The plaintiff, Mr Dick Foo Chiu, brings these proceedings on behalf of a partnership to recover a loan of $2,800,010.00 that he alleges the partnership made to his nephew, the first defendant, Mr Philip Sheh. Mr Chiu claims the other member of the partnership is Clifford and Mary Sheh Pty Ltd ("CMS"), a company controlled by Mr Phillip Sheh's parents. CMS is the second defendant in the proceedings.
In this interlocutory application, Mr Sheh seeks leave by motion dated 20 May 2020, brought pursuant to Uniform Civil Procedure Rules 2005, r 12.6 ("UCPR"), to withdraw an admission he made in paragraph 4 of his Defence dated 7 August 2019 to Mr Chiu's Statement of Claim. Mr Chiu opposes the withdrawal of the admission. CMS appeared but took no submissions on the application.
Paragraph 4 of Mr Sheh's Defence admits paragraph 4 of the Statement of Claim, which makes the following allegation about the terms of the loan said to have been made between the Chiu/CMS partnership and Mr Sheh:
"4. It was a term of the Loan Agreement that the defendant would repay upon the settlement of the sale of the defendant's property at Lindfield or upon request all money advanced to the defendant by the partners of the partnership."
Mr Sheh swore an affidavit dated 8 May 2020 in support of the motion, explaining why he had made the admission and why he was now seeking its withdrawal and to change his pleading:
"3. The reason for the change was that I did not fully understand or appreciate the allegation that was made in paragraph 4 of the statement of claim filed by the plaintiff on 5 July 2019.
4. The 'admission' therefore was an error on my part. English is not my first language and on occasion, in particular in relation to complex legal issues, I become confused. At the time I provided the admission I did so honestly, though now on reflection, and having a better understanding of what I admitted, I realised that I was incorrect to admit that paragraph where what I intended to convey was a denial of that particular allegation. This was an honest mistake on my part, for which I wish to apologise.
5. Had at the time that I was preparing my response to the statement of claim properly understood the allegation, as I do now, I would have instructed my solicitors to deny that paragraph, as I now have in the amended defence."
This issue first arose, as it commonly does, when Mr Sheh filed an Amended Defence on 23 December 2019, which purported to withdraw the admission without leave. The plaintiff challenged the basis on which the Amended Defence had been filed, which resulted in Mr Sheh's motion of 20 March 2020.
This application was heard on 4 and 7 December 2020. Mr L. Chapman of counsel instructed by Evon Siu, of Avantro solicitors, appeared to the first defendant, the applicant on the motion. Mr M. Maconachie of counsel instructed by Jeremy David Noonan, of Benjafield & Associates Lawyers, appeared for the plaintiff, the respondent to the motion. And Mr R. Ramsey, solicitor of Impact Lawyers & Migration Agents, appeared for the second defendant CMS, on behalf of his colleague May Mansour of the same law firm.
The Court has decided to grant leave to Mr Sheh to withdraw the admission.
[2]
A Loan, an Admission and an Application for Leave to Withdraw
In his Statement of Claim filed in July 2019, Mr Chiu alleges (paragraph 3) that on or about 14 September 2016 the partnership entered into a loan agreement with Mr Sheh, by which Mr Sheh borrowed the principal sum of $2,800,010 (the principal sum) from the partnership. Mr Chiu further alleges (paragraph 4) that it was a term of the loan agreement that Mr Sheh would repay the principal sum "upon the settlement of the sale of the first defendant's property at Lindfield", or "upon request".
Mr Chiu further alleges (paragraph 5) that on or about 14 September 2016 the partners advanced the principal sum to Mr Sheh and that (paragraph 6) in May 2018, in part performance of the agreement, that Mr Sheh repaid the partners $1,500,000. Then Mr Chiu pleaded (paragraph 7) that on 28 September 2018 the partners requested Mr Sheh to repay the balance of the principal sum that was still outstanding, namely $1,300,010, but that (paragraph 8) in breach of the loan agreement, Mr Sheh had failed to repay the balance of the principal sum and that (paragraph 9) Mr Sheh was now indebted in that sum to the partnership.
Mr Chiu further alleged (paragraph 10) that CMS assigned its interest in the debt to Mr Chiu by deed of assignment dated 1 November 2018 and that (paragraph 11 and 12) Mr Sheh has failed to repay the debt comprised of the balance of the principal sum to Mr Chiu. This original Statement of Claim only joined Mr Sheh as a defendant.
