BL & GY International Co. Limited v Hypec Electronics Pty Ltd

• 10 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

BL & GY INTERNATIONAL CO. LIMITED v HYPEC ELECTRONICS PTY LTD (IN LIQUIDATION) & ORS.

1 HIS HONOUR: By a notice of motion filed on 7 September 2001 Hypec Electronics Pty Ltd (in liquidation) seeks against BL & GY International Co Limited, Lucy Guitar Mead, and Grace Shiow Jing Yang the following relief: "1. That pursuant to Part 40 Rule 9 the judgment entered against the First Defendant on 4 December 1997 be set aside. 2. That the First Defendant have leave to file a Defence to the effect of the draft annexed to the Affidavit of Colin Mead filed in support of this Notice of Motion. 3. That the First Defendant have leave to file a Cross Claim to the effect of the draft annexed to the Affidavit of Colin Mead filed in support of this Notice of Motion. 4. That the costs of this application be reserved." 2 The present application is related to a similar application brought in the Equity Division in proceedings number 3832 of 2001. In those proceedings Mr. Colin Mead as plaintiff proceeded against the liquidator of Hypec Electronics Pty Ltd, and B L & G Y International Co Limited, for the following relief: "1. Order that leave be granted to Colin Anthony Mead to intervene in proceedings No. 12674 of 1997 in the Common Law Division of the Supreme Court of New South Wales entitled BL & GY International Co. Ltd v Hypec Electronics Pty Ltd (CAN 002 896 166) and others for the purpose of: 1.1 taking responsibility on behalf of Hypec Electronics Pty Ltd (in liquidation) ('the Company") for the said proceedings; 1.2 making an application to the Court to set aside the judgment entered against the Company by default on 4 December 1997; 1.3 filing a Defence on behalf of the Company in the event that the said judgment should be set aside and thereafter conducting the Company's Defence of the proceedings; 1.4 making an application for leave to file in the said proceedings a Cross Claim against BL & GY International Co. Ltd, Lucy Guitar Mead and Grace Shiow Jing Yang; and 1.5 if leave to file the said Cross Claim be granted, thereafter prosecuting same to judgment. 2. In the alternative to paragraph 1, order that Colin Anthony Mead be appointed receiver of: 2.1 the rights of the Company to defend the said proceedings in the Common Law Division; and 2.1 the Company's causes of action against BL & GY International Co. Ltd, Lucy Guitar Mead and Grace Shiow Jing Yang (as identified in the draft Cross Claim identified upon the hearing of this Notice of Motion)." 3 The application in the Equity Division was heard by Einstein J on 17 August last. His Honour delivered judgment on the 21st August last. His Honour made orders as follows: "1. Leave is granted to Colin Anthony Mead to intervene in proceedings No. 12674 of 1997 in the Common Law Division of the Supreme Court of New South Wales entitled BL & GY International Co Ltd v Hypec Electronics Pty Ltd (CAN 002 896 166) & Ors for the purpose of: 1.1 taking responsibility in the name of Hypec Electronics Pty Ltd ("the company") for the said proceedings; 1.2 making an application in the name of the company to set aside the judgment entered against the company by default on 4 December 1997; 1.3 in the event that the said judgment should be set aside, filing a defence in the name of the company and thereafter conducting in the name of the company a defence of the plaintiff's claim against the company in the proceedings; 1.4 making an application for leave to file in the said proceedings a cross claim in the name of the company against BL & GY International Co Ltd, Lucy Mead and Grace Shiow Jing Yang, to the effect of the draft cross claim annexed to these orders; and 1.5 if leave to file the said cross claim should be granted, thereafter prosecuting the same to judgment in the name of the company. Note : 2. As a condition of the leave granted by Order 1 above, Colin Anthony Mead, by his counsel, undertakes to the Court that in the event of the said default judgment (referred to in paragraph 1.2 of these orders) being set aside and Mr. Mead obtaining leave to cross claim in the name of Hypec Electronics Pty Ltd (in liquidation), he agrees to having the cross claim filed in his own name in the said Common Law Division proceedings being permanently stayed. 3. Colin Anthony Mead, by his counsel, undertakes to the Liquidator of Hypec Electronics Pty Ltd, David Patrick Watson, that he will indemnify the said Liquidator and Hypec Electronics Pty Ltd, itself, in respect of any costs incurred, including costs orders that may be made against Colin Anthony Mead and/or Hypec Electronics Pty Ltd, in the course of Colin Anthony Mead exercising the leave given to him by Order 1 above. Further Order : 4. These orders, including the leave granted to Colin Anthony Mead by Order 1 above, are stayed until 4 p.m. on Wednesday 5 September 2001 or until further order of the Court, whichever is the sooner." 4 Paragraphs 1 through 27 of the judgment of Einstein J set out a detailed and comprehensive statement of facts and circumstances forming the background to the application with which his Honour was dealing. That same background is relevant to the application with which this Court has now to deal. I adopt gratefully the survey made by Einstein J; and I incorporate it, by reference, into my present judgment. 