District Court New South Wales Medium Neutral Citation: Mei Zhang v Ye Cheng [2018] NSWDC 147 Hearing dates: 1 June 2018; 4 June 2018 Date of orders: 08 June 2018 Decision date: 08 June 2018 Jurisdiction: Civil Before: Dicker SC DCJ Decision: (1) The default judgment entered in favour of the plaintiff against the defendant on 26 October 2017 is set aside on condition that within seven days the defendant pays to the plaintiff the sum of $15,994.52 towards any liability ultimately found in favour of the plaintiff against the defendant; (2) The charging order made on 1 December 2017 by Judge Olsson SC is vacated; (3) The garnishee orders made on 23 January 2018 by Registrar Corkhill are vacated; (4) The defendant has leave to file a Defence in the form annexed to his 20 April 2018 affidavit within 7 days; (5) The costs of the Notice of Motion filed 20 March 2018 are reserved. Liberty is granted to the parties to approach the Associate to Dicker DCJ to relist the matter to determine the question of the costs of the Notice of Motion. Catchwords: Default judgment – application to set aside – principles applicable – attack on the bona fides of the defence – alleged threats by plaintiff to say "bad things" about the defendant Legislation Cited: Contracts Review Act 1980 (NSW) Australian Consumer Law Uniform Civil Procedure Rules 2005, Part 36.16 Cases Cited: Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503 Al Maha Pty Ltd v Coplin [2017] NSWCA 318 Australia and New Zealand Banking Group v Karam (2005) 64 NSWLR 149 Barton v Armstrong [1973] 2 NSWLR 598 Commonwealth Bank of Australia v Wales [2012] NSWSC 407 Dai v Zhu [2013] NSWCA 412 Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 Hussain v Haynoun Developments Pty Ltd [2015] NSWCA 420 Perpetual Trustee Co Ltd v Koshaba [2006] NSWCA 41 Sydney Development Group Pty Ltd v Perry Properties Pty Ltd [2016] NSWSC 515 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Category: Principal judgment Parties: Mei Zhang (Plaintiff) Ye Cheng (Defendant) Representation: Counsel: S Burchett (Plaintiff) H Mann (Defendant) Solicitors: Juris Cor Legal (Plaintiff) Keypoint Law (Defendant) File Number(s): 2017/00266631 Judgment 1. The defendant, Mr Ye Cheng, by Notice of Motion filed 20 March 2018 seeks an order that the default judgment entered by the court against him be set aside. Consequential relief including as to costs is also sought. In the written submissions of his counsel Ms Mann dated 10 May 2018 it is stated that the related charging and garnishee orders which have been made by the court would also need to be set aside: see paragraph 3 of the submissions and Annexure A. 2. The default judgment in question is that entered against the defendant in favour of the plaintiff in the sum of $715,841.46 on 26 October 2017. 3. In support of his application, the defendant read an affidavit of his affirmed 20 April 2018. That affidavit annexes a proposed Defence which is sought to be relied upon and seeks to explain the delay of the defendant in filing a defence and the Notice of Motion. 4. In essence, the defendant submits: 1. He has a bona fide defence on the merits to the claim which raises defences which are at least arguable; 2. He has an explanation for his failure to file a Defence and move more expeditiously for the setting aside of the default judgment; 3. There is no direct prejudice to the plaintiff if the default judgment is set aside; and 4. It is in the interests of justice that the default judgment be set aside in all the circumstances. 1. The plaintiff, Ms Mei Zhang, opposes the orders sought. The plaintiff has read: 1. An affidavit of her solicitor Mr Chen in the Federal Court in bankruptcy proceedings against the defendant relying on the default judgment in this court. This is relevant to the delay issue as it shows the service of various court documents on the defendant in 2017; and 2. An affidavit of another solicitor Mr Seng in relation to a recent offered payment of limited monies relating to a loan for $50,000 between the plaintiff and the defendant in early 2016. 1. The plaintiff has also tendered various material including: 1. The defendant's earlier affidavit filed 20 March 2018 with the Notice of Motion which it is said has some inconsistencies with the later more detailed 20 April 2018 affidavit which the defendant read; 2. Certain financial records showing limited financial resources in the defendant in 2017 allegedly suggesting the defences raised are not bona fide but are designed just to delay the plaintiff's rights; 3. Certain telephone texts between the defendant and a solicitor allegedly suggesting the defendant has reasonable English and was aware of the default judgment in December 2017; 4. Other material suggesting that in order to be a registered real estate agent, as the defendant is, the defendant must have a reasonable command of English; and 5. Material relating to the limited retainer by the defendant of his current solicitors. 