New South Wales Supreme Court CITATION : CX & DN Holdings Pty Ltd v Frost [2010] NSWSC 1247 HEARING DATE(S) : 26 October 2010 JUDGMENT DATE : 3 November 2010 JUDGMENT OF : R A Hulme J DECISION : Plaintiff's notice of motion is dismissed. No order as to costs. CATCHWORDS : PROCEDURE - dismissal of proceedings - whether summary judgment should be entered in favour of the plaintiff based on pleadings and/or failure on the part of defendant to prosecute proceedings with due dispatch LEGISLATION CITED : Uniform Civil Procedure Rules 2005 Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937 CASES CITED : Gatward v Kleem (1955) 72 WN (NSW) 354 General Steel Industries Inc v Commissioner for Railways (NSW) and Ors (1964) 112 CLR 125 Lancord Pty Ltd v Sibvale Pty Ltd [2006] NSWSC 1117 PARTIES : CX & DN Holdings Pty Limited (Plaintiff) Andrew Thomas Frost (Defendant) FILE NUMBER(S) : SC 2010/63009 COUNSEL : Mr F Salama (Plaintiff) No appearance (Defendant) SOLICITORS : Jackson Lalic Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION R A Hulme J 3 November 2010 2010/63009 CX & DN Holdings Pty Limited v Andrew Thomas FROST JUDGMENT 1 HIS HONOUR: On 26 October 2010 the plaintiff moved the Court for the following orders: 1. That pursuant to the Uniform Civil Procedure Rules 2005 r 14.28, the defendant's Defence and Statement of Cross-Claim herein be struck out. 2. That pursuant to the Uniform Civil Procedure Rules 2005 r 13.1, judgment be given to the plaintiff in accordance with paragraphs 1 to 6 of the Statement of Claim herein. 3. Costs. 4. Further and other orders as the Court thinks fit. 2 Mr Salama of counsel appeared on behalf of the plaintiff. There was no appearance by or for the defendant. He had previously been represented by a solicitor who had filed a notice of intention to file a notice of ceasing to act on 24 May 2010 and a notice of ceasing to act on 9 September 2010. The latter indicates that the former was served upon the defendant on 2 September 2010. 3 An affidavit of William Susanto sworn 26 October 2010 was read upon the plaintiff's application to deal with the motion in the absence of the defendant. That affidavit refers to and annexes a series of communications with the defendant. In short, it satisfied me that the defendant was well aware of the listing of the motion for hearing before the Court on 26 October 2010 and I was satisfied that it was appropriate to proceed to deal with the matter in his absence. The pleadings 4 Before proceeding further I should mention that the plaintiff company has two directors, Mr Yu Xiao and his wife, Ms Yan Ying Chen. 5 Proceedings were commenced by the plaintiff filing a statement of claim in the District Court on 16 September 2009. It sought an order that the defendant pay to the plaintiff the principle sum of $100,000 together with interest in respect of a loan agreement entered into by the plaintiff and the defendant on 30 August 2006. 6 On 6 November 2009 the defendant filed a defence in which he admitted the fact of the loan agreement and the advancement of $100,000 to him by the plaintiff but denied that he was indebted as alleged. It was asserted that the debt that was the subject of the loan agreement had been assigned by the plaintiff to Yu Xiao in his personal capacity. In the alternative, that is in the event the debt had not been assigned to Yu Xiao, the defendant pleaded that pursuant to a written agreement between the plaintiff, Yu Xiao and the defendant on 30 August 2006, the plaintiff was jointly and severally liable with Yu Xiao and indebted to the defendant for payment of commission in the sum of $2,641,679.93 ("the commission agreement"). It is unnecessary for present purposes to go into detail as to the activity that was claimed to have given rise to an entitlement to commission pursuant to that agreement. The nub of it is that the defence pleaded that the defendant was entitled to set off that commission against the plaintiff. 7 The defendant also filed a statement of cross-claim in respect of his assertion that he was owed money pursuant to the commission agreement. (For clarity I will continue to refer to the parties as plaintiff and defendant). 8 The plaintiff filed a defence to the cross-claim on 27 November 2009 in which it pleaded that no money was owing to the defendant because there was no such commission agreement. The case for the plaintiff is that what is purported to be the signature of Yu Xiao on a copy of what purports to be that agreement is a forgery. 9 The proceedings were transferred into this Court on 2 February 2010, on the defendant's motion, upon the basis that the amount of the cross-claim exceeds the jurisdictional limit of the District Court. Relief sought 10 The first prayer for relief in the notice of motion is for an order that the defence and statement of cross-claim be struck out pursuant to Uniform Civil Procedure Rules 2005 r 14.28. That rule is in these terms: (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court. (2) The court may receive evidence on the hearing of an application for an order under subrule (1). 