Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In Liq); Zhu v Dai (No 2)
[2012] NSWSC 1305
•26 October 2012
Supreme Court
New South Wales
Medium Neutral Citation: Zhu v Yingle Culture Exchange (Australia) Pty Ltd (In Liq); Zhu v Dai (No 2) [2012] NSWSC 1305 Hearing dates: 01/03/2012, 08/03/2012, 16/03/2012, 04/04/2012, 12/04/2012, 04/05/2012 Decision date: 26 October 2012 Jurisdiction: Common Law Before: Rothman J Decision: In matter number 289276/2008:
(i) The defence be struck out;
(ii) Judgment for the plaintiffs by default; and
(iii) The defendants are to pay the costs of the plaintiffs on an indemnity basis.In matter number 185762/2011:
(iv) The defendants' motion is dismissed; and
(v) The defendants are to pay the plaintiffs' costs on an indemnity basis.In relation to both the 2008 and 2011 proceedings:
(vi) Leave is granted for the plaintiffs to lodge documents with prosecuting and law enforcement authorities; and
(vii) The plaintiffs file minutes of order within 14 days hereof.Catchwords: SUMMARY DISPOSAL - applications to strike out defence for non-compliance with directions - operation of duties under Civil Procedure Act 2005 on practitioners and parties - application to set aside default judgment - necessity to demonstrate arguable defence by evidence and to plead case with particularity Legislation Cited: Civil Procedure Act 2005
Trade Practices Act 1974
Uniform Civil Procedure Rules 2005Cases Cited: Ace Hire Aust Pty Ltd v ADI Ltd [2006] NSWSC 969
Cohen v McWilliam (1995) 38 NSWLR 476
Hans Pet Construction Pty Limited v Cassar [2009] NSWCA 230
NAB v McCann [2010] NSWSC 766
NAB v Priestly (No 2) [2012] NSWSC 1171
Re Architects of Australia Association; Ex parte Municipal Officers Association (1989) 63 ALJR 298
Reinehr Industrial Lease & Finance Pty Ltd v Jordan (Court of Appeal, 4 June 1974, unreported)
Sullivan v Department of Trade (1978) 20 ALR 323
Vacuum Oil Co Pty Ltd v Stockdale (1942) SR (NSW) 239
Witten v Lombard Australia Ltd (1968) 88 WN (Pt 1) (NSW) 405Category: Procedural and other rulings Parties: In proceedings 289276/2008:
Yi Lin Zhu (First Plaintiff)
Lei Jiang (Second Plaintiff)
Yingle Culture Exchange (Australia) Pty Ltd (In Liq) (First Defendant)
Qin Fen Dai (Second Defendant)
Carter Bai (Third Defendant)
In proceedings 185762/2011:
Yi Lin Zhu (First Plaintiff)
Lei Jiang (Second Plaintiff)
Qin Fen Dai (First Defendant)
Carter Bai (Second Defendant)Representation: Counsel:
In proceedings 289276/2008:
T Di Francesco (Plaintiffs)
No representation (First Defendant)
C Moschoudis (Second/Third Defendants)In proceedings 185762/2011:
T Di Francesco (Plaintiffs)
C Moschoudis (Defendants)
Solicitors:In proceedings 289276/2008:
In proceedings 185762/2011:
Thomsons Lawyers (Plaintiffs)
No representation (First Defendant)
Luminous Legal (Second/Third Defendants)
Thomsons Lawyers (Plaintiffs)
Luminous Legal (Defendants)
File Number(s): 289276/2008; 185762/2011
Judgment
Introduction
HIS HONOUR: The Court has before it three notices of motion dealing with two sets of proceedings. The first are proceedings 289276/2008 (hereinafter, "the 2008 proceedings") and the second are proceedings 185762/2011 (hereinafter, "the 2011 proceedings"). These proceedings have been before the Court on a number of occasions.
On 12 July 2011, the plaintiffs moved to have the two proceedings case managed and heard together. Registrar Bradford made orders to that effect on 18 October 2011. It is for that reason that the Court, as presently constituted, is required to deal with the motions.
In the 2008 proceedings, the plaintiffs move that the further defence to the amended statement of claim be struck out and judgment entered accordingly. In addition, the plaintiffs seek an order that the defendants pay their costs incurred in litigating a previous motion in which the defendants sought orders pertaining to pro bono assistance.
