, and that Yang was not a party to either of those agreements. His Honour said:
I agree that the drafting of paragraph F of the prayer for relief is incomplete. In particular, it is accurate as far as it goes (in the sense that the $700,000 is in fact pleaded as owing to [Luo] under the two loan agreements), but it omits the next step in the process that (on the pleading) would extend liability to the second defendant [Yang] for that $700,000. This could have been done by, for example, adding at the end of the paragraph words to the effect of: ‘and payable by the second defendant under the Yang/Luo Guarantee and Indemnity’. However, in my view, the omission of words to that effect in the prayer for relief does not render the default judgment (as amended) irregular.[10]
[10]Ibid [23] (emphasis added).
Noting that ‘courts do not take an unduly technical or restrictive approach to pleadings’,[11] his Honour said he was satisfied that, when the pleading was ‘read as a whole’, it was ‘sufficiently clear’ that Luo’s case against Yang for a fixed money sum relied on pleaded allegations to the effect that:
·Yang had agreed to guarantee the funds lent by Luo;
·by reason of the misapplication of the loan funds, the sums advanced by Luo were ‘due and payable’;
·by reason of that conduct, Luo had suffered ‘loss and damage including the $700,000 sums advanced’; and
·Luo claimed those sums from Yang under the guarantee.[12]
[11]Ibid [24], citing Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15.
[12]Ibid [25].
His Honour rejected an argument by the defendants that to read the pleading in that way was ‘tantamount to rewriting those paragraphs’. His Honour said:
I agree that the FASOC is not drafted as coherently or consistently as it might have been, particularly if the proceeding were to go to trial on all issues. However, I am satisfied that a basis for a claim by the second plaintiff for the debts claimed in paragraphs 1 and 2 of the default judgment is sufficiently revealed on the current pleading read as a whole. In particular, the drafting deficiency in the prayer for relief in respect of this claim relied on by the second and third defendants, does not preclude [Luo] from pursuing judgment in default of defence in the form sought in the default judgment.
I am also satisfied for the reasons submitted by the plaintiffs, that the sum of $700,000 so claimed is a ‘debt’ within the meaning of r 21.03.1(a) of the Rules. It is a fixed liquidated sum alleged to have been lent by [Luo] under the loan agreements referred to and payable by [Yang] as a debt due pursuant to the Yang/Luo Guarantee and Indemnity. Although the prayer for relief (notably in paragraph A, where it first appears on page 24 of the FASOC) on one view refers to the sum claimed as ‘loss and damage’, again when read with the FASOC as a whole, this expression can be seen as encompassing the $700,000 debt due under the Yang/Luo Guarantee and Indemnity. In other words, that debt is a sub-set of the broader claim for loss damage alleged to be owing by [Yang] to [Luo] for the various breaches alleged.[13]
[13]Ibid [26]–[27] (emphasis added).
Consideration
Where, as here, there is no defence to a statement of claim, each of the allegations in the statement of claim is taken to be admitted.[14] The defendant is to be treated as if it had not defended the claim at all.[15] Counsel for the applicant accepted that this was so, while pointing out ― correctly ― that the specification in the pleading of a precise amount said to be payable would not foreclose the question whether the claim was to be characterised as one for the recovery of a debt.[16]
[14]LexisNexis Australia, Civil Procedure: Victoria, vol 1 (online at 13 February 2019) 1 Supreme Court (General Civil Procedure) Rules 2015; County Court Civil Procedure Rules 2018, ‘Order 21 Judgment in default of appearance or pleading’ [21.01.20].
[15]Pollard v Incorporated Nominal Defendant [1972] VR 955, 960.
[16]Arnold [2012] NSWCA 18 [48].
Importantly, counsel conceded that the Court should treat as admitted the pleaded allegation that Yang had given Luo the ‘Yang/Luo Guarantee and Indemnity’, that is:
·a guarantee in respect of amounts repayable to her by the borrowers under the respective loan agreements; and
·an indemnity for losses she might incur by reason of her ‘involvement with the partnership’.
Counsel’s central submission, however, was that the claim as pleaded was not a claim for the recovery of a debt under the guarantee and indemnity. Instead, it was a claim for loss and damage said to have been suffered by Luo as a result of the misapplication of the loan funds.
Counsel submitted that the pleading lacked many of the elements which would ordinarily be found in a claim for recovery of a debt. That is, it would have been expected that there would be allegations of:
·an event of default under each of the loan agreements, rendering the loan amounts repayable;
·a demand by Luo for repayment from each of the borrowers;
·a failure by each borrower to repay;
·a demand to Yang under the guarantee and indemnity; and
·a failure by Yang to perform his obligations under the guarantee and indemnity.
And the prayer for relief would have been expected to state, clearly, that Luo was claiming the amount of $700,000 as a debt due under the guarantee and indemnity.
Counsel for Luo, on the other hand, submitted that the judge had been right to identify the essential character of the pleaded allegation as being a claim for recovery of a debt. Counsel properly conceded that there were gaps in the pleading but maintained that the judge was entitled to have regard to the particular paragraphs he listed. ‘Considered in isolation’, it was said, those paragraphs could be seen to constitute a claim under the guarantee and indemnity for the loan amounts which had become repayable.
In our view, the applicant’s submissions must be upheld. It is clear enough that Luo sought to rely on the guarantee and indemnity. Paragraph 31 of the pleading made that clear. But, with great respect to the judge, the ‘sums’ which Luo sought to recover were those referred to in paragraph 30 as the ‘loss and damage’ she had suffered by reason of the misapplication of the loan funds. It was, of course, alleged that those sums included the $700,000 but, as counsel for Yang correctly pointed out, it would be a matter for assessment to determine whether she had in fact lost that amount, or some other amount, as a result of the misapplication of the funds.
As is apparent from the extracts set out above, the pleading does allege events of default under the loan agreements, although ― as counsel for Yang also pointed out ― there is no allegation that any notice of default was given, that being necessary to constitute an ‘event of default’ as defined by the agreements. But the critical point is that the allegations are all expressed in the language of ‘loss and damage suffered by reason of the defendants’ conduct’. Far from Luo alleging that Yang is indebted to her under the terms of the guarantee and indemnity, she claims to recover from him loss and damage which she has suffered ‘by reason of the conduct’, being the misapplication of the loan funds.
As we have said, the position would have been quite different if the claim had been pleaded as one for a debt owing under the guarantee by reason of the non-payment by the borrowers of amounts due and payable by them. That was nowhere pleaded in this case.
In view of our conclusion, it is unnecessary for us to deal with an alternative argument advanced on behalf of the applicant, by reference to one of the issues dealt with in the decision of the New South Wales Court of Appeal in Arnold.[17] On this argument, the default judgment was irregular for the separate reason that the pleading did not disclose a cause of action for the recovery of a debt.[18] As noted earlier, counsel for the applicant identified a number of allegations which would need to have been included in the pleading in order to establish Yang’s liability to repay to Luo the unpaid loan amounts.
[17][2012] NSWCA 18.
[18]Ibid [79]–[80].
Whether a judge asked to act under r 21.03 must — in addition to determining the true character of the claim — decide whether the claim is properly pleaded is a question which should await an occasion in which it falls for decision.
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