Xie v Australian Shopping Town Development Pty Ltd [2010] NSWSC 829 (12 August 2010)

Last Updated: 13 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Xie v Australian Shopping Town Development Pty Ltd [2010] NSWSC 829


JURISDICTION:
COMMON LAW

FILE NUMBER(S):
2009/293656

HEARING DATE(S):
23 July 2010

JUDGMENT DATE:
12 August 2010

PARTIES:
Chuan-Liang Xie (First Plaintiff)
Xiaomin Song (Second Plaintiff)
Australian Shoppingtown Development (First Defendant)
Xiongying Li (Second Defendant)

JUDGMENT OF:
Davies J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
V Kerr (Plaintiffs)
Xiongying Li (Defendants)


SOLICITORS:
Rutland's Law Firm (Plaintiffs)


CATCHWORDS:
PROCEDURE - judgments and orders - default judgments - setting aside - failure to show any defence on the merits - failure to explain delay in filing a defence to the Statement of Claim for more than 5 months - failure to explain delay in filing Notice of Motion to ser aside judgment for more than 7 months - application dismissed.

LEGISLATION CITED:
Corporations Act 2001 (Cth)

CATEGORY:
Procedural and other rulings

CASES CITED:
Evans v Bartlam [1937] AC 473 at 480
Magnate Projects Pty Limited v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331
North v Shierlaw (1897) 13 WN (NSW) 163
Term Sales Pty Limited v Joseph (1949) 67 WN (NSW) 44
Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239

TEXTS CITED:


DECISION:
(1) The Defendants’ Notice of Motion filed 19 April 2010 is dismissed. (2) The Defendants are to pay the Plaintiffs’ costs.



JUDGMENT:

- 1 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

DAVIES J

12 AUGUST 2010

2009/293656 XIE V AUSTRALIAN SHOPPINGTOWN DEVELOPMENT PTY LTD

JUDGMENT

1 The First Defendant, Australian Shoppingtown, borrowed money from the Plaintiffs pursuant to a Loan Agreement made on 5 November 2005. The Second Defendant (Xiaoying Li) guaranteed the repayment of the money.

2 At the time the loan was due to be repaid in November 2008 the terms of the arrangement were varied. However, the First Defendant did not adhere to the terms of the varied agreement leading to the issue of a Statement of Claim seeking judgment for the amount outstanding. Ultimately, Default Judgment was entered on 21 October 2009 against both Defendants. The Defendants now apply by Notice of Motion dated 19 April 2010 to set aside the Default Judgment.

The Loan Agreement

3 The Loan Agreement was entered into on 5 November 2005. The loan was in relation to a development that Australian Shoppingtown wanted to make in China. It provided for the Plaintiffs to lend Australian Shoppingtown $550,000. It was made clear that it was a loan and was not to be regarded as an investment in what Australian Shoppingtown intended to do with the money.

4 The term of the loan was for 3 years. Clause 6 provided that interest was payable at 20% for the 1^st year, at 30% for the 2^nd year and at 50% for the 3^rd year. That resulted in the interest over the 3-year period being equivalent to the principal. It was very high interest but was in fact the interest offered by the Defendants when they initially requested the loan from the Plaintiffs.

5 Clause 8 of the Loan Agreement was the guarantee arrangement. It relevantly provided:

In consideration of Party B agreeing to make the loan to Party A at the request of Party C and not requiring any mortgage, Party C promises to guarantee the obligations of Party A in favour of Party B and Party C promises to indemnify and keep Party B indemnified against any loss, damage, fee, cost or expense and GST including legal costs on indemnity basis, should Party A fail to comply with any of Party A’s obligations. And Party C acknowledges that Party C’s guarantee and indemnity is a continuing obligation which is not in any (sic - way?) affected, reduced, minimised, or waived in whole or in part under any circumstances whatsoever and howsoever and Party C’s guarantee and indemnity obligation will only cease and be at a complete end on Party B receiving full repayment of the Loan Amount and interest payable under this Agreement.

Negotiations regarding repayment

6 On 7 and 21 November 2005 Australian Shoppingtown repaid $400,000 and $150,000, respectively, to the Plaintiffs. Those were the only monies that were paid during the 3-year period.