11 In support of the Court making an order under this rule, counsel for the plaintiff pointed to the fact that the pleadings disclosed no dispute about the loan agreement or its terms and no dispute that the defendant was indebted pursuant to it. The primary defence raised in the pleadings is that the indebtedness is not to the plaintiff but to Yu Xiao as a consequence of the plaintiff having assigned the debt to him. It was submitted that no particulars as to assignment of the debt have been provided to the plaintiff and no evidence has been served by the defendant. I note in this respect that a date for service of evidence by the defendant set by the Registrar on 3 June 2010 has only recently past, on 22 October 2010. Finally, counsel relied upon the evidence in the affidavits of Yu Xiao of 30 July 2010 and Yan Ying Chen of 4 August 2010 to the effect that the debt owed by the defendant to the plaintiff had not been assigned to Yu Xiao. 12 All of these matters were put in support of a submission that there was no tenable defence. Whilst that might be so in terms of the evidence presently before the Court, it is not a matter that arises from the pleadings. UCPR 14.28 is concerned with a pleading which, in the context of the present case, "discloses no reasonable … defence …, or has a tendency to cause prejudice, embarrassment or delay in the proceedings, or is otherwise an abuse of the process of the Court". The enquiry with which an application under UCPR 14.28 is concerned is not about the merits of the defence (in this case) but whether there is any relevant defect in the pleadings themselves: Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937. In the present case the pleaded defence is, on the face of it, tenable. Whether its underlying merit is tenable is another, but presently irrelevant, matter. 13 In saying this I accept that in certain circumstances there may be justification for striking out a pleading where there is no conceivable prospect of success. In Gatward v Kleem (1955) 72 WN (NSW) 354, Walsh J observed at 357–8: There is no doubt that there is jurisdiction to strike out pleas if they are clearly bad in law or if, although not clearly demurrable, it appears to be certain, having regard to facts as to which there can be no dispute, that the pleas cannot be supported and must inevitably fail when the action comes on for trial . The jurisdiction is one which must be exercised with great caution, and a defendant is not to be deprived by means of a summary procedure, of the opportunity of litigating his case in the ordinary way before the ordinary tribunal if there is any chance that he may be able to provide evidence, which, if accepted, will have the result that the plaintiff's claim will be defeated in whole or in part, or that the defendant will establish a right to some set-off against the plaintiff's claim or to recover some amount from the plaintiff; see Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at pp 91, 92). But if it appears quite clear that the defendant cannot succeed and that there is no substantial question to be tried, then the pleas may be struck out to avoid the expense and delay which would be involved in matters being tried in the ordinary way. (Emphasis added). 14 The material before me is not such that I could conclude that the defence must "inevitably fail", or, "discloses a case which the Court is satisfied cannot succeed": General Steel Industries Inc v Commissioner for Railways (NSW) and Ors (1964) 112 CLR 125 at 129. For the same reasons, the plaintiff's application for summary judgment pursuant to UCPR 13.1 cannot succeed. 15 The submissions initially focused only upon the primary defence that there was an assignment of the debt. There is, of course, the alternative defence that the defendant was entitled to set off the amount said to be owing by the plaintiff to him pursuant to the commission agreement. Related proceedings 16 There are some related proceedings that I should mention at this point. At the same time as the present proceedings were commenced in the District Court, proceedings were also commenced in the Local Court against the defendant by Yu Xiao (personally) in respect of a loan agreement of 24 September 2008. It was claimed that pursuant to this agreement he lent $30,000 to the defendant. $20,000 had been repaid but $10,000 remained owing. The defendant's response to that claim was to plead the commission agreement as the basis of a set off and cross-claim. 