Mr Sheh filed his Defence to the Statement of Claim on 7 August 2019. His Defence admitted the allegations made in paragraph 3, 4, 5 and 6 of the Statement of Claim. But it denied paragraph 7 on the basis that "only the plaintiff [Mr Chiu]", and not CMS, had requested the balance of the principal sum be repaid. The Defence denied the breach pleaded (in paragraph 8), denied any failure to pay the balance of the principal sum (paragraph 9), admitted the assignment (paragraph 10) and denied any money was due to Mr Chiu (paragraphs 11 and 12).
By motion dated 18 October 2019, Mr Chiu sought to join CMS as a second defendant and to amend the Statement of Claim. The motion was successful. The amendments proposed in Mr Chiu's motion were made by the filing of an Amended Statement of Claim on 26 November 2019. The Amended Statement of Claim pleaded (in paragraph 6A) that the sale of Mr Sheh's property at Lindfield had taken place in December 2017 and further pleaded (in paragraph 7A) that Mr Sheh had not paid the balance of the principal sum to the partnership of CMS and Mr Chiu. The Amended Statement of Claim also dropped any reliance upon the deed of assignment (paragraph 10), pleading that the debt was due to the partnership. The logic of this was that both partners were now parties to the proceedings, so Mr Chiu did not need the assignment to establish his entitlement to sue.
On 23 December 2019, Mr Sheh filed a Defence to the Amended Statement of Claim (described wrongly as an "amended defence" rather than as a defence to the amended statement of claim) that led to the present controversy. It withdrew the admission to paragraph 4 of the Statement of Claim. It admitted the sale of the Lindfield property (paragraph 6A). But it pleaded a series of payments that were said to have been made at the direction of members of the partnership and which were alleged to have been applied in full satisfaction of the balance of the principal sum due to the partnership. And at trial, one issue will be whether these payments were made, and if so, whether they were made on account of Mr Sheh's obligations to the partnership, rather than to the individual partners or to the directors of CMS. In his Cross-Claim also filed on 23 December 2019, Mr Sheh seeks to recover payments made on account of the partnership in excess of his debt to the partnership.
Mr Chiu's Case. Mr Chiu's opposition to any grant of leave to withdraw the admission is in part based on the prejudice that he says he will suffer if the leave is granted and the admission is withdrawn. The affidavit of Mr Jeremy Noonan, the solicitor for the plaintiff Mr Chiu, sworn in response to the motion explains the nature of the claimed prejudice. The following paragraphs set out largely uncontentious facts and explain the claimed prejudice. This is an interlocutory application. The Court is not finding facts but setting out sufficient background to provide context for the motion.
Mr Sheh's Lindfield property settled in December 2017. In November 2018, CMS assigned in writing its partnership interest in the loan to Mr Chiu. A short while later Mr Sheh's parents, the directors of CMS, asserted they did not understand the contents of the assignment document. Somewhat strangely, given the nature of this litigation, Mr Chiu lives in the same house as Mr Clifford and Mrs Mary Sheh and says he wants to stay on good terms with them. On 3 October 2019, Mr Chiu notified Mr Clifford and Mrs Mary Sheh that he was seeking to join CMS to the proceedings.
Mr Chiu says that the admissions made in Mr Sheh's August 2019 Defence allow him to proceed to recover the debt on behalf of the partnership without the need to engage in disputes about the assignment. Mr Chiu says that as a result of Mr Sheh's admission in the August 2019 Defence, that he realised he no longer needed to rely upon the assignment. Therefore, Mr Chiu says that he executed a deed poll dated 18 October 2019, in favour of CMS reassigning any interest in the debt back to CMS.
Mr Chiu says that if the admission is now permitted to be withdrawn that he will be prejudiced, because he will have to attempt to reverse the deed poll and rely upon the contentious assignment again.
Mr Chiu also says that Mr Sheh has not satisfactorily explained how the error was made, leading to the making of an admission that later had to be withdrawn. He says that Mr Sheh could not have misunderstood the admission contained in the August 2019 Defence as he has had a ready facility with English from an early age. Nor has he satisfactorily explained how it was that his solicitor failed properly to communicate the substance of the Defence to him before he executed it.