5 The principles of law which are now relevant have been considered in a multitude of decisions both at first instance and on appeal. Learned counsel for the present applicant put in a seven page written submission which canvasses clearly and comprehensively the relevant principles as they now stand. What is there said was not controversial at the hearing of the present application; and it is not necessary now to repeat the detail. 6 It is, however, useful to note the following extracts from the judgment of Street ACJ in Reinehr Industrial Lease & Finance Pty Ltd v Jordan: unreported; Court of Appeal No. 380/73: "It will be observed that reference is made in these statements to the requirements of justice. The jurisdiction that a court exercises on an application of this nature will be significantly affected by what might be demonstrated to be the requirements of justice ………….. (A) court hearing an application such as the present is not concerned to embark upon the adjudication of the truth or otherwise of the case which is sought to be advanced by a defendant; the court is concerned rather to evaluate such evidence as is put forward in order to see whether, in the interests of justice, a defendant, who has for some procedural default been deprived of a right to due determination of his defence, should nevertheless be put back into the position of enjoying that right. This necessarily involves care being taken not to embark upon attempted resolutions of conflicts in evidence given by a defendant who may have been cross-examined during the course of an application to set aside a default judgment." 7 At the hearing of the present application, it was submitted that Mr. Mead, upon whose evidence the fate of the present application largely must turn, ought to be found to be acting in bad faith. On this topic, Einstein J said, in connection with the particular application with which his Honour was dealing: "89. In so far as the question of good faith is concerned all of the facts, matters and circumstances require to be taken into account. There are no obvious indicia of mala fides. There are no indications that Mr. Mead is acting otherwise than in good faith both in pursuing the allegations made in the pleadings presently filed on his behalf as well as in pursuing his quest for Hypec Electronics to pursue the allegations sought to be made in the proposed pleadings sought to be filed on its behalf." 8 I have come to precisely the same conclusions. I have taken into account in that connection the opportunity, albeit a brief one, that I had of observing Mr. Mead in the witness box. The cross-examination of Mr. Mead, whatever else it might be thought to have accomplished, did not in my opinion show him to be acting in bad faith in his efforts to have the default judgment against Hypec Electronics Pty Ltd now set aside. 9 It was submitted for the respondents to the present application that the evidence given at the hearing of the application did not establish that there were serious questions to be tried at the instance of Hypec Electronics Pty Ltd, should the default judgment current against it be set aside. It is, once again, convenient to note the conclusions reached by Einstein J upon a similar submission made to his Honour: "Insofar as the serious questions to be tried are concerned, these are clear at least from the evidence adduced before the court on the instant applications. They extend to a serious question that it is very arguable that leave would be granted for the hearing of an application to set aside the default judgment and that there is a real possibility that the default judgment would be set aside. This matter must of course await a contested application in this regard to be determined upon the then evidence by a common law judge." (see at paragraph 94) (emphasis in original judgment) 10 There is some overlap between the evidence placed before Einstein J and the evidence placed before this Court on the hearing of the present application. There was, however, placed before this Court in connection with the present application an affidavit, not before Einstein J, sworn by Mr. David Watson on 18 September 2001. Mr. Watson is the official liquidator of Hypec Electronics Pty Ltd. This affidavit establishes, relevantly, three things: 11 First, that Mr. Watson disputes aspects of the methodology which has been employed both by Mr. Mead and by Mr. Reginald McKewen, who has given relevant accounting advice to Mr. Mead, in connection with the making of the calculations which give rise to allegations central to the proposed defence and cross-claim; secondly, that Mr. Watson has had, by his duly appointed agent, an interview with Mr. Mead's former wife; and that such interview has yielded material which he, Mr. Watson, is now investigating in order to see whether it discloses breaches of the Corporations Law on the part of both Mr. Mead and his former wife; and thirdly, that Mr. Watson's own investigations as liquidator are still proceeding; and that he is expecting to receive further material, the correct analysis of which might well shed further light upon the issues which it is proposed would be raised under cover of the defence and cross-claim which it is now sought to bring forward on behalf of Hypec Electronics Pty Ltd. 12 This Court is in no position to make anything like a reasoned and comprehensive assessment of where the truth lies in the conflicting currents of allegation and cross-allegation which are swirling around the principal litigation within the context of which the present particular application has been brought. Nor, as Street ACJ points out in the statements of principle previously quoted, is it the present concern of the Court to do so. It seems to me that the entirety of the evidence placed before this Court in connection with the present application, whatever else might be said about or deduced from it, shows at every turn that there are, on any reasonable view, serious issues to be tried as between Hypec Electronics Pty Ltd and the respondents to the application. 