1. The plaintiff submits that on the whole of the evidence: 1. There is no proper and arguable defence to the claim in the proposed draft Defence and the defendant's 20 April 2018 affidavit; 2. The court should infer that the Defence is not bona fide in the sense that it is not honestly believed; and 3. The explanation given for the delay in filing a Defence and the delay in filing the Notice of Motion is inadequate and should be rejected. 1. The background to the matter is that through an introduction from a third party, the plaintiff and a company related to the defendant agreed in a written joint venture agreement which was in evidence to set up a corporate entity known as Sydney Development Group Pty Ltd to purchase and develop land at Ashfield in Sydney with the proposed building of an hotel with an estimated total investment of over $7 million. An English translation of the joint venture agreement in Chinese is annexed to the affidavit of the defendant dated 20 April 2018 and sets out the structure of the company, the proportion of the investments of the corporate entity controlled by the defendant and the plaintiff, their proportion of shares in the company and the distribution of profits. Despite the distribution of profits stated to be in favour of the corporate entity controlled by the defendant in the proportions of 60% to the defendant's company and for the plaintiff as to 40%, Clause 6 of the agreement under the heading "The Development and Management Regulations" provides: "6. All contributors shall distribute the profits and bear the losses in accordance with the proportion of their contributions." 1. This is different to the clause stating the distribution of profits. 2. It seems from the evidence that a contract was entered into by Sydney Development Group Pty Ltd to purchase the land at Ashfield but it involved the payment of two 10% deposits: Exhibit 2. When the corporate entity defaulted in paying the second deposit, the contract was terminated and an action in the Supreme Court for damages and to recover the deposit by Sydney Development Group Pty Ltd was eventually unsuccessful: see Sydney Development Group Pty Ltd v Perry Properties Pty Ltd [2016] NSWSC 515. 3. The defendant alleges in his affidavit that about the time the Supreme Court judgment was handed down he was contacted by the plaintiff who sought the repayment to her of her investment money which had been lost which was alleged to be $600,000 or $550,000 depending on different versions of the facts. The defendant alleges that at a subsequent meeting the plaintiff said to him inter alia words to the following effect: "If you don't agree to pay me back the full amount, I will say something bad about you and make this public in the Chinese media, including the newspaper and social media. Potential purchasers and developers won't choose your company. If I say bad things about you you won't be able to do any more business you will lose your customers and your credit. I'll make your business unsuccessful and it will collapse and as a result your reputation will be damaged." 1. Later, the plaintiff presented a document to the defendant and allegedly stated in answer to the question from the defendant "But this is just something between us? You will not take this legally against me?" the following "Just sign the document – it is between us, just an internal document. This is just so I can have peace of mind. I cannot sleep at night now I worry all the time." 2. It does not appear to be in dispute that the defendant signed a number of documents apparently acknowledging liability to the plaintiff and agreeing on terms for repayment of the moneys lost with interest. The documents, which are in different terms, were signed on 16 June 2016, 6 July 2016, 20 December 2016 and in mid-2007. Some have onerous interest payment obligations. 3. The plaintiff seeks to enforce the documents which it is alleged were agreed to for good consideration, in her Statement of Claim filed 1 September 2017. 4. It is not in dispute that the Statement of Claim was validly served on the defendant and that after service, no Defence was filed within the time in the Uniform Civil Procedure Rules 2005 and that a default judgment was entered against the defendant in favour of the plaintiff on 26 October 2017. 5. The defendant claims that he only signed the various documents presented to him by the plaintiff because of duress as he was fearful of what the plaintiff would say as a result of her threats and the potential highly damaging effect on his reputation and business: see paragraphs 17-21 and 24-26 of his 20 April 2018 affidavit. 6. The affidavit of the defendant establishes that the defendant was dilatory in relation to considering the Statement of Claim served upon him and put it aside as he did not wish to face up to the problem and was busy in his development and real estate sales work. He did not even begin to act after service of a Bankruptcy Notice upon him which importantly referred to the default judgment in this court. Some weeks passed until he sought advice from a solicitor on the matter and after some delay over the summer/New Year period the application was filed on 20 March 2018. The evidence shows he first consulted his current solicitor in late January 2018. 