85 Degrees Coffee Australia Pty Ltd v Ji

MS JI'S BASIS FOR APPLYING TO SET ASIDE THE DEFAULT JUDGMENT

1. This is not the occasion for the Court to determine Ms Ji's application to set aside the default judgment. But to understand why 85 Degrees has brought its application to compel Ms Ji to produce certain categories of documents, and why Ms Ji has filed her motion to resist such disclosure requirements, it is first necessary to understand parts of what Ms Ji has deposed to in her affidavit in support of her application to set aside the default judgment, which was dated 30 July 2020.
2. At paragraph 3, Ms Ji set out the essence of the defence (and cross-claim) she proposed to advance if she could set aside the default judgment against her, namely, that she was the victim of misleading or deceptive conduct by 85 Degrees in connection with the franchise agreement. As one goes through her affidavit, it is evident that the claim of misleading or deceptive conduct centres upon allegedly misleading representations.
3. Ms Ji's proposed Defence was in evidence in these applications. It may be seen that Ms Ji wishes to contend that she received representations about 85 Degrees finding suitable premises for her, which would likely generate certain gross takings each year of the franchise arrangement, before she entered into the franchise agreement and another transaction, which I will turn to in a few moments (paragraph 46). Somewhat unusually, however, her proposed Defence would extend beyond pre-contractual representations. It is common ground that the franchise agreement was entered into even before the work premises were located. There may be, as Counsel for 85 Degrees acknowledged, a question as to the extent to which the franchisee may have been able to avoid its obligations if no agreement could be reached about premises, but that question need not be considered on this application. Continuing on, however, Ms Ji would also propose to plead that after the franchise agreement was entered into in December 2016, a separate second representation was made that a particular site, being at the Ashfield Mall, was suitable premises. Further, as Counsel for Ms Ji explained, there was thereafter a third instance of alleged misleading or deceptive conduct when at July 2017, other circumstances arose which falsified this second representation and required some correction.
4. I now return to Ms Ji's affidavit in support of her application to set aside the default judgment. At paragraph 14 of her affidavit, Ms Ji deposed to operating a gift shop, in Campsie, through a corporate vehicle which she controls (as sole shareholder and the sole director) - that entity being JIT.
5. At paragraphs 16 - 18 of her affidavit, Ms Ji also deposed to procuring JIT to enter into two related transactions with 85 Degrees on 10 December 2016, being a Franchise Agreement and a Prior Representations Deed. The latter transaction has piqued 85 Degrees' curiosity.
6. The Prior Representations Deed was also in evidence on the applications. It provided at cl 1, relevantly, that JIT and Ms Ji warranted that the representations itemised in Schedule 1 were exhaustive of the representations made and were capable of being relied upon prior to entry into the franchise agreement. The representation identified in Schedule 1 was "The franchisor (85 Degrees) will find and secure suitable premises in Ashfield". At cl 2, JIT acknowledged that subject to the representation in Schedule 1, no representation had been made by 85 Degrees to JIT or (effectively) Ms Ji relating to the suitability of premises or the marketing area for the franchise or the value or economic viability of the franchise.
7. By category 3 of the Notice to Produce, the Notice to Produce requires production of any legal advice received by JIT prior to its entry into the 'Prior Representations Deed'.
8. Then, by category 4 in the Notice to Produce, the requirement for production of documents was expanded. It concerned non-privileged communications between legal practitioners and Ms Li or JIT concerning the 'Prior Representations Deed', but all correspondence between the practitioners and Ms Li or JIT about that transaction and also the 'Franchise Agreement'.
9. There are other parts of the affidavit which may be relevant to her proposed defence, if she be permitted to set aside the default judgment, but they need not be considered further.
10. At paragraphs 44 and following of her affidavit, Ms Ji deposed to circumstances in which she did not file a Defence prior to the entry of the default judgment. She essentially attributed her omission due to her inability to deal with the effects of a pregnancy and miscarriage which, in turn, she believes to be partly the consequence of financial stress which she believes arose from the circumstances of her dealings with 85 Degrees under the franchised business. She deposed at paragraph 47 to feeling unable to deal with the Statement of Claim until early June 2020, when she received 'notices' that her bank account had been garnisheed and the NSW Sheriff was looking to execute a writ for levy against a property. This evidence provoked 85 Degrees to require her to produce (by category 8 of the Notice to Produce) all correspondence between Ms Ji and her legal practitioners from "early June" 2020 to 30 July 2020, the date she filed her application to set aside the default judgment.