In the 2011 proceedings, the defendants move for orders setting aside default judgment and for leave to file a defence.
The third motion was for an adjournment of the application for default judgment in the 2008 proceedings. In effect, this motion, based on the unavailability of Ms Dai, fell away as the plaintiffs no longer required this defendant to give evidence.
Background
Yingle Culture Exchange (Australia) Pty Ltd (hereinafter, "Yingle") is a company that purported to provide English language, travel and sightseeing services around Australia to teachers and students from China. It is alleged that Yingle also offered assistance for visa applications so that persons could work in Australia. Yingle is now in liquidation.
In the 2008 proceedings, Yi Lin Zhu and Lei Jiang (hereinafter, "the plaintiffs"), who are married to each other, claim damages against Yingle and two others, Ms Dai and Mr Bai. Ms Dai has been, and continues to be, a director and company secretary of Yingle. Mr Bai has been, and continues to be, a director of Yingle. Ms Dai and Mr Bai are also married to each other.
The plaintiffs allege that Ms Dai and Mr Bai engaged in misleading or deceptive conduct, upon which the plaintiffs relied, and as a consequence of which the plaintiffs lent sums of money to Yingle.
The plaintiffs point to the existence of two loan agreements. These agreements are said to be wholly oral agreements pertaining to the provision of assistance in obtaining Australian visas. The first sum of money was allegedly received for the purpose of obtaining a work visa for the plaintiffs. The second sum of money was deposited, it is said, to ensure that Yingle achieved an annual turnover of $250,000 that would permit the plaintiffs to invest in the company and thereby fulfil the requirements of a Resident Visa.
The defendants deny that oral agreements were ever made. As to the monies that were deposited by the plaintiffs into Yingle's St George Bank account, totalling over $900,000, the defendants deny these monies were provided under a loan agreement. The defendants allege that the money was invested in Yingle for the purpose of purchasing shares and expanding the company. There is no evidence that shares issued as a result of the deposit, or, to the extent not covered by the earlier statement, that the plaintiffs were registered shareholders in Yingle.
Yingle, as stated, has since gone into liquidation. The plaintiffs demand repayment of the monies lent under the first and second loan agreement, in accordance with what they submit are express terms of the oral agreements, namely, that the loaned monies were due and payable after a fixed time, or upon a demand by the plaintiffs.
In addition, the alleged representations made by the defendants in relation to the second loan are said to be misleading or deceptive. The plaintiffs rely on s 52 of the Trade Practices Act 1974 (hereinafter, "TPA") in relation to the first defendant, Yingle, and s 42 of the TPA in relation to the second and third defendants. The defendants deny making the alleged representations.
The defendants deny the existence of any loan agreements, and thus deny that the monies were due and payable after the specified time, or upon demand by the plaintiffs. The defendants deny the monies are required to be repaid.
The 2011 proceedings were commenced on 6 June 2011 against Ms Dai and Mr Bai. In effect, those proceedings relate to the actions of Ms Dai and Mr Bai as directors of Yingle. The plaintiffs allege that the defendants withdrew sums of money from the Yingle accounts, for which there was no proper authority or accounting, and these monies were used for improper purposes. The plaintiffs plead that Ms Dai and Mr Bai breached their duties as directors of Yingle.
The plaintiffs were assigned the rights, titles and interests of Yingle by the liquidator with whose permission or approval these proceedings were commenced. The plaintiffs therefore sue upon the causes of action pleaded as assignees under the Assignment Deed.
At the time of hearing, the defendants had not filed a defence in the 2011 proceedings.
The 2008 proceedings
On 3 February 2012, the plaintiffs moved to strike out the further defence to the amended statement of claim filed by the second and third defendants, and that, consequently, judgment be entered. The plaintiffs seek judgment in the sum of $1,896,824.25.
In addition, the plaintiffs seek that leave be granted pursuant to r 21.7 and r 33.9(3) of the Uniform Civil Procedure Rules 2005 (hereinafter, 'UCPR') to disclose documents obtained in these proceedings to the Director of Public Prosecutions. Further, and in the alternative, the plaintiffs seek that the second and third defendants pay, on an indemnity basis, their costs of and incidental to the notice of motion filed on 5 October 2011 in which the defendants sought a referral for pro bono assistance in both proceedings.