7 Some discussions ensued between the parties, which resulted in a variation of the Agreement set out in a letter from the Plaintiffs to the Defendants dated 22 November 2008. It provided:

In realisation of your difficulties in meeting the deadline of paying back the loan in full, we offer our extension in the deadline under the following conditions.

1. A$150,000 is to be paid before 1 Dec. 2008 to us by depositing or TT transfer to the HSBC account communicated to you previously.

2. Interest charge commences from the 22^nd of November 2008 with daily interest $753.43 till the date when the full payment including all interest charges received (full payment: A$1.1 mil - amount from Item 1 + $753.43 X number of days from 22/11/2008 to the payment completion date).

3. The new deadline is the 31^st of January 2009 for the full payment (as stated in Item 2). Under no circumstances this deadline is to be extended any further.

4. We understand that you will work diligently to make the full payment early, but no later than the 31^st Jan. 2009. We shall appreciate of your early payment.

5. This extension agreement is not in any way to prejudice our original loan agreement.

Please confirm your acceptance of these conditions with your signature and send it back to us via fax. Our fax number is 02-9417 1643.

8 Mr Xie said that this letter was faxed back to him with Mr. Li’s signature on it. The letter with the signature was in evidence. It is to be noted that under that variation Australian Shoppingtown was to pay $150,000 by 1 December 2008, and then to pay the remaining balance by 31 January 2009. Australian Shoppingtown paid $150,000 on 15 December 2008 but the balance was not paid on 31 January 2009. Mr Xie delivered a Letter of Demand dated 18 March 2009 to Mr Li. The letter demanded $1,037,397.88 (due at the date of the letter) together with daily interest of $753.43. That was the daily rate contained in the letter of variation of 22 November 2008.

9 When no money was paid, the Statement of Claim was filed on 2 April 2009. A letter requesting particulars from Austin Haworth & Lexon, solicitors for the Defendants, was sent to the Plaintiffs on 28 April 2009.

10 Jutland’s Law Firm, acting for the Plaintiffs, replied on 7 May 2009 in a letter of some importance for the issues on the motion. The letter set out the history of the matter and then answered the request for particulars. It then continued as follows:

[8] Please kindly file and serve notice of appearance, and file your clients’ defence within 14 days, failing which our clients will proceed to apply for summary judgement without further notice.

...

[10] Without prejudice, in the interest of not wasting the court’s time, if your clients will replay the balance of the loan amount, that is $550,000 - $148,048.25 = $401,951.75 within two weeks from the date of this letter, our clients can agree to consider a reasonable regime on the interest payable by your clients on the Loan Agreement, and discontinue the Supreme Court proceedings.

11 Mr Li annexed a copy of that letter to his Affidavit. He then said:

[19] On 8 May 2009 I met Mr Xie at Canterbury Leagues Club as mediated by a mutual friend, Dr Xing Zhang, in which Mr Xie reaffirmed the offer in the letter from his solicitor as mentioned in above paragraph.

12 That meeting at Canterbury Leagues Club also assumed considerable importance at the hearing of the motion. Mr Xie’s account was the only evidence of what took place. He said this:

[33] The meeting at Canterbury League Club in Belmore on 8 May 2009 was convened by Dr Zhang as Dr Zhang wanted to hear from Jerry Li on the delay in the repayment to his wife. My conversation with Jerry Li was to the following effect:

I: You continually make promises and do not honor (sic) them. You are not sincere.

Jerry: I am really sorry for the repeated delays. I don’t dispute your claim, but I just need some more time.

I: Why then did you ask a solicitor to write to me about the claim?

Jerry: I don’t know what the solicitor said and what the solicitor was doing.

I: You are lying. I have used solicitors before and I know solicitors will not act without instruction.

Jerry: The fact is I don’t dispute. Give me another ten days. I will be able to pay back your $400,000 first.

[34] Dr Zhang asked Jerry Li: “What about the repayment to us?” To which Jerry Li said “Please give me a bit more time. I will definitely repay in one month”.