7. The defendant was cross-examined (with leave) extensively on this delay. Some inconsistencies were established between his affidavit affirmed 20 March 2018 and that which he read on the application affirmed 20 April 2018. His explanation for these was not entirely convincing. The defendant gave evidence that he had been in Australia for 20 years and had some English. He stated that while he was aware the Statement of Claim and the Bankruptcy Notice were legal documents and were important and involved litigation against him by the plaintiff, he did not crucially understand fully the potential legal effect and the legal extent of the documents. He said he was hoping to resolve the dispute with the plaintiff in "a good way". 8. I am satisfied from the cross-examination (which was through an interpreter) that the defendant could have raised the documents with various solicitors he was in contact with on other matters well before he did. However, I am also satisfied from the text messages in evidence that while the defendant had some reasonable understanding of English, his English was apparently not strong and was certainly not fluent. He said he needs the assistance of a Mandarin speaking solicitor at the firm he currently retains. His commercial dealings appear principally to be with other Chinese speaking persons. 9. In my view, the full extent of the defendant's understanding of the various important documents in this case is an important matter and cannot be resolved satisfactorily in this application. It is entirely possible that the defendant realised the Statement of Claim and the Bankruptcy documents were important documents legally and involved a claim by the plaintiff against him without realising the full legal extent of failing to take action to respond to them. 10. Overall, there is an explanation offered which is plausible but which is hardly a strong one. Parties cannot proceed to put their other business affairs ahead of court proceedings without expecting serious legal consequences. 11. The defendant says he has a bona fide defence on the merits which is fairly arguable. That alleges: 1. Economic duress as a result of the plaintiff's threats; 2. conduct which would attract relief under the Contracts Review Act 1980 (NSW); and 3. Unconscionable conduct under s 20 of the Australian Consumer Law. 1. The plaintiff submits that there is no reasonably arguable defence: 1. In relation to the duress argument, the following, in general summary, is submitted: the plaintiff's alleged comments did not constitute a threat to defame but merely to say something "bad" about the defendant in the context of a legitimate commercial grievance. Further, economic duress requires illegitimate pressure by unlawful means and there is no evidence of a threat of anything illegal. In addition, to be relevant the economic duress requires the effect on the victim to be objectively reasonable and believable and the delay here between the threat and the last promise was up to 15 months. It is submitted that the duress must be operative at the time of entering the relevant contract, not months or even years later; 2. In relation to the Contracts Review Act and Australian Consumer Law defences, the following is submitted in general summary: there is no evidence to support an arguable case that the defendant did not understand what he was signing or that he had alleged limited English or was unable to negotiate the terms of the contracts; 3. The Defence is not asserted bona fide because of the admissions and acknowledgements of liability, orally and in writing, by the defendant over many months since the supposed threat. Further, it is said that there is a lack of detail of what the alleged 'bad things" were that the plaintiff was alleged to be threatening to say, and that the defendant was well able to defend himself against the threat of bad things being said and he did not even recall signing the third acknowledgement dated 20 December 2016: see 20 April 2018 affidavit paragraph 28; 4. Neither proposed Defence is verified; 5. The defendant admits a $50,000 loan and gives no basis for denying liability for it in his draft Defence attached to the 20 April 2018 affidavit; 6. There is no acceptable explanation for the failure to defend or for the delay in moving to set the default judgment aside. 