Section 61(1) of the Civil Procedure Act 2005 permits the Court to give directions as it thinks fit for the speedy determination of the real issues between the parties. The plaintiffs rely on s 61(3)(c) which provides that if a party fails to comply with directions made under s 61(1), the Court may:
"... Strike out any defence filed by a defendant, and give judgment accordingly."
The relevant Orders of the Court, made on 3 November 2011 are:
"1.The defendants shall by 4pm on 25 November 2011 file and serve a full affidavit of discovery and production of documents that:
a.lists all documents that are, or have been, in the last 5 years, in the possession of the defendants; and
b.to the extent to which such documents are no longer in their possession, lists, to the best of their knowledge, where those documents are."
Those Orders did not, when issued, expressly cite the terms of s 61(1) of the Civil Procedure Act, but were clearly orders seeking to facilitate the speedy determination of the real issues between the parties to the proceedings.
The discretion in s 61(3)(c) of the Civil Procedure Act will be triggered at least where the plaintiffs have proved that there has been deliberate non-compliance with the orders of the Court. In particular, the plaintiffs point to inadequate discovery by the defendants.
Delay
It is necessary first to deal with the delay arising in relation to the defendants' compliance with their discovery obligations. Delay is relevant to this application because, it is said, the defendants did not comply with their discovery obligations within the prescribed time.
Ms Dai attended the plaintiffs' solicitor's office on 28 November 2011 and produced a folder of documents and two affidavits. Ms Dai asserts that she believed this was sufficient to comply with her discovery obligations. It is not in dispute that this documentation was not adequate to comply with the defendants' discovery obligations.
Ms Dai and Mr Bai filed affidavits and a Verified List of Documents dated 27 April 2012, that is, five months after the Court ordered date. The defendants have attempted to explain this delay, which explanation is relevant to the determination of striking out the defence: Witten v Lombard Australia Ltd (1968) 88 WN (Pt 1) (NSW) 405. The defendants point to Ms Dai's alleged mental illness as the reason for their delay in complying with the discovery orders.
The evidence before the Court relating to Ms Dai's mental condition comprises:
(a) A medical certificate of Dr Lui, general practitioner, which diagnoses Ms Dai with major depression, dated 16 December 2011;
(b) A certificate from Jiading Mental Health Centre of Shanghai. That certificate, signed by Dr Gao Hongyan on 4 February 2012, diagnosed Ms Dai with schizophrenia; and
(c) A further report dated 2 March 2012 by Dr Xuejuan Lu of the Jiading Mental Health Centre of Shanghai which supports the previous diagnosis of schizophrenia.
The defendants submit that Ms Dai has been unable, until very recently, to provide instructions relating to the Orders of the Court of 3 November 2011.
In relation to the third defendant, Mr Hudson Lu's affidavit of 5 April 2012 outlines that Mr Bai could not provide instructions in relation to discovery because he has limited knowledge of the documents. Mr Bai has indicated that he was unaware of the Court Orders made on 3 November 2011, as Ms Dai did not inform him of them. I do not accept this submission. The first order for discovery was made well over two years ago. There is evidence before the Court, including a Second Further Verified List of Documents verified by Mr Bai, that indicates the discovery obligations have been conveyed to the defendants in their native tongue on a number of occasions. Furthermore, the evidence in relation to Ms Dai's mental condition does not suggest incapacity for all of that time.
The evidence indicates that Mr Lu, the current solicitor for the defendants, has now explained to the defendants, in their native tongue, what steps must be taken to comply fully with their current discovery obligations.
The defendants submit that they have now complied with their discovery obligations. In addition, the defendants submit that Ms Dai and Mr Bai's affidavits adequately explain the reasons for delay and therefore s 61(3) of the Civil Procedure Act is not applicable. However, the plaintiffs submit that there are a number of classes of documents in which there continues to be inadequate discovery.
Inadequate Discovery
The plaintiffs submit that the defendants have failed to give full and proper discovery in accordance with the Orders of the Court of 3 November 2011. This failure is said to be intentional and displays a disregard of the Orders of the Court. As a result of inadequate discovery, the plaintiffs submit that they have been unable to progress the litigation against Ms Dai and Mr Bai properly and efficiently.
Category 6 Documents
Category 6 requires discovery of all documents in relation to any funds transfers concerning KVB Kunlun, for which the defendants produced deposit slips; Foreign Exchange Transaction Confirmation slips; an agreement between Mr Bai and Mr Wu (in Chinese); and receipts signed by Mr Bai.
