Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Mei Zhang v Ye Cheng [2018] NSWCA 299 Hearing dates: 4 December 2018 Date of orders: 04 December 2018 Decision date: 07 December 2018 Before: McColl JA, Sackville AJA Decision: 1. Extend the time for filing a summons seeking leave to appeal until 16 August 2018. 2. Dismiss the application for leave to appeal. 3. The applicant pay the respondent's costs of the application for leave to appeal. Catchwords: CIVIL PROCEDURE — Application for leave to appeal — challenge to interlocutory decision setting aside a default judgment – whether the application raises an issue of principle – whether any significant injustice would be caused by a refusal of leave Legislation Cited: Contracts Review Act 1980 (NSW) District Court Act 1970 (NSW), s 127(2)(a) Uniform Civil Procedure Rules 2005 (NSW) rr 36.16, 51.10 Cases Cited: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39 Mei Zhang v Ye Chang (District Court (NSW), 1 June 2018, unrep) Young v Cooke [2017] NSWCA 33 Category: Procedural and other rulings Parties: Mei Zhang (Applicant) Ye Cheng (Respondent) Representation: Counsel: Mr S Burchett (Applicant) Ms H Mann (Respondent) Solicitors: CSJ Legal Group (Applicant) Keypoint Law (Respondent) File Number(s): 2018/251785 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Date of Decision: 8 June 2018 Before: Dicker SC DCJ File Number(s): 2017/266631 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. THE COURT: On 4 December 2018, the Court made orders extending the time for the applicant to file a summons seeking leave to appeal but dismissing the application for leave to appeal. The Court reserved its reasons. These are the reasons for the orders. The applicant sought an extension of time to file a summons seeking leave to appeal from an interlocutory decision of the District Court (Dicker SC DCJ). [1] On 26 October 2017, the primary Judge set aside a default judgment that had been entered in favour of the applicant against the respondent. The primary Judge's order setting aside the judgment was conditional upon the respondent paying the sum of $15,994.52 towards any liability ultimately found in favour of the applicant. Subject to that condition, the respondent was given leave to file a defence in the form annexed to his affidavit of 20 April 2018. 2. The applicant filed the summons seeking leave to appeal on 16 August 2018, over two months after the Primary Judgment was delivered and orders were made setting aside the default judgment. The summons was therefore filed outside the period of 28 days from the material date prescribed for the filing of a summons seeking leave to appeal. [2] It is for this reason that the applicant required an extension of time in which to file the summons for leave to appeal. 3. The applicant's draft notice of appeal contains five grounds. In summary it was said that the primary Judge erred: 1. in refusing to allow the applicant to cross-examine the respondent on the issue of a bona fide defence to the applicant's claim; 2. in holding that the proposed defences of economic duress and unfairness within the meaning of the Contracts Review Act 1980 (NSW) (Contracts Review Act) were arguable; 3. in holding that the proposed defences were bona fide; 4. in failing to consider whether the respondent had given an adequate explanation for the delay in moving to set aside the default judgment; and 5. in failing to take account of various matters going to the strength of the proposed defence. 1. The applicant's substantive case is pleaded in a statement of claim filed in the District Court on 1 September 2017. The statement of claim alleges that the applicant and respondent entered into three written agreements between June and December 2016. Each agreement is said to have included an acknowledgement by the respondent that he was indebted to the applicant in various amounts by reason of certain commercial dealings between the parties. The applicant seeks a judgment in debt against the respondent in the sum of $700,383.56, inclusive of interest to the date of filing of the statement of claim. 2. On 26 October 2017 the applicant obtained judgment in default of a defence in the sum of $715,841.04, inclusive of interest. The respondent filed a notice of motion on 20 March 2018 seeking an order setting aside the default judgment. The application to set aside the judgment was made pursuant to UCPR r 36.16. 3. The hearing of the application took place on 1 and 4 June 2018. On 1 June 2018 the primary Judge delivered an ex tempore judgment declining to exercise his discretion to permit the applicant to cross-examine the respondent. [3] His Honour referred to the principal authorities establishing that it is not ordinarily appropriate to go beyond the defendant's evidence for the purpose of determining whether a bona fide defence on the merits has been disclosed. However, his Honour recognised that there is no inflexible rule of practice preventing cross-examination and identified a number of matters relevant to the exercise of his discretion. He concluded as follows: "Balancing all of these matters, in my view, no cross-examination should be allowed on the bona fides of the defence because of the potential time and delay which would be caused by that, and that is the most significant issue which will be determined at trial. However, there should be a limited grant of a right to cross-examine in relation to the explanation given for the delay in filing the defence and the Notice of Motion to set aside the default judgment." 1. In the Primary Judgment his Honour considered at some length whether: * the proposed defence was fairly arguable (at [32]-[47]); * the proposed defence was bona fide (at [48]-[52]); * the respondent's explanation for the delay was adequate (at [53]-[59]); and * there were other factors relevant to the application to set aside the default judgment (at [60]-[71]). 