1. The defendant submits that the evidence establishes: 1. The plaintiff is a real estate agent and works in the property development and real estate areas; 2. His reputation and standing in the Australian Chinese community is crucial; 3. While he has some English he is clearly not fluent and the court would accept he has problems with technical English; 4. The evidence establishes that he was fearful of what the plaintiff would say and that it would damage or destroy his reputation and business; 5. That it should be inferred that the threat was to say something defamatory not merely critical; 6. Accordingly, there was duress by unlawful means; 7. There is sufficient to establish an arguable case under economic duress, the Contracts Review Act and s 20 of the Australian Consumer Law; 8. The plaintiff put off dealing with the matter wrongly but he has confessed to that and it is understandable in the context of how busy he was and the technical nature of the documents. He effectively failed to face up to a problem he was faced with which is plausible. Also the court should focus on the fact of the Defence being arguable even if the explanation is weaker. 1. Overall, it is submitted that an adequate explanation has been given by the defendant and that the Defence is arguable and should be considered on its merits. The Principles Applicable 1. The present application is made by the defendant under Part 36.16(2) of the Uniform Civil Procedure Rules. This provides that the Court may set aside or vary a judgment or order after it has been entered if it is a default judgment. There is no statement in the Rules of the factors which the court must take into account in deciding whether to set aside the judgment. The power is a discretionary one and the court's discretion is unfettered but must be exercised judicially. 2. The test to be applied is that the court needs to decide whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 at [43] per McColl JA who although was dissenting, did not state a different principle to the majority; Dai v Zhu [2013] NSWCA 412 at [83] per Sackville AJA. In Dunwoodie, McColl JA stated as follows at paragraphs [43]–[46]: [43] The court's jurisdiction to set aside the default judgment is found in the bald terms of Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 36.16(2)(a), providing 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)". The fundamental (but not the only) principles guiding a court asked to exercise the unfettered discretion UCPR 36.16(2)(a) confers, are whether the applicant has a bona fide ground of defence, an adequate explanation for the failure to defend and the length of any delay: Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503 (at 506) per Hope JA (Glass JA agreeing). In the final analysis, it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits: Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974 unreported) cited with approval by Sackville AJA (Barrett and Leeming JJA agreeing) in Dai v Zhu [2013] NSWCA 412 (at [83]). [44] In Dai v Zhu Sackville AJA also explained (at [89]) that the rationale for the requirement that the applicant for relief demonstrate a bona fide ground of defence is that "in the exercise of its "unfettered, though judicial, discretion" the court will 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". His Honour also explained (at [92]) that in "determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case … [a]ll that is necessary is for the defendant to show that the defence is asserted bona fide and that there is an arguable or triable issue [and] [t]he nature of the evidence required in a particular case may depend on the circumstances, including the cogency of the defendant's explanation for the delay or failure to comply with the orders of the court". [45] In elaboration of the last proposition it is necessary to explain that the court considering the application to set aside a default judgment is not trying the issues of fact arising upon the defence advanced, but must be satisfied that the defence is "fairly arguable in law or fact" and that the applicant is bona fide in seeking to rely upon that defence: Reinehr Industrial Lease & Finance Pty Ltd v Jordan per Street ACJ (Glass JA agreeing). [46] Finally, it should be observed that the application of these principles is subject to the provisions of the Civil Procedure Act 2005 (NSW): Dai v Zhu (at [93]); Richards v Cornford (No 3) [2010] NSWCA 134 (at [98]ff) per Allsop P (McColl JA agreeing). 1. In Dai v Zhu Sackville AJA stated as follows at [66], [83] and [89]: "[66] The primary Judge identified (at [61]) three factors relevant to the applicants' motion to set aside the default judgment in the 2011 Proceedings: • whether the applicants had an arguable defence; • whether they had provided an adequate explanation for the delay in filing a defence; and • whether the respondents would be prejudiced if the default judgment were set aside." … "[83] The applicants did not take issue with the primary Judge's identification of the three factors particularly relevant to the exercise of the discretion conferred by UCPR, r 36.16(2)(a) (see at [66] above). The applicants also did not take issue with the primary Judge's proposition, derived from Reinehr Industrial Lease & Finance Pty Ltd v Jordan (New South Wales Court of Appeal, 4 June 1974, unreported), that