The Verified List of Documents dated 27 April 2012 further outlines that receipts issued by Carter Bai to Jun Wu are in Mr Wu's possession. In addition there are said to be further Foreign Exchange Transaction Confirmation documents in the possession of KVB Kunlun.
Mr Bai is the named person on the KVB Kunlun transfer documents for all but one of the transactions. Mr Bai explains that the money was obtained through business dealings with Mr Jun Wu, who was allegedly paying Mr Bai for referring clients to his furniture business. Mr Bai explains it was not Yingle's income. This explanation discloses the disingenuousness of the submission that Mr Bai knew nothing of the transactions required to be discovered.
The plaintiffs submit that the documents produced cannot be taken as complete or genuine. Prior to delivery of the documents on 28 November 2011, the defendants had never made any reference to Mr Wu or these documents. Moreover, the documents provided are not notarised and Mr Wu's signature is not witnessed.
In addition, the production of these documents points to the existence of other documents. In relation to the AUD$1 million that was transferred from KVB Kunlun. It would be most unusual not to have further supporting documentation underlying the KVB Kunlun transfers. The plaintiffs therefore allege that full discovery of this class of documents has not been produced. I accept this submission.
Category 8 Documents
Category 8 deals with withdrawals of money from the St George Bank account of Yingle. In response to Category 8, the defendants have produced a statement of the Westpac Banking Corporation Premium Option Home Loan Account for the period 22 June 2006 to 22 December 2006.
In addition, on a previous occasion, the plaintiffs were provided with a box of documents from the liquidator of Yingle. With respect to this class of documents, the only documents contained in the box were cheque stubs from the chequebook of Yingle's St George Bank account, and bank statements for that account.
In her affidavit of 27 April 2012, Ms Dai outlines that to the extent documents relating to the cheque stubs are not with the liquidator, they "must be with the plaintiffs". Ms Dai asserts that the cheques were drawn, and payments made, at the plaintiffs' direction. The remainder of the documents cannot be produced, as it is said that Ms Dai cannot recall the transactions.
It appears that Mr Bai had no knowledge of the Category 8 documents, because, as Ms Dai explains, these transactions took place in Australia at a time when Mr Bai was not present in Australia.
Category 8 clearly requires production of invoices and any other relevant documentation relating to the cheque stubs as well as the various other transactions listed in this category. The Court has not been provided with any adequate explanation of the whereabouts of invoices, correspondence and receipts in this category.
Category 2 - Tax Returns
Category 2 requires discovery of the income tax returns in Australia and overseas of Ms Dai and Mr Bai for the years ending June 2005 through to June 2008. On a previous occasion, complaint was made by the plaintiffs relating to the adequacy of compliance with discovery orders relating to this category.
In the Verified List of Documents, Ms Dai's tax returns for the years ending 30 June 2006, 30 June 2007 and 30 June 2008 are listed. There is no mention of overseas tax returns for those years or of Ms Dai's personal tax return for the financial year ended 30 June 2005.
It is said that Mr Bai does not have tax returns for the 2005, 2006, 2007 and 2008 periods, as they were never lodged with the ATO. In addition, Mr Bai claims he does not have Chinese tax returns for these financial years.
As the Court previously noted, on 24 May 2010,
"It is of course possible that a tax return was not lodged, notwithstanding the receipt of income. Nevertheless, the more probable inference is that a tax return was lodged and tax returns exist, or did exist, and there has been no discovery in relation to those documents."
This statement remains applicable to Mr Bai's tax returns. Moreover, given that Mr Bai has now asserted that the AUD$1 million that comprises the KVB Kunlun transfers was commission that he earned in his capacity as agent for Mr Wu, it is likely that Mr Bai lodged income tax returns in China or Australia declaring this income. The Court does not accept that no documents exist in this category.
Daisy Yu Monies
It is said that Ms Dai and Mr Bai have failed to provide proper discovery relating to monies withdrawn from the bank account of Ms Daisy Yu, the defendants' daughter. A number of transfers were made to Ms Yu's bank account over a two-year period, some of which transfers were from KVB Kunlun. Approximately $500,000 was also transferred to Ms Yu's various bank accounts upon written instruction from Ms Dai to Citibank, located in the United States. These monies are said to be monies "drawn down from Ms Dai and Mr Bai's home loan".