Procedural matters

1. I am informed by Counsel for 85 Degrees that Ms Ji has not complied with a direction that she serve an affidavit in support of her claim for privilege, which had been made in connection with categories 3, 4 & 8 of the Notice to Produce.
2. In support of her application dated 21 September 2020, Ms Ji did, however, rely upon an affidavit sworn by Mr Raymond Lee, Ms Ji's solicitor. Amongst other items of correspondence, Mr Lee asserted that categories 3, 4 & 8 were plainly apt to capture privileged communications under ss 118 and 119 of the Evidence Act 1995 (NSW), but even if they were not, the Notice to Produce, to the extent that it contained requirements to produce such documents, was or were invalid and liable to be set aside.

85 Degrees' submissions

1. Counsel for the plaintiff submitted, in his written submissions, that Ms Ji has not proven her claim for privilege, certainly not in accordance with the requirements of r 21.11(1)(b)(i) of the UCPR and not otherwise. As Brereton J said in Hancock v Rinehart (Privilege) [2016] NSWSC 12 at [7], claims for privilege are not proven by bare assertion alone.
2. If that is not enough, however, Counsel for the 85 Degrees argues that even if privilege might have initially subsisted in the categories of documents 3, 4 & 8, there has been an 'issue waiver', but there is an insufficiency in the material before the Court to enable that determination to be made. Reference was made, in this regard to the Court of Appeal's decision in Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 where Gzell J (with whom Bryson JA and Windeyer J agreed) noted (at [44]-[47]) that there may be circumstances where an assertion of reliance upon a representation may be inconsistent with the maintenance of confidentiality in respect to legal advice received which affects the representee's state of mind
3. Further, 'issue waiver' particularly might have had particular application in relation to category 8. It is said that Ms Ji put her state of mind in issue and the extent to which she received advice or assistance from others may have been relevant to that matter.
4. Since no claim for privilege has been proven, Counsel submits that Ms Ji should be compelled to produce the documents which answer the description of paragraphs 3, 4 and 8 of the Notice to Produce dated 21 August 2020.
5. In his oral submissions at the hearing of the motion, Counsel submitted specifically in connection with category 3, but logically also, by extension, category 4, that the production of legal advice about representations made prior the franchise agreement being entered into might indicate that her proposed defence, to the extent it alleges reliance upon pre-contractual representations, was not tenable to make out a case for relief under the Australian Consumer Law and so, it must follow, that she could not be advancing a bona fide defence.
6. Counsel for 85 Degrees also contended, in relation to category 8, that communications between Ms Ji and her lawyers after she had learnt of attempts to enforce the judgment against her may indicate a pattern of engagement which might explain why she did not take steps before she received notice of the enforcement measures and therefore illuminate the adequacy or otherwise of her explanation for delay.

Ms Ji's submissions

1. Ms Ji submitted that the contentious categories of documents in the Notice to Produce did not meet the requirements for a valid notice to produce under r 21.10 of the UCPR; and, alternatively, there were valid claims for privilege. Application was also made to excuse compliance under r 21.11(1) of the UCPR.