ultimately it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits; see too, Adams v Kennick Trading (Int) Ltd (1986) 4 NSWLR 503, at 506–507, per Hope JA (with whom Glass JA agreed)." … "[89] The second observation is that the authorities consistently state that, as a general rule, a defendant who seeks to set aside a judgment by default regularly obtained must show that he or she has a bona fide defence. This ordinarily requires the defendant to file an affidavit demonstrating a prima facie defence on the merits. The rationale for this requirement is that in the exercise of its "unfettered, though judicial, discretion" the court will 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. Vacuum Oil Co Pty Ltd v Stockdale (1942) 42 SR (NSW) 239, at 243, per Jordan CJ (with whom Davidson and Roper JJ concurred), citing Evans v Bartlam [1937] AC 473, at 482, per Lord Russell; Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331, at [48]–[51], per Hodgson JA (with whom MW Campbell AJA agreed) (holding that the principles stated in Vacuum Oil have not materially been affected by the reasoning of the High Court in Taylor v Taylor [1979] HCA 38; 143 CLR 1, and Allesch v Maunz [2000] HCA 40; 203 CLR 172)." 1. The principles to be applied as being the fundamental but not the only relevant principles are therefore: 1. Whether the applicant has a bona fide defence on the merits which is arguable; 2. Whether an adequate explanation for the failure to defend has been provided and the length of the delay. As McColl JA stated in Dunwoodie, in the final analysis, it is necessary to consider whether it is in the interests of justice to allow the party seeking to set aside the default judgment to be permitted to defend the proceedings on the merits; and 3. Whether the plaintiff would be prejudiced if the default judgment was set aside. 1. In Dai v Zhu [2013] NSWCA 412, Sackville AJA (with whom the other two judges agreed) stated that the exercise of the discretion was unfettered though judicial and the court would consider whether any useful purpose would be served by setting aside the judgment and how the judgment came about. In determining whether the defendant has a bona fide defence on the merits, the court does not embark on a hearing of the full merits of the case. The defence must be fairly arguable in law or fact and the court will consider whether the defendant is bona fide seeking to rely upon the defence. 2. I will now consider the various matters in the context of the current case. Is the proposed defence fairly arguable? 1. The difficulty facing the defendant in the present case is that he has signed a number of documents which purportedly oblige him to repay large sums to the plaintiff. There are onerous interest repayment terms included in some of the documents. 2. The case therefore appears to be a challenging one prima facie for the defendant. 3. In relation to the defence of economic duress, the Court of Appeal case of Australia and New Zealand Banking Group v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344 considered economic duress in detail and found it to be a vague defence. It held that the vagueness of the concept of illegitimate pressure in economic duress could be avoided by treating the concept of duress as limited to threatened or actual unlawful conduct, not illegitimate pressure through the threatening of lawful conduct: at [66]. 4. The question here is whether what was threatened by the plaintiff on the evidence of the defendant was the threat of unlawful conduct. The plaintiff submits that all that was threatened was to say "bad things" and this could have either been a threat of defamatory matters or the expression of legitimate commercial grievances by the plaintiff such that through his conduct she had lost her very considerable investment. The plaintiff refers to [51]-[52] of Dunwoodie where McColl JA referred to a fear "which could be assumed to some extent to paralyse the will", referring to Barton v Armstrong [1973] 2 NSWLR 598 at 607. It is said that this is absent in the present case. 5. The defendant submits: 1. Dunwoodie and Barton v Armstrong involved threats of physical violence, and here, economic duress only is relied upon by the defendant; 2. For economic duress to be established, the threat of tortious conduct alone is sufficient. This submission appears to have some force because it is accepted that economic duress can be established in relation to conduct which could only be tortious. See Karam, above, at [48] and at [61]-[62]. At [66] in Karam, the court appeared to accept that a threat in relation to the victim's property was sufficient, which may be tortious; 3. The conversation relied upon in paragraph [15] of the defendant's 20 April 2018 affidavit refers to the plaintiff saying bad things sufficient to cause the destruction and failure of the defendant's business not merely bad things at large related to the failure of the investment; and 4. What is relied on here is a continuing fear as a result of the threats: see paragraphs 17, 23 and 27 of the defendant's 20 April 2018 affidavit. 