These monies were subsequently withdrawn from Ms Yu's bank accounts in cash. Ms Yu's affidavit of 2 March 2012 states that the withdrawals were carried out at the direction of Ms Dai, and that the large majority of the withdrawals were given to Ms Dai or paid into Ms Dai and Mr Bai's home loan.
There has been no documentation, or explanation provided with respect to the whereabouts of these cash withdrawals, totalling approximately $730,000, nor bank statements for the home loan account.
Ms Dai's Bank Accounts
The plaintiffs rely on the affidavit of Chen Hong Mei sworn 8 December 2011 to support their submission that Ms Dai has been a major shareholder and person in control of two companies in China. These banks statements have not been provided nor have they been identified in discovery. The plaintiffs submit that the Court cannot be confident that all overseas bank accounts have been properly discovered. I accept this submission.
In addition, the plaintiffs' written submissions outline that the documents produced thus far by the Commonwealth Bank of Australia indicate that Ms Dai had a term deposit account between 18 May 2009 and 18 September 2009. No documents have been produced in relation to this bank account. I accept, again, that inadequate, if any, discovery has been effected.
Conclusion
It is the Court's duty to facilitate the just, quick and cheap resolution of the real issues between the parties: ss 56, 57 and 58 Civil Procedure Act. Parties and practitioners have complementary duties. I am of the view that the defendants' have been given a number of opportunities to comply with their discovery obligations. On each occasion, there has been non-compliance with the Court's Orders.
It is important to bear in mind that striking out the defendants' defence by reason of their default should only be utilised as a last resort: see Hans Pet Construction Pty Limited v Cassar [2009] NSWCA 230.
I am satisfied that the defendants have, or had, in their possession further documents on the basis that the documents produced thus far point to the existence of other documents: Ace Hire Aust Pty Ltd v ADI Ltd [2006] NSWSC 969. As a consequence, the defendants' failure to comply with the Orders of the Court has not yet been purged.
The categories, to which the plaintiffs have referred, are clearly relevant to the proceedings. The evidence indicates that there is further documentation that has not been produced. On the evidence before the Court, as it is outlined above, I am satisfied, on the balance of probabilities, that the plaintiffs have demonstrated that there has been non-compliance with respect to the defendants' discovery obligations.
The defendants have placed the plaintiffs in an impossible position, in which documents available only to defendants have not been disclosed and the defendants have, for significant periods, failed in their duty to facilitate the just, quick and cheap resolution of the proceedings.
Natural justice requires that the defendants be given an adequate opportunity to prepare and to present their case: Sullivan v Department of Trade (1978) 20 ALR 323, per Deane J; Re Architects of Australia Association; Ex parte Municipal Officers Association (1989) 63 ALJR 298. They have had that opportunity and failed to utilise it. Further their conduct has frustrated the plaintiffs' right to prepare their case.
The 2011 proceedings: application to set aside default judgment
The first and second defendants' defence was struck out on 3 November 2011, as it was not in proper form and did not answer the particular allegations against them. On that day, I gave Ms Dai and Mr Bai a final opportunity to file and serve a defence to the amended statement of claim in proper form. The defendants failed to comply with the Order and thus on 30 November 2011, by way of self-executing order, default judgment was entered against the first and second defendant in the sum of $1,977,794.25.
The defendants move on notice dated 17 January 2012 to set aside the default judgment and for leave to file a defence.
The defendants rely on r 36.16(2) of the UCPR which, relevantly, states that:
"(2) The court may set aside or vary a judgment or order after it has been entered if:
(a) It is a default judgment (other than a default judgment given in open court), or
(b) It has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order."
As is evident from this provision, the Court may have the power to set aside the default judgment under r 36.16(2)(a). If it were to have the power, it is not obliged to exercise it. The factors relevant to the determination of the present application are:
(1) Whether the defendants have an arguable defence;
(2) Whether the defendants have provided an adequate explanation for the delay in filing the defence and moving on their application (see, eg, Vacuum Oil Co Pty Ltd v Stockdale (1942) SR (NSW) 239); and
(3) Whether prejudice would be suffered by the plaintiff if default judgment were set aside.
Ultimately, these factors need to be considered in terms of whether the interests of justice require Ms Dai and Mr Bai to contest the claim against them: Reinehr Industrial Lease & Finance Pty Ltd v Jordan (Court of Appeal, 4 June 1974, unreported).