[35] We did not discuss the court case other than the conversation on the solicitor letter. At the meeting I did not promise or say anything that I will discontinue the court case. I did however say to Jerry Li “please come up with a proposal for the rest of the repayment”. (italics in original)

13 In my opinion this conversation is consistent with what Mr Li said about this meeting (par 11 above).

14 On 28 May 2009 the Defendants paid the sum of $400,000.

15 On 1 September 2009 Mr Xie sent an email to Mr Li in these terms:

My solicitor was asking me the other day what to do with the court case lodged in NSW Supreme Court on our loan matter. It is my desire to have the matter settled, and I trust it is to your interest too. I understand that you are currently experiencing some cash flow difficulties, and I do not seek any immediate final settlement. However, I would like to have a reasonable commitment from you with solid time limit, which is legally bond and court enforceable.

1. I appreciate of your effort in paying back the capital part.

2. We would like to hear from you of your plan for the interest payment.

3. I would accept some compromising figure if reasonable time frame is set for the interest payment.

4. Irrespective to the outcome, I will seek full reimbursement from you for my legal costs in relation to this matter. I sincerely hope that this matter can be settled without court proceedings and the legal costs can be kept at a minimum.

I look forward to hearing from you before I give instructions to my solicitor.

16 Mr Li replied on the same day in these terms:

Thank you for your support over the difficult time.

I have been working really hard on the refinance of the project and sincerely hope to settle by negotiation.

I am currently in China and working on the refinance and would like to talk to you soon.

17 Mr. Xie then sent an email on the following day in these terms:

Thanks for your timely reply. I will give you two weeks to put to me a proposal. That is before the 16^th of September 2009. After that date, I will leave the matter to your solicitor and mine to sort out.

18 On 30 September 2009 the Plaintiffs filed a Notice of Motion for Default Judgment, and Default Judgment was entered on 21 October 2009. Mr Xie sent an email to Mr Li informing him of the Default Judgment on 26 October 2009 in these terms:

This is to advise you that NSW Supreme court has granted a judgment on the subject case against you and Australian Shoppingtown Development Pty Ltd. The judgment/order is attached here for your examination. I want you to meet the court order before Christmas (25/12/2009) or I will have no choice but to take enforcement actions.

The further Agreement

19 Another meeting took place on 22 December 2009 at Canterbury Leagues Club. Both sides agree that a further arrangement was made whereby the balance of $638,251.93 was to be paid by 31 March 2010. The parties subsequently met at Mr Li’s office in Lakemba on 4 January 2010 where the Agreement reached on 22 December 2009 was reduced to writing and signed by the parties. It said this:

A meeting was held at Canterbury League Club in Belmore, NSW, attended by Xing Zhang, Jerry Li (Xiaoying Li) and Ming Xie (Chuan-Liang Xie) on the 22/12/2009. The meeting was for discussion regarding to repayment plan for the loans to Australian Shoppingtown Development from Ming Xie and Xing Zhang. The loan was guaranteed by Jerry Li.

At the meeting, the parties agreed on the following:

1. interest charges: interest will be calculated at interest rate of 10% per annum based on the contract mature amount on the 21st November 2008. Interest calculated daily, accrued annually. Attached are the interest calculations and total amount to be paid on 31st December 2009 by Jerry Li and Australian Shoppingtown Development Pty Ltd. Further interest will be added to cover the period from 31/12/2009 to the date of settlement.

2. deadline for full payment: 31 March 2010.

3. securities: for security purpose, free floating charge is to be lodged on Australian Shoppingtown Development Pty Ltd and Jerry Li & Co Pty Ltd, a caveat is to be lodged on the residential property in south hurstville (47 George Street, South Hurstville, NSW), jointly owned by Jerry Li and his wife.

4. legal costs: Jerry Li agrees to cover all legal costs charged to Ming Xie and Xing Zhang in relation to the loans and their repayment.

5. the above items are agreed without prejudice to any existing agreements or court proceedings.

The above is a true and accurate record of the meeting.

(emphasis added)

Attached to it was a page of calculations of what had been paid and the interest that was due.

20 Subsequently, Mr Xie delivered copies of the caveat and deed of charge to Mr Li. When the consent to the caveat was not provided, Mr Xie’s lawyers lodged the caveat in late January or early February 2010. That resulted in a letter from Austin Haworth & Lexon to Mr Xie’s lawyers of 15 February 2010 attaching a Notice to Caveator of proposed lapsing of the caveat. That, in turn, caused an exchange of emails between Mr Xie and Mr Li of 21, 23 and 25 February 2010 culminating in an email from Mr Xie saying that the Plaintiffs accepted the repudiation of the Agreement of 4 January 2010 and reserved their legal rights. The repudiation was said to arise from the failure to register the charge on Australian Shoppingtown, and the service of the Notice of the lapsing of the caveat.