CONSIDERATION

1. 85 Degrees' written submissions dived straight into arguments about privilege without addressing the questions which are anterior to consideration of the privilege claim, being whether the Notice to Produce contained valid requirements to compel production and, if they were, whether compliance with the requirements should be excused. That is to invert the proper analysis which attends contested privilege claims. This is because privilege, where it is properly established, is an immunity from disclosure from compulsory process (Glencore International AG v Federal Commissioner of Taxation (2019) 93 ALJR 967; [2019] HCA 26 at [21]-[26]). If the disclosure requirement is invalid, or need not be complied with, then there should be no occasion to consider questions of immunity.
2. The validity of the requirement for disclosure cannot be excised from its context. In this case, the requirement for disclosure is a Notice to Produce. That Notice to Produce has been served for the purpose of 85 Degrees, as judgment creditor, requiring documents upon the purported basis that it may reveal information of relevance to Ms Ji's application to set aside the default judgment.
3. For an application of that kind, there are two, or perhaps three, cardinal requirements for the applicant, being (a) a satisfactory explanation for the delay which has occasioned the default judgment (having regard to the length of the period of delay); and (b) proof that there is utility in setting aside the default judgment since the applicant has a bona fide and reasonably arguable defence (J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd t/as Greenwood Group Realtors [2019] NSWCA 283 per Gleeson JA at [48]). When adjudicating the latter requirement, a Court will not stray into considering the merits of the defence, but needs to be satisfied that a defence is reasonably arguable; and is not a sham or abuse of process: J & M McNamee Holdings Pty Ltd at [51]. As a practical standard, a Court is likely to ask itself whether the proposed defence could withstand a summary dismissal application on the basis that it is manifestly baseless under General Steel principles (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125). So long as there is a triable issue, and subject to satisfaction of the former requirement, being the explanation for delay, and subject further to any other compelling discretionary consideration, such as prejudice to the judgment creditor from allowing the application, a Court will ordinarily accede to the application to set aside the default judgment.
4. The point for present purposes that follows from the circumstance that a Court will not entertain the merits of the defence is that it is unnecessary for an applicant to set out to actually prove the defence. In other words, it is not, as Counsel for 85 Degrees submits, the occasion for the applicant to "put its best foot forward" in the sense of adducing all the evidence it can muster up to the point of the hearing. To require or expect this would be so significantly overload the scope of such applications, almost to the point that they become dress rehearsals for any subsequent trial. A corollary of this is that it is inappropriate for a judgment creditor, who opposes an application to set aside a default judgment, to try to disprove the prospective defence. This explains why judgment creditors might not even have a right to cross-examine defendants at hearings to set aside judgments; at least where the cross-examiner seeks to ask questions which go to the merits of a potential defence, in the absence of signs of fraud or an abuse of process (Australian Executor Trustees Ltd v Lanmar Pty Ltd [2008] NSWSC 549; see Hamilton et al, NSW Civil Procedure Handbook 2020, Thomson Reuters [r 36.16.240]). The notion, encapsulated in 85 Degrees' submission, that a respondent to an application to set aside default judgment may 'interrogate' an applicant's evidence in order to contest the merits of a defence is, accordingly, misconceived. A necessary consequence is that it is also inappropriate for a judgment creditor to institute coercive court processes, in the form of disclosure of documents, in an attempt to disprove the prospective defence.
5. Ms Ji has applied for the Court to make an order under r 21.11(1) that she be excused from compliance with certain categories in the Notice to Produce. She did so on the stipulated bases that the requirements of r 21.10(1) were not complied with, or, alternatively, the documents answering the disclosure requirements were privileged. But as I read her Counsel's written submissions, and certainly Mr Lee's letter to 85 Degrees' solicitor on 10 September 2020 (point 6), she also raised a question about the relevance of the documents sought, and the necessity to produce them to facilitate determination of the application to set aside the default judgment. In my opinion, it would be open to Ms Ji to resist compliance with the disclosure requirements on the basis that the documents may not be necessary for the determination of the application to set aside the default judgment, whether that be because of r 21.10(1)(b), which uses the expression 'relevant to a fact in issue', or more broadly, the Court's discretion, as identified by Brereton J in Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326 at [40]. I agree with the submission of Counsel for Ms Ji that what is a 'fact in issue', for the purpose of r 21.10(1)(b) is, in this context, the facts that a Court will determine in the application to set aside the default judgment; namely, satisfactory explanation for delay and a bona fide and reasonably arguably pleaded defence.
6. The Notice to Produce served by 85 Degrees has to be seen in that light. Categories 3 & 4 of the Notice to Produce deal with the general question of whether Ms Ji has an arguable defence. Category 8 concerns the question of the adequacy of Ms Ji's explanation for her failure to file a Defence within the prescribed period.
7. Categories 3 & 4 of the Notice to Produce seek to investigate the extent to which, if at all, legal advice or other non-privileged communications contributed to decisions which JIT, as franchisee, and Ms Ji, as guarantor, to enter into the Franchise Agreement and the associated Prior Representations Deed.