Satisfactory explanation for delay?
There are two circumstances of delay relevant to the determination of this motion. The defendants have attempted to provide an explanation for each.
In relation to the delay occasioning default judgment, namely, the failure to file a defence within the stipulated time, the defendants advance a number of reasons.
Initially, Ms Dai, in her affidavit of 17 January 2012, stated that she did not understand what was required of her because on 3 November 2011, when the Orders were made, there was no interpreter in Court. Moreover, she notes that she did not have legal representation at the time.
In her affidavit of 27 April 2012, Ms Dai claims she "now remember[s]" there was an interpreter present in Court on that day. However, Ms Dai maintains that she did not fully understand her obligations, as the interpreter "was not a good interpreter".
In addition, the defendants submit there is indicia to suggest that Ms Dai was mentally ill at the time the Orders were made. The Court has before it evidence, as described at [26], of Ms Dai's mental state.
Mr Bai's explanation for his failure to file a defence is to the effect that he believed Ms Dai was in control of the proceedings. Mr Bai states he was unaware of the Orders of the Court made on 3 November 2011. Mr Bai notes that he only visits Australia a few times a year and that his last visit to Australia concluded on 8 February 2011.
With respect to the delay in filing the motion that is presently before the Court, the defendants rely on the same reasons. Mr Moschoudis, counsel for the defendant, points to Ms Dai's difficulties with the English language, lack of legal representation and her mental state.
The defendants also submit that it was a relatively short time frame (approximately 6 weeks) between default judgment being entered and filing of the current notice of motion, particularly in light of the Christmas period. I reject this explanation.
The plaintiffs submit that the defendants have inadequately explained each circumstance of the delay, namely, the delay in filing the motion and filing the defence.
On 3 November 2011, Ms Kewei Wu, a qualified Mandarin speaking interpreter was present in Court. Ms Wu showed her certification to the Court prior to proceedings commencing and I do not accept the proposition that she did not accurately translate the Orders. It follows that I do not accept that Ms Dai did not understand her obligations. I am not satisfied that the defendants have provided a satisfactory explanation for their delay in filing their defence and in filing the motion. Further, if Ms Dai was as incapacitated as is suggested, then Mr Bai has acted recklessly in failing to investigate the state of the proceedings and act in his own as well as Ms Dai's interests.
However, the default judgment arose, as has been explained, from self-executing orders issued on 3 November 2011. Those Orders issued because of contumelious disregard for Orders made on numerous previous occasions, which has not been explained.
Proposed defence presents an arguable or triable issue?
The defendants seek leave, if default judgment is set aside, to file a defence. In summary, that defence pleads that:
(1) All monies withdrawn and/or borrowed from Yingle by the defendants was done with the consent and approval of the plaintiffs and Yingle;
(2) Cash withdrawals from Yingle's bank account were used:
(a) For the purpose of operating Yingle's business activities; or
(b) Were paid at the direction of the plaintiffs to C & S Australia Development Ltd and Melbourne International Tennis Training Centre Pty Ltd. Both companies are said to be controlled by the plaintiffs;
(3) The plaintiffs had control of Yingle's operations in China and it was the plaintiffs that received payment for Yingle services in China (the "Chinese income");
(4) Monies deposited into the personal bank accounts of Ms Dai at the direction of Mr Bai by use of KVB Kunlun offices were the defendants' money and unrelated to the Chinese income;
(5) Monies borrowed from Yingle were repaid by the defendants to Yingle; and
(6) Monies loaned from Yingle were not payable upon demand.
Clearly, the defendants, as directors of Yingle, owed duties to Yingle. The defendants deny that these duties were breached. If these monies were dealt with in the manner that the defendants contend, it seems to me that, while there would be real questions of fact and law to be determined, there would also be a breach of the directors' duties by the defendant, particularly, if, as is alleged, the monies paid by the plaintiffs were for shares in Yingle or as an investment in Yingle.