21 As I have noted, the Notice of Motion to set aside Default Judgment was filed by Mr Li on 19 April 2010. The Notice of Motion sought 3 orders as follows:

1. The default judement (sic) be set aside.

2. The plaintiff abides the oral agreement reached on 8 May 2009 to discontinue the proceedings upon the repayment of the entire principal $550,000.00 by the second defendant or allows the defendant (sic) to file the defence.

3. That the judgment dated 21 October 2009 be stayed until the Court determines the Notice of Motion. The stay of proceedings be dealt with on an urgent ex-parte basis, in chambers, and any rule not complied with be dispensed with.

22 When the Motion came on for hearing, Mr Li appeared for himself and sought leave to appear for Australian Shoppingtown Developments Pty Limited of which he is a Director. As is apparent from the narrative above, the Defendants had solicitors acting for them in negotiations between the parties. Mr Li informed me, however, that he was not able to afford to have a solicitor appear for him on the hearing of the Motion. In the circumstances (and with no opposition from counsel for the Plaintiffs), I permitted him to appear for the company as well.

Legal principles

23 The authorities are clear as to what must be shown if a default judgment is to be set aside. There needs to be evidence showing prima facie that the defendant has a good defence on the merits, and there needs to be an explanation of the default which occasioned the entry of judgment: Magnate Projects Pty Limited v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 at [48]; Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239 at 243; Evans v Bartlam [1937] AC 473 at 480, 482, 488-9.

Where, as here, there is considerable delay between the time the judgment debtors were informed of the judgment and the filing of the Motion, an explanation of that delay is also required: Term Sales Pty Limited v Joseph (1949) 67 WN (NSW) 44; North v Shierlaw (1897) 13 WN (NSW) 163 at 165.

Explanation for default and delay

24 Mr Li made a number of submissions explaining why a default judgment was able to be obtained, but the principal submission was that he was under the belief, as a result of an alleged agreement on 8 May 2009 at Canterbury Leagues Club, that the proceedings had been discontinued by the Plaintiff. Thereafter, Mr Li says twice in his Affidavit, after referring to emails from Mr Xie, he believed that the legal case had been discontinued.

25 There was, however, no reasonable basis for that belief. First, the letter of 7 May 2009 (para 10 above) not only requires him to file his defence within 14 days, but made an offer that if the sum of $401,951.75 was paid within 2 weeks, Mr Xie and Mr Li could then work to agreeing a reasonable arrangement for the payment of the interest and then discontinue the proceedings. Mr Li said (as I have noted in para 11 above) that the offer in the letter was reaffirmed at the meeting at the Canterbury Leagues Club. That offer was not to discontinue the proceedings on the payment of the money. The payment of the money was a prerequisite to the parties reaching an agreement on how the interest was to be repaid and then the proceedings could be discontinued.

26 Moreover, the email from Mr Xie of 1 September 2009 (para 15 above) reaffirmed that the proceedings were still on foot. Despite that, and despite Mr Xie in an email the following day giving Mr Li until 16 September 2009 to put a proposal, nothing was done either to put a proposal or to file a defence.

27 When Default Judgment was signed, Mr Li was sent an email from Mr Xie informing him of that judgment (para 18 above) but no steps were taken to set it aside.

28 Mr Li says that he prepared a Notice of Motion with a draft Defence and an Affidavit and sent them to his solicitor in November 2009. Nevertheless, he did not file a Notice of Motion. No explanation for this inaction was provided apart from Mr Li saying in his Affidavit that he always tried to refrain from legal confrontations considering his friendship with Mr Xie.

29 Although there was a further meeting and an Agreement on 22 December 2009 at the Canterbury Leagues Club, and subsequently at Mr Li’s office on 4 January 2010, Mr Li did not adhere to the terms of that Agreement. Nor did he take any steps to file a Notice of Motion to set aside the Default Judgment. Indeed, it appears that what finally prompted the filing of the Notice of Motion on 19 April 2010 was the fact that Australian Shoppingtown was served with a statutory demand under the Corporations Act 2001 (Cth).