13 It was submitted for the respondents that the delay in bringing forward the present application has been extraordinary, as indeed it has. The default judgment in question was entered on 4 December 1997 and the present application was not filed until 7 September 2001. 14 There are, in my opinion, two things to be said about this aspect of the present application: 15 First, the background to the present application is anything but straightforward. When that background is examined carefully, it does not seem to me to be surprising that Mr. Mead, until the liquidator put in train proceedings against him personally, had no interest, and no apparent reason for thinking that he might have an interest, to take his present action; and, secondly BL & GY International Co Limited, although it was a judgment creditor against Hypec Electronics Pty Ltd on and from 4 December 1997, did not move until 2001 for the appointment of a liquidator of Hypec Electronics Pty Ltd, the liquidation being ordered on 7 May 2001. This lapse itself is, so far as I can ascertain from the bulky material placed before the Court in connection with the present application, unexplained. 16 In those circumstances, I am not persuaded that Hypec Electronics Pty Ltd should be shut out, by reason of delay, from having an adjudication on the merits of its proposed defence and cross-claim. 17 Nor am I persuaded that there is any countervailing prejudice to the judgment creditor of so clear and compelling a kind as would justify refusal of the present application. The written submissions put in on behalf of the judgment creditor express as follows the suggested prejudice that would flow from the setting aside of the default judgment: "16.The plaintiff was the petitioning creditor in the winding up of Hypec Electronics Pty Limited. The liquidator commenced his liquidation in May 2001. It may be inferred that substantial costs have been incurred by the liquidator in investigating the company affairs (including the allegations by Mr. Mead) thereby reducing any potential recovery by the plaintiff. 17. The costs of running these proceedings against a company in liquidation (with such costs, in all probability, not being recoverable) are further evidence of prejudice to the plaintiff. 18. Should leave be granted to set aside the judgment, the plaintiff cannot proceed with the prosecution of the claim against the company in liquidation other than with the leave of the court." 18 As to what is thus said in paragraph 18, the short answer is that this Court, should the default judgment be set aside, can make ancillary orders which will facilitate a prompt decision as to whether or not such leave will be forthcoming from the Court. 19 As to what is thus submitted in paragraphs 16 and 17, there seem to me to be two answers. First, it is hardly the fault of either Hypec Electronics Pty Ltd or of Mr. Mead that such costs either have been, are being, or will be incurred. It was, after all, an initiative of the judgment creditor which set in train the liquidation and its consequences, including its consequences as to costs of litigation. Secondly, the submissions appear to me to assume that the liquidator is entitled in any event to recover from Mr. Mead a sum well in excess of $2 million. It might well prove, however, that the liquidator has no such sustainable claim at all. The liquidator is entitled to pursue against Mr. Mead any claim that he, the liquidator, considers to be lawfully open to him to pursue. But if he does pursue such a claim, he can hardly contend reasonably that Mr. Mead should not now be permitted to defend the claim by lawful recourse to a defence and cross-claim in the name of the company, simply because to allow that to be done will entail costs of the kinds to which reference is made in paragraphs 16 and 17. 20 The defence and cross-claim now sought to be put on in the name of Hypec Electronics Pty Ltd mirror in substance a defence and cross-claim already regularly pleaded by Mr. Mead in his own name. There is no element of surprise or of novelty. The principal common law proceedings have been fixed to be heard over five days commencing on 5 November next. I see no reason to think that the setting aside of the default judgment in order to permit of the entry of a defence and cross-claim in the name of the company either can, or should be permitted to, interfere with the hearing thus scheduled. 21 For the whole of the foregoing reasons, I make the following orders:

[1] Orders in accordance with paragraphs 1, 2, 3 and 4 of the Notice of Motion filed on 7 September 2001.

[2] Order that the defence and cross-claim thus permitted to be filed, be formally filed and served not later than 4 pm on Thursday 27 September 2001.

[3] Grant leave to BL & GY International Co Limited to move on short notice for any ancillary orders that it might wish to seek as a result of orders [1] and [2]. Any such application may be made returnable in the first instance before the Duty Judge in the Common Law Division at 10 am on Monday 1 October 2001 and in the Common Law Division Applications List. Any such application is to be filed and served not later than 4 pm on 27 September 2001. ***********

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