Further, the defence while verified is not supported by any substantial or independent material. Such material, if in documentary form, was and is discoverable, and, given the indulgences already provided and now sought, ought to have been the subject of detailed evidence. In National Australia Bank v McCann [2010] NSWSC 766, Davies J said:
"39 In Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 Hodgson JA (with whom MW Campbell AJA agreed) said:
[48] In my opinion, the following passage from the judgment of Jordan CJ in Vacuum Oil Pty Co Limited v Stockdale (1942) 42 SR(NSW) 239 at 243 sets out the principles applicable to this case:
The present is not a case in which judgment was signed by default through some procedural omission on the part of the defendant or his legal advisers. The action followed the ordinary course, except that its coming on for trial was delayed through dilatoriness on the part of the defendant. It is one in which, the action coming on for trial in its ordinary place in the list, no one was present in Court to conduct it for the defendant, and it therefore proceeded in his absence. In such a case, when the plaintiff is in no respect in default, a new trial will not be granted save in very special circumstances: Chitty's Archbold, 10th ed., 1457; 12th ed., 1526. In every such case the Court has an inherent and unfettered, though judicial, discretion, in the exercise of which it will, however, necessarily consider (a) whether any useful purpose would be served by setting aside the judgment, and (b) how it came about that the applicant found himself bound by a judgment regularly obtained: Evans v. Bartlam [1937] AC 473 at 482. As a general rule (although not necessarily in every case, if some reason exists for departing from it: Collins' Book Depot Pty Ltd. v. Bretherton [1938] VLR 49; Austn. Digest (1934-1939) 1859), the Court requires an affidavit showing prima facie that the defendant has a good defence on the merits: Evans v. Bartlam [1937] AC 473 at 480, 488-9, and also an explanation of his absence which shows that justice requires that in the circumstances it should be excused. And if there has been gross negligence on the defendant's part, the Court will be the more disposed to require at least a reasonably clear case of merits to be shown, to incline it to interfere: Nash v. Swinburne 3 M&G 630 at 632; Weitzel v. Friedenreich 14 WN 7; Austn. Digest 376.
...
[52] In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require 'a reasonably clear case of merits to be shown'; that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant's default, and hardship to the respondent.
[53] In the present case, in my opinion there was no evidence from Youma going to its defence on the merits, except to the extent that evidence supporting its defence appeared in documentary material relied on by Magnate.
[54] Although Youma's verified Defence and Cross-claim were part of the record of the Court, and did not need to be tendered on the question of what issues they raised, in my opinion they could not function as evidence on any issues unless appropriately put into evidence, for example, by the reading of the affidavit verifying them. If Youma had sought to read that affidavit, its evidentiary value could have been ruled on in response to objections taken; and then it would have been clear to what extent, if at all, that affidavit stood as evidentiary support for the defence and/or the cross-claim. As I have said, nothing like that happened.
40 Mr McQuillen submitted that what was said in Magnate Projects was not directly applicable to the position in the present case because in Magnate Projects there had been a hearing where the Defendant did not appear. By contrast, in the present case, he said that a default judgment had been obtained and in such circumstances it was sufficient to put forward a proposed Defence together with an affidavit asserting that the facts in the Defence were true.
41 What is said in Magnate Projects and in Vacuum Oil Pty Co Limited v Stockdale (1942) 42 SR (NSW) 239 (on which decision Magnate chiefly relies) provides no support for Mr McQuillen's submission. In Vacuum Oil Jordan CJ himself relied on what had been said by the House of Lords in Evans v Bartlam [1937] AC 473 at 480, 482 and 488-489. Evans v Bartlam was a case concerned with setting aside a default judgment. Although both Vacuum Oil and Magnate Projects concerned proceedings where there had been an undefended hearing, it is apparent from the reliance on what was said in Evans v Bartlam that similar principles operate whether it is a default judgment that is being sought to be set aside or a judgment obtained after an undefended hearing.
42 That was clearly also the view of Hall J in Akari v Sole [2008] NSWSC 59 at [28]- [29] where he expressly relied on the passage in Magnate Projects at [52] before applying that to the application before him which concerned an appeal from a Magistrate's decision not to set aside a default judgment. It was also the view of Latham J in Perpetual Trustees v Kaplan (unreported - Latham J - 22 February 2007) at [19].
43 In my opinion, it is quite insufficient for Ms McCann in the present case simply to swear that she believes the facts in the Defence are true to show, in the circumstances of this case, that there is a Defence on the merits to the claim. An affidavit verifying a Defence where the deponent swears to a belief that the allegations of fact in the Defence are true is not sufficient: Magnate Projects at [55] and Saunders v Hammond [1965] 2 WN 39 at 48."