30 In my opinion, there has been no adequate explanation either for the circumstances that brought about the Default Judgment or for the delay of more than 7 months in filing the Notice of Motion to set it aside.

Defence on the merits

31 The only matter in Mr Li’s Affidavit that suggested a defence on the merits was the alleged agreement of May 2009. Had a binding agreement been reached, that may have provided a defence to the present claim, on the basis of some sort of accord and satisfaction. No agreement was reached in May 2009. As noted above, the pre-requisite to further negotiations was the payment of $401,951.75 within 2 weeks of the letter of 7 May. That was not paid until 28 May. But even if it had been paid, that payment only enabled further negotiations about repayment of interest and the discontinuance of the proceedings. Nothing in that regard was agreed. In any event, Mr Li did not put this forward as any defence on the merits.

32 When I asked Mr Li what his defence on the merits to the claim was, he raised 2 matters that were not referred to in his Affidavit. The first concerned his guarantee. He submitted that although he may have guaranteed the original debt, the guarantee did not extend to cover the new arrangements that were made in May 2009 and subsequently in December 2009/January 2010.

33 Secondly, he said there was a genuine dispute about the way interest was calculated arising out of the December 2009/January 2010 Agreement. It was difficult to understand precisely what Mr Li was saying about the interest dispute. It appeared to relate to the fact that under the original arrangement, interest was charged at 50% in the third year of the loan, but in the subsequent variations of the Agreement interest was charged at $753.43 per day.

34 In relation to the guarantee, it is clear that clause 8 of the Loan Agreement (set out in para 5 above) made it clear that the guarantee was a continuing obligation, which would be unaffected by any change in circumstances, and would only cease when the lender received the full repayment of the loan amount and the interest payable under the Agreement.

35 If there is any doubt about it, paragraph 5 of the letter of 22 November 2008 (para 7 above) made it clear that the variation of the arrangement then made did not prejudice the terms of the original Loan Agreement. Further, the written agreement of 4 January 2010 also contained acknowledgments (highlighted in para 19 above) that Mr Li was still bound by the guarantee.

36 Clause 8 of the Loan Agreement means that Mr Li as guarantor has no defence to the claim based on the variations of the Agreements nor based on the offers made by the Plaintiffs to extend the time for payment.

37 The first thing to note about the interest is that the rates of interest were those offered by Mr Li in order to obtain the loan. Secondly, the daily rate of interest identified in a number of letters and emails of $753.43 is a figure based on the 3^rd year’s interest rate of 50%.

38 In my opinion, the interest that was agreed to be paid by the Defendants, both by the arrangement of 22 November 2008 and the arrangement contained in the Agreement of 4 January 2010, is the interest that has been charged. There is no evidence that the rate of interest claimed in the Default Judgment was not the correct interest under the Agreement.

39 Mr Li had prepared a draft defence after he had received notice of the Default Judgment. Although he did not purport to rely on anything in that defence on the Motion before me, because he was unrepresented I have considered what was pleaded in it. The only defence of any substance pleaded was that the original Agreement was never properly executed nor was any chance given for the Defendants to obtain independent legal advice. There is nothing apparent on the face of the Loan Agreement to suggest it has not been properly executed. In any event, Mr Li’s subsequent conduct in acknowledging his indebtedness to the Plaintiffs pursuant to the Loan Agreement on the 2 occasions the Agreement was varied, and what was said at the May 2009 meeting, point to the fact that there was no substance to that pleaded defence.

40 Finally, Mr Li raised in his oral submissions, without there being any evidence of this, that the arrangement he made with Mr Xie was a gentlemen’s agreement and one that would that would never be enforced in court. This was never pleaded in his draft defence, nor was anything said in his Affidavit to suggest any such arrangement.

41 What does appear from the evidence are constant promises by Mr Li to repay what he acknowledged was owing pursuant to the Loan Agreement and a failure to fulfil any of those promises. In my opinion, Mr Li has not established that he has any defence on the merits for the claim made by the Plaintiffs.

42 For these reasons, the application to set aside the judgment should be refused.

Conclusion

43 I make the following orders:

1. The Defendants’ Notice of Motion filed 19 April 2010 is dismissed.

2. The Defendants are to pay the Plaintiffs’ costs.

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LAST UPDATED:
12 August 2010