1. How should one reasonably read paragraph 15 of the defendant's 20 April 2018 affidavit? While there are various interpretations of the conversation in it potentially available, I read the limited evidence of the conversations in the defendant's affidavit for the purposes of the current interlocutory proceedings as conveying the threat of saying matters by the plaintiff which were likely to be defamatory and importantly destructive of the defendant's reputation and business. In my view, on the limited evidence before me, that reaction to the conversation set out was a reasonably open one for the defendant to take at the time. Accordingly, it appears to me that a tort was threatened and the defence of economic duress, while not strong on its face, is at least arguable. Reliance issues, which are important as a number of documents were signed by the defendant over more than a year, cannot be determined at this stage. 2. In relation to the statutory defences in the draft Defence, as was made clear by the majority in Dunwoodie, statutory defences such as under the Contracts Review Act require a consideration of all the circumstances which could affect the reasonable perception of the defendant at the time. In Hussain v Haynoun Developments Pty Ltd [2015] NSWCA 420 at [5] Leeming JA noted that statutory unconscionability may involve "a more wide ranging enquiry" than duress. 3. Sections 7 and 9 of the Contracts Review Act 1980 provide as follows: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19." "9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." 1. In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 McHugh JA (with whom Hope JA agreed) stated at 620-621: "Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision … In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract … More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice … it is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be "unjust". But the latter expression is not limited to the so-called "tautological trinity". … Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its terms is unjust. … But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), in the public interest." 1. See also Perpetual Trustee Co Ltd v Koshaba [2006] NSWCA 41 at [63]-[76], [99] and [112]-[119] and Al Maha Pty Ltd v Coplin [2017] NSWCA 318 at [28]-[29]. 2. The defendant relies on: 1. The fact the defendant is a real estate agent and is not legally trained; 2. The fact that the acknowledgements have clearly been prepared by somebody with legal knowledge or training; 3. The fact that a threat was made as set out in paragraph 15 of the defendant's 20 April 2018 affidavit, even if it does not satisfy the requirements of the tort of economic duress: see s 9(2)(j) of the Contracts Review Act in its reference to "undue influence, unfair pressure or unfair tactics"; 4. The fact the various documents were presented to the defendant by the plaintiff; 5. The fact that because of the threats the defendant was not in a position to be able to negotiate the terms. 1. The plaintiff points to: 1. The age and circumstances of the plaintiff; 2. The fact that the defendant was a real estate agent and was thus able to defend himself; 3. The lack of clarity of what were the "bad things" the plaintiff was alleged to be threatening to say; 4. The fact that various drafts of the first document were provided: paragraph 20 of the defendant's 20 April 2018 affidavit; 5. The fact that there are additions and changes to some of the acknowledgements. 1. Section 20 of the Australian Consumer Law provides in sub-section (1) as follows: "A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time." 2. I note the assertion by the plaintiff as alleged by the defendant in his affidavit dated 20 April 2018 that the first document was "between us, just an internal document. This is just so I could have peace of mind." That may be held at a final trial to involve conduct that the plaintiff would not rely upon in legal proceedings. This should be contrasted with the terms of the second and third acknowledgments. Also relevant, are the threats referred to by the defendant in his affidavit. 3. It is clear that in any final hearing the circumstances in which the acknowledgements were signed by the defendant will be considered in detail. The defendant faces a number of difficulties particularly having regard to the fact that he is commercially sophisticated, being involved in property developments and being a real estate agent, and the fact that a number of documents were signed over an extensive period of time. He also faces the difficulty of satisfying the court that any threats remained operative in relation to his reasons for signing the acknowledgements and other documents over a year after the first threats were allegedly made. However, in my view these are all matters which have to be determined finally in any hearing. The threats alleged to have been made could potentially be regarded by the court as unfair pressure or unfair tactics. 