If, as seems to be alleged, the defendants were to rely on directions from the plaintiffs for the payment of some of these amounts and on the proposition that the monies provided by the plaintiffs were investment funds, the terms of documents supporting such a version and the occasion (i.e. time and place), participation (i.e. personnel) and effect of any conversation are material facts, which have not, or not adequately, been pleaded and are not otherwise disclosed: see NAB v Priestly (No 2) [2012] NSWSC 1171 at [13] - [15], per Schmidt J.
For example, the defence pleads consent and approval of the plaintiffs. Yet there is no pleading of the material facts from which such a conclusion is to be suggested. Obviously, the defendants are not required to plead evidence, but apart from the bald assertion of "consent" and "approval", no fact (nor evidence supporting) is pleaded. The plaintiffs cannot know the case against them.
If judgment is set aside, would the plaintiffs be prejudiced?
The plaintiffs submit that prejudice would be occasioned if default judgment were set aside, as they would be unable to prosecute their claim properly, because the defence is not pleaded with proper particularity and it is unsupported by the documents discovered to date.
To contest the allegations against them, in the way described above, the defendants would be required to produce documents that support their contentions. Those documents that would be sought for discovery in these proceedings would be substantially identical to discovery sought in the 2008 proceedings.
The plaintiffs point to the conduct of the defendants in the 2008 proceedings. They note that the defendants submit that there has now been compliance with the discovery obligations. However, the plaintiffs outline that there have been no documents produced to support the contention that monies withdrawn and borrowed were done with the approval of the plaintiffs and Yingle; how and when monies were repaid to Yingle; the circumstances in which the plaintiffs received the Chinese income of Yingle; proof that the monies transferred to the defendants' personal accounts were monies paid to the defendants; or an account for the monies withdrawn from the Yingle account.
For the defendants to counter the allegations against them in these proceedings, they would need to demonstrate that there would be different discovery in the 2008 proceedings, in the form of additional documents.
In reply to the submission that there has been non-compliance, or will be non-compliance, with the discovery orders in these proceedings, the defendants rely on the fact that default judgment was entered as no defence was filed. Therefore, the issue of discovery is, in the defendants' submission, irrelevant to the determination of the present application.
An interesting question arises as to whether it is permissible to take into account the defendants' conduct in the 2008 proceedings when considering the present application. Given that the proceedings are travelling together, and the nature of the allegations made in the 2011 proceedings, I find the conduct of the defendants in the 2008 proceedings relevant to the present application. Even if it were not, it would make no difference. For the reasons discussed at [77] - [78], such facts would need to be pleaded and some material produced to support those bare assertions, if made.
Conclusion
This Court has given the defendants indulgence after indulgence. The defendants have, on a number of occasions, failed to make the most of the opportunities given to them and as a result have hindered the achievement of a just, quick and cheap determination of the real issues in dispute. Moreover, the plaintiffs allege that the defendants have acted dishonestly and intentionally disregarded the Orders of the Court, to the extent that it gives rise to an abuse of process.
A lack of an adequate explanation for failure to file the defence does not necessarily mean that the defendants' application will fail. Delay by itself is unlikely to deprive an individual of the determination of the merits of their position: Cohen v McWilliam (1995) 38 NSWLR 476. An inadequate explanation will be mitigated if there were arguable issues to be tried, which are disclosed adequately and supported by some evidence.
In my opinion, the prejudice said to be suffered by the defendants has been caused by their own conduct or lack of it and, even if that were not so, is outweighed by that which would be suffered by the plaintiffs, if default judgment were to be set aside. Moreover, this is not mere delay. The defendants have obstructed the proper progress of the justiciable controversy encompassed by the two proceedings. Accordingly, the default judgment should not be set aside and the motion should be dismissed.
The Orders of the Court are as follows:
In matter number 289276/2008:
(i) The defence be struck out;
(ii) Judgment for the plaintiffs by default; and
(iii) The defendants are to pay the costs of the plaintiffs on an indemnity basis.
In matter number 185762/2011:
(iv) The defendants' motion is dismissed; and
(v) The defendants are to pay the plaintiffs' costs on an indemnity basis.
In relation to both the 2008 and 2011 proceedings:
(vi) Leave is granted for the plaintiffs to lodge documents with prosecuting and law enforcement authorities; and
(vii) The plaintiffs file minutes of order within 14 days hereof.
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Decision last updated: 29 October 2012
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