Mr Sheh did not put on an affidavit by his solicitor seeking to explain the error. Mr Sheh claimed client privilege over communications with his solicitor about the drafting of the Defence. At one point during the hearing, the Court enquired of Mr Maconachie, counsel for the plaintiff/respondent, whether any challenge was being brought to that claim of client privilege. After all, in seeking leave to withdraw the admission, Mr Sheh was seeking in part to rely upon what had passed between him and his solicitor but was claiming client privilege for those communications. It was potentially arguable that Mr Sheh had waived client privilege because he was now acting inconsistently with the privilege: Evidence Act 1995, s 122 and Mann v Carnell (1999) 201 CLR 1; (1999) 168 ALR 86; (1999) 74 ALJR 378; [1999] HCA 66. But Mr Maconachie declined to take up the argument and the matter was decided on evidence that it did not include otherwise privileged communications.
The Court is ultimately persuaded of Mr Sheh's answers to these arguments. His response is considered after a statement of the applicable legal principles.
Applicable Legal Principles. The applicable legal principles may be shortly stated. UCPR, r 12.6's discretionary requirement to seek leave to withdraw an admission is relevantly unconfined:
"12.6 WITHDRAWAL OF MATTER IN DEFENCE OR SUBSEQUENT PLEADING
(1) A party raising any matter in a defence or subsequent pleading may withdraw the matter at any time.
(2) Despite sub-rule (1), a party may not withdraw any admission, or any other matter that operates for the benefit of another party, except with the consent of the other party or by leave of the court.
(3) A withdrawal under this rule is to be made by filing a notice of withdrawal stating the extent of the withdrawal.
(4) If the withdrawal is by consent, the notice under sub-rule (3) must be accompanied by a notice from each party whose consent is required by sub-rule (2) to the effect that the party consents to the admission or other matter being withdrawn in accordance with the notice of withdrawal."
Judges of this Division have applied UCPR, r 12.6 in several recent cases: Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 866 (Young CJ in Eq), Stafford v Kekatos (No. 2) [2008] NSWSC 1044 (Brereton J), Sergi v Sergi [2019] NSWSC 865 (Darke J), and Nanevski Developments Pty Ltd v Slaveski [2020] NSWSC 617 (Ward CJ in Eq).
The following relevant principles emerge from these cases. Whether the admission operates "for the benefit of another party" must be determined objectively and can in most cases be judged on the face of the pleadings. A full and proper explanation for making the admission is required. It is undesirable for the case to be decided on a false issue by reason of the refusal to withdraw the admission. There must be some evidence to show how the admission was made (whether by mistake, confusion or inadvertence rather than being a deliberate course of conduct) and to show that the admission was erroneous. The balance of prejudice arising from the withdrawal of an admission is relevant to the Court's exercise of its discretion.
Despite the broad liberty granted by UCPR, r 12.6(1), the admission sought to be withdrawn here is one that operates for the benefit of the plaintiff: it admits the terms of an alleged loan agreement. Thus, r 12.6(2) applies. The Court's leave is required, because the plaintiff does not consent to the withdrawal. And the form of the proposed withdrawal is clear: replacing an admission of paragraph 4 of the Statement of Claim with a denial.
Mr Sheh's Reply Contentions and the Court's Analysis. Mr Sheh's reply contentions are persuasive and they inform the Court's reasons for its grant of liberty to withdraw the admission.
First, the mistake in making the admission has been explained. For the purpose of this motion Mr Sheh has in his affidavit sufficiently elaborated the basis of his mistake. His expalantion is contested. The Court allowed some limited cross-examination challenging Mr Sheh's explanation. The penetrating cross-examination certainly showed up some facts that were difficult to reconcile with Mr Sheh not understanding the Defence. He had been schooled and undertaken higher education in English. He had worked for a large financial institution, BT Financial Limited "involved in customer service", where he needed some facility with the terms of financial products. He was not allowed to sell products but could provide information to customers in both English and Chinese. He had signed or received other legal documents, including with respect to his sale of his Lindfield property. His having difficulty in reading and understanding the Defence and the Statement of Claim was therefore arguably quite hard for him to justify. He was closely cross-examined on this tension in his case. In response he did explain that he scored very poorly in the HSC and English was one of his worst subjects and he continued to maintain that he had poor understanding of paragraph 4 of the Statement of Claim.
But the Court gleaned from Mr Sheh's affidavit and his cross-examination that the source of his claimed mistake was not just an inability to read English. He did not, as he says, "fully understand or appreciate" the effect of this part of the Defence and was "confused", leading to the making of the admission. This is a more subtle mistake or accident on his part, which is not answered by pointing to Mr Sheh's general facility with English. In cross examination he had trouble fully explaining the nature of his confusion. But that is still consistent with him being in a state of confusion at the time the first Defence was filed. The Court accepts that he was confused, made a mistake and that the