1. The primary Judge considered that the respondent's evidence, although limited, made out an arguable defence to the applicant's claim on the ground of economic duress and a separate arguable defence based on the Contracts Review Act. His Honour recognised that the respondent faced a number of obstacles in establishing these defences, particularly his significant commercial experience and the fact that he had signed separate agreements over an extensive period of time. Nonetheless, in his Honour's view the defences were fairly arguable in law and fact. 2. His Honour accepted that the cross-examination revealed some inconsistencies in the respondent's evidence and other matters casting doubt on the defences. Even so, his Honour could not conclude that the respondent was lying. His Honour regarded the respondent's explanation for his failure to defend the applicant's claim and his delay in seeking to set aside the judgment as "not strong" but the explanation was plausible and the delay was not extensive. 3. The primary Judge took into account other relevant matters including the following: "(a) the large sum involved; (b) … there is no evidence of a letter providing a warning from the [applicant] before default judgment was entered …; (c) … charging and garnishee orders have been obtained; and (d) … the [respondent] seems to realise now the difficulties of his situation and that he must face up to them." 1. His Honour concluded as follows: "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 [of] my discretion that it is in the interests of justice to allow the [respondent] to defend the case on the basis of the Defence annexed to his 20 April 2018 affidavit." 1. Leaving aside the need for the applicant to obtain an extension of time, she sought leave to appeal from an interlocutory decision relating to a matter of practice and procedure. Courts exercise particular caution in reviewing such decisions. [4] It is well established that leave to appeal from a matter involving practice and procedure ordinarily will not be granted unless the application raises an issue of principle or the applicant can demonstrate that significant injustice is likely to result if leave to appeal is not granted. [5] 2. The applicant's submissions raise no issue of principle on any of the issues identified in the draft notice of appeal. There is no suggestion, for example, that the primary Judge misstated the relevant principles. The submissions in substance contend that the primary Judge should have exercised his discretion in a different way or that his Honour should have made a different assessment of the strength of the respondent's proposed defences. It may be that another Judge would have reached a different conclusion in what his Honour described as a "marginal case". But that is not a basis for granting leave to appeal. 3. Mr Burchett, who appeared for the applicant, said in his oral argument that the application raised an issue of principle in that the primary Judge failed to consider whether the evidence was sufficient to establish that the respondent had relied on any threat when signing the agreements containing the acknowledgements. The respondent's evidence described the threats that he said had been made and claimed that he had signed acknowledgements because the threats, if carried out, would have destroyed his reputation and harmed his business. The primary Judge considered whether the evidence was sufficient to establish an arguable case and concluded that it did. His Honour did not overlook the issue of reliance; he merely said that it could not be determined (by which his Honour meant finally resolved) at this stage of the proceedings. 4. Nor did the applicant demonstrate that a refusal to grant leave to appeal would be likely to cause her serious injustice. The consequence of the refusal to grant leave to appeal is that the applicant's claim will proceed to a hearing on the merits. If the respondent's defences are as weak as the applicant asserts, the applicant's claim will succeed and she will obtain a costs order in his favour. 5. Mr Burchett suggested that the applicant would suffer prejudice if leave to appeal were not granted because there was evidence suggesting that the respondent may have disposed of assets after the District Court had set aside the default judgment. It was not made clear how the order setting aside the default judgment prevented the applicant from invoking remedies that are available to a plaintiff where a defendant attempts to dissipate assets in order to defeat an anticipated judgment. In any event the evidence falls well short of establishing that the defendant has acted for the purpose of preventing the applicant from enforcing any judgment that may be obtained in the proceedings. 6. For these reasons the Court granted the applicant an extension of time in which to file the summons seeking leave to appeal but dismissed the application for leave to appeal with costs. ********** Endnotes 1. Mei Zhang v Ye Chang (District Court (NSW), 1 June 2018, unrep) (Primary Judgment). Leave to appeal is required because the primary Judge's decision was interlocutory: District Court Act 1970 (NSW), s 127(2)(a). 2. Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 51.10. 3. Mei Zhang v Ye Chang, unrep, 1 June 2018, District Court (Cross-Examination Judgment) 4. Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170; [1981] HCA 39 at [9] (Gibbs CJ, Aickin, Wilson and Brennan JJ). 5. Young v Cooke [2017] NSWCA 33 at [20] (Gleeson JA, Macfarlan JA agreeing) and cases cited there. 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: 07 December 2018