17 These Local Court proceedings have followed a similar course to the proceedings that were commenced in the District Court, including their transfer to this Court earlier this year. A notice of motion was filed in those proceedings by the plaintiff on 15 July 2010 seeking the same orders as the notice of motion that I am presently dealing with. 18 At the outset of the hearing on 26 October 2010, Mr Salama indicated that he was not moving on the notice of motion in relation to the proceedings in which Yu Xiao was the plaintiff. He conceded that the defence raised in those proceedings, the commission agreement issue, was a matter that could not be resolved without hearing evidence and so was a matter that should await determination at a final hearing. In my view, given that the same issue is part of the pleaded defence in the present proceedings, the reasoning behind the concession is equally applicable. Alternative relief sought 19 A submission was made that in the event that the Court declined to make the order sought under UCPR 14.28 there were some other provisions in the Rules pursuant to which an order could be made that would have the same or similar effect, that is of striking out the defence and the cross-claim and thereby enabling the entry of summary judgment to be considered. 20 In this respect I was taken to UCPR r 12.8, which provides, relevantly: (1) This rule applies to proceedings in the Supreme Court or the Land and Environment Court. (2) The court may, of its own motion, make an order dismissing the proceedings if it appears from the court's records that, for over 5 months, no party to the proceedings has taken any step in the proceedings. … (4) Before such an order is made, notice of the proposed order is to be given to the plaintiff and to each other active party, being a notice that gives each of them a reasonable opportunity to be heard in relation to the proposal. … 21 This rule is inapt for three reasons. First, it relates to the dismissal of entire proceedings and not just one side of them. Secondly, it can only be invoked if no party has taken any step for over 5 months. Finally, no notice has been given to each active party. The rule is obviously designed to provide the Court with a power to dispose of inactive proceedings. 22 I was then taken to UCPR 12.7: (1) If a plaintiff does not prosecute the proceedings with due despatch the Court may order that the proceedings be dismissed or make such order as the Court thinks fit. (2) If the defendant does not conduct the defence with due despatch, the Court may strike out the defence, either in whole or in part, or make such other order as the Court thinks fit. 23 The plaintiff's contention that the defence should be struck out pursuant to this rule may be disposed of by reference to the observation of Young CJ in Eq (as his Honour then was) in Lancord Pty Ltd v Sibvale Pty Ltd [2006] NSWSC 1117: [8] If a person wishes to avail themselves of Part 12 r 12.7 of the Uniform Civil Procedure Rules 2005, the standard practice is that before a notice of motion is filed a letter should be sent by the person complaining of the delay to the other party clearly indicating that in fourteen days' time, if the default is not remedied, it will move the Court for relief. That did not happen in the instant case. 24 It was submitted that I should regard the defendant as having been on notice of the potential for the defence and cross-claim to be struck out by having been served with the notice of motion, the terms of which I have set out earlier. I do not regard notice that the Court will be moved for orders under UCPR 14.28 and 13.1 as being adequate notice of an application under UCPR 12.7. The defendant has not appeared on the hearing of the motion. It may be, at least in theory, a reasonable possibility that a defendant in such a situation might take a view that there is no merit in the plaintiff's application and so no realistic prospect of a court making the orders sought. Indeed, in the present case I have concluded that the application lacks merit. A defendant who took such a view might consider that an appearance on the hearing would serve no useful purpose. If, on the other hand, the defendant was on notice that the order sought was one of striking out for want of prosecution, that defendant might take an entirely different view of the matter and feel that it was within his or her interests to appear. Accordingly, even if the circumstances were appropriate to consider making an order under UCPR 12.7, which I should not be taken as having expressed a view on, I would decline to do so in the absence of notice to the defendant. 25 Towards the end of his submissions Mr Salama advanced an alternative basis for the Court to make an order under UCPR 14.28. The submission was to the effect that in this case there has been delay and other conduct by the defendant which amounted to an abuse of the process of the Court. That submission was misconceived, with respect, because it is concerned with the conduct of the defendant and not the pleadings that have been filed. UCPR 14.28 is concerned with the latter and not the former. Orders 1. Plaintiff's notice of motion is dismissed. 2. No order as to costs ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.