8. In my opinion, it is unnecessary for the recipient of the Notice to Produce to comply with the disclosure requirements in order to enable 85 Degrees to disprove that she has a bona fide and reasonably arguable defence. Specifically, in relation to category 3, even if it is to be hypothesised that JIT and Ms Ji has received some legal advice which evidenced that she did not rely upon the first of the three representations she pleaded in her proposed Defence, it could hardly be suggested that this circumstance alone would lead the Court to find that she did not advance a bona fide and reasonably arguable defence. For one thing, the Pre-Representations Deed could not extend, in its operation, to representations made after the franchise agreement was entered into on 10 December 2016 so as to preclude a Court from finding any causal connection between the entirety of the pleaded misleading conduct (including the second and third representations) and loss or damage. But even if it did, given the likelihood that there were a range of other matters likely to have affected the decision-making processes of JIT and Ms Ji, respectively, and the Court trying the defence application to set aside the default judgment, one would not conclude the absence of a triable issue because of the existence of legal advice which might point to a contrary view. No submission was advanced by Counsel for 85 Degrees that it is on the cards, or that there are otherwise palpable indications that the proposed defence is not made bona fide in such a way as to warrant intrusive court process of the current kind.
9. The same point may be made about the (non-privileged) communications between JIT, Ms Ji and their lawyers caught in category 4 of the Notice to Produce. But if it was necessary to do so, I would have also found another problem with category 4 of the Notice to Produce. A notice to produce issued pursuant to r 21.10 is not a substitute for discovery: Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd per Brereton J at [37]. This much is established by the terms of r 21.9 and r 21.10, and the patent references for a need for specificity in the identification of documents. There is force to the submission made by Counsel for Ms Ji that the occasion for 85 Degrees to invoke process to thoroughly scrutinise the defence, in order to challenge whether it has merit, only after the Court has determined to allow Ms Ji the opportunity to run it after acceding to her application to set aside the default judgment. Such process may involve applications for discovery and/or interrogatories, but those processes would require justification by means of affidavit supporting such requirements and the need for a party to justify the invocation of intrusive and coercive court processes should not be by-passed by means of the use of the avowedly limited procedure available to parties under r 21.10.
10. Counsel for 85 Degrees did not try to suggest that the description of category 4 fell within r 21.10. He was right not to do so. The requirement in r 21.10(1)(a) and (b) is to produce a 'document'. In the former case, it is a document referred to (in this context) relevantly in an affidavit. In the latter case, it is any other "specific" document that is 'clearly identified' in the notice. As to category 4, the reference to 'correspondence', whether it amounts to open communications or not, is itself vague and is therefore open to the objection that it impermissibly requires an evaluative assessment to be made. There is no correspondence with legal practitioners referred to in paragraphs 16-18 (inclusive) in Ms Ji's affidavit.
11. In an attempt to justify his client's effective demand for discovery, Counsel for 85 Degrees drew the Court's attentions to observations made by Kunc J about the expectations of Courts in terms of practice and procedure expressed in Ken Tugrul v Tarrants Financial Consultants Pty Ltd (No.5) [2014] NSWSC 437 at [73] in responding to disclosure requirements which the issuing party may "legally" have not been entitled to issue. However, Kunc J prefaced those observations by saying that they were applicable to "reasonable" requests. 85 Degrees' issue of disclosure requirements is not "reasonable" since it has no right to invoke Court process under r 21.10 in order to disprove the merits of an apparently bona fide and reasonably arguable proposed defence, which appears to the Court to be the object of the whole exercise.
12. Whether on the basis that the requirements in r 21.10(1) are not complied with, or on the premise that they may be valid, in accordance with the discretion in r 21.11(1), I would excuse compliance with the requirements for production for categories 3 & 4 of the Notice to Produce.
13. As to category 8, as noted, that category is distinct from categories 3 & 4 in that it relates to the other requirement in an application to set aside a default judgment: the adequacy of the explanation for delay and the length of such delay. That is, by contrast, a legitimate focus for inquiry in the forthcoming application.
14. As noted, the explanation is that after service of the pleading in February 2020, Ms Ji was preoccupied with her pregnancy and burdened with financial stress which, she says, was contributed to by 85 Degrees' conduct. She further deposed to being unable to deal with the claim against her until early June 2020 when she learnt of 85 Degrees' attempt to enforce a judgment against her.
15. Category 8 in the Notice to Produce is also objectionable as to form. It is also an impermissible form of discovery. In the way that Counsel for 85 Degrees sought to defend the requirement, I also consider that it is not even relevant to the relevant question that will be before the Judge who hears the application to set aside the default judgment. Counsel sought to justify the requirement in the nebulous sense that communications between Ms Ji and her solicitors after early June 2020 (whatever that might mean), when she deposed to learning of the enforcement measures, and 30 July 2020, when she filed her application, may illuminate the adequacy of her explanation for delay. There was no articulation as to how that would be so. I fail to understand how what transpired in communications between Ms Ji and her lawyers from early June 2020 and until 30 July 2020 would have any material effect upon the Court's consideration of whether the delay was satisfactorily explained. What is material in this regard was what happened (a) from the time that Ms Ji was served the pleading (in late February 2020); and (b) from the time that default judgment was entered against her (in late April 2020) to the point when she learnt of the enforcement measures in June 2020; which prompted her to try to set aside the default judgment.
16. These reasons indicate why it is unnecessary for the Court to consider the interesting arguments on privilege, and 'issue waiver' ventilated in the hearing.