4. Accordingly, I find that the defence put up in the proposed Defence attached to the defendant's 20 April 2018 affidavit amounts to a defence which is "fairly arguable in law or fact": see Dunwoodie at [45]. Is the proposed defence bona fide? 1. As to the question of the bona fides of the defence, it is true that the evidence does not disclose enormous financial resources in bank accounts in the defendant's name and that the delays and periods between the various acknowledgments were considerable which raises real issues in relation to reliance. 2. The cross-examination also revealed: 1. Inconsistencies between the defendant's two affidavits; 2. Some inconsistency between the oral evidence and the first affidavit as to the defendant's understanding of the Statement of Claim and the Bankruptcy Notice; 3. Delays in consulting solicitors as to the documents; 4. Service of charging orders on the registered office of companies connected to the defendant which he says he did not become aware of. 1. In Adams v Kennick Trading (International) Ltd (1986) 4 NSWLR 503, Hope JA (with whom the other judges agreed) stated as follows at 507: "… Evidence can be received, by cross-examination or otherwise, as to the bona fides of the applicant in seeking to rely upon the defence, even though the evidence adduced relates to the issues which would be determined if the matter went to trial. However the question to which this evidence is directed is not simply whether the applicant has shown a defence on the merits; it goes rather to the composite question whether the applicant has shown a bona fide defence on the merits. If the judge hearing the application concludes that the applicant has deliberately lied about the alleged defence and is thus dishonest in raising it, the applicant would fail to establish that he has a bona fide defence on the merits. But if in such a case the Judge merely concluded that he preferred the evidence of the respondent to that of the applicant, or anything as to credit short of a disbelief by the applicant in the facts he relied on to found the defence, he would not on that account alone be entitled to find that the applicant had failed to establish that he had shown a bona fide defence on the merits. If he did so, he would be trying the issue to be determined at the trial, and this would be an error of law." 1. Despite the inconsistencies in the evidence which I have referred to above, I did not form the view that the defendant was lying in relation to either the issues raised in his affidavit or the issues on which he was cross-examined. No evidence was given by the plaintiff and accordingly, I could make no comparison between them or form any view as to who was to be preferred, even if that were otherwise possible in an interlocutory matter. The defendant appeared to give reasons for his delay in taking action which did not appear to be extraordinary. 2. I have come to the conclusion, based on the evidence including the cross-examination, that the defence is bona fide. The acknowledgments and the delays in filing a Defence and Notice of Motion are consistent with the defendant putting his "head in the sand" and not facing up to difficult issues and a confrontation with the plaintiff which the legal documents had caused. As stated, I did not form the view the defendant was lying in his evidence. The explanation for the delay 1. The authorities appear to accept that if it is in the interests of justice to allow the party seeking to set aside a default judgment to be permitted to defend the proceedings on the merits then that should be permitted, even if an adequate explanation for the delay is not established: Dai v Zhu at [83] and Adams v Kennick Trading at page 506. In the latter case, Hope JA noted that the absence of an adequate explanation, particularly if it is coupled with prejudice, may justify the denial of relief but only when considered with the other relevant circumstances of the case including whether a defence on the merits is established. 2. In the present case, the explanation provided is as follows. The defendant stated that he put the matter aside even though he knew the Statement of Claim was a court document which was important. He continued to do this even after he received the Bankruptcy Notice which referred to the default judgment. 3. In my view, the explanation given by the defendant is not a strong one. 4. At the end of the day, I have to decide whether it is in the interests of justice for the defendant to be given the opportunity to defend the case on the merits despite the explanation. 5. The defendant submits: 1. There is an explanation; 2. There is no evidence of actual prejudice to the plaintiff established by affidavit; 3. Any prejudice relating to money spent on obtaining the charging orders and garnishee orders could be cured by a costs order; 4. The delay was relatively short compared to those in Dunwoodie and Adams v Kennick Trading where the delays were for a number of years; 5. The defendant moved reasonably promptly when he understood the full legal effect of the documents served. 