ORDERS

1. Pursuant to r 21.11(1)(a), and to the extent necessary, Ms Ji is excused from producing documents in response to categories 3, 4 & 8 of 85 Degrees' Notice to Produce dated 21 August 2020.
2. 85 Degrees' Notice of Motion dated 9 September 2020 is dismissed.
3. I will hear the parties on further directions in relation to the hearing of the application to set aside the default judgment and the costs of the two motions I have now dealt with.

DIRECTIONS

1. Leave is granted to applicant on the Notice of Motion filed on 30 July 2020 to insert the words in prayer 1 of the motion "pursuant to rule 31.16(2)(a) of the Uniform Civil Procedure Rules".
2. Ms Ji's Notice of Motion dated 30 July 2020 is adjourned to the Civil List Judge's motions list and returnable for hearing on 27 November 2020.
3. Ms Ji, as applicant on that motion, is to file and serve any supplementary evidence and an outline of submissions not exceeding 5 pages, by 23 November 2020.
4. 85 Degrees, as respondent to the motion, is to file and serve any evidence in opposition to the motion and an outline of submissions (not exceeding 5 pages), by 25 November 2020.

COSTS

1. Ms Ji has entirely succeeded with her own application and her opposition to 85 Degrees' application. Costs should follow the event. There is no reason to separately distinguish the two motions. 85 Degrees should pay Ms Ji's costs of and occasioned by 85 Degrees' Notice of Motion of 9 September 2020 and Ms Ji's Notice of Motion dated 21 September 2020.

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: 17 November 2020