1. The plaintiff submits: 1. The defendant delayed in seeking legal advice; 2. The defendant delayed in following the matter up with the solicitor Mr Tan; 3. The defendant delayed in supplying relevant documents to his current solicitors. 1. Assessing all the evidence, the defendant could have taken action more promptly and responded to his solicitors more promptly. I take into account there is no direct evidence of prejudice to the plaintiff. Overall, I regard the explanation for the delay as plausible. Relevant to me is the fact that the delay is not extensive. Other factors 1. In my view, it is important to take into account: 1. the large sum involved; 2. the fact there is no evidence of a letter providing a warning from the plaintiff before default judgment was entered: Commonwealth Bank of Australia v Wales [2012] NSWSC 407 at [24]; 3. the fact charging and garnishee orders have been obtained; and 4. the fact the defendant seems to realise now the difficulties of his situation and that he must face up to them. 1. Balancing all of these matters, in my view, the case is a marginal one. However, in the end, I am of the view in the exercise my discretion that it is in the interests of justice to allow the defendant to defend the case on the basis of the Defence annexed to his 20 April 2018 affidavit. 2. One issue which is raised for consideration is whether an order setting aside the default judgment should be made on terms. Part of the Statement of Claim refers to a loan of $50,000 from the plaintiff to the defendant made on 9 March 2016: paragraph 10 of the Statement of Claim filed 1 September 2017. 3. The Statement of Claim pleads the advance of $550,000 from the plaintiff to the defendant pursuant to the joint venture agreement: Statement of Claim paragraph 5. 4. In relation to the 9 March 2016 $50,000 advance, the draft Defence annexed to the 20 April 2018 affidavit from the defendant admits the paragraph of the Statement of Claim but says further that "this loan did not necessarily relate to the joint venture agreement or the investment in the property in Ashfield referred to above." 5. What that means is not clear but it seems to concede a private loan. 6. Although it is not clear, the $50,000 loan does not seem to be part of the $600,000 referred to in the various written documents signed by the defendant as they refer to a "loss of $600,000 … in the investment": 16 June 2016 document. However, the document signed on 7 July 2016 refers to: "Ye Cheng has $50,000 personally loan [sic] from Mi Zhang." 7. The Statement of Claim pleads a breach of the second acknowledgment in paragraph 15. Paragraph 20 of the Statement of Claim does not refer to the loan specifically but should be taken to include it. 8. The sum of $40,000 was paid by the defendant on 4 July 2017 but is alleged to be part of interest owing only in the Statement of Claim: see paragraph 18. 9. This issue was raised in the proceedings in the Federal Court in relation to the Bankruptcy Notice: see affidavit of Ernest Chew Jing Seng affirmed 31 May 2018. 10. The plaintiff said that the difference between the $40,000 paid and the $50,000 loan, together with relevant interest, should have been offered by the defendant and this goes to his bona fides. The defendant conceded that the payment of the sum of $15,994.52 offered in the letter from his solicitor to the solicitor for the plaintiff dated 24 May 2018 within a limited period should be made a term of setting aside the default judgment. 11. In my view, such a term is proper and should be made. 12. I state my preliminary view, subject to submissions, that the defendant should also pay the costs of the plaintiff in obtaining the charge and garnishee orders. 13. I thank counsel for the parties for their submissions which were of a high standard. 14. Accordingly, I make the following orders: 1. The default judgment entered in favour of the plaintiff against the defendant on 26 October 2017 is set aside on condition that within seven days the defendant pays to the plaintiff the sum of $15,994.52 towards any liability ultimately found in favour of the plaintiff against the defendant; 2. The charging order made on 1 December 2017 by Judge Olsson SC is vacated; 3. The garnishee orders made on 23 January 2018 by Registrar Corkhill are vacated; 4. The defendant has leave to file a Defence in the form annexed to his 20 April 2018 affidavit within 7 days; 5. The costs of the Notice of Motion filed 20 March 2018 are reserved. Liberty is granted to the parties to approach the Associate to Dicker DCJ to relist the matter to determine the question of the costs of the Notice of Motion. ********** 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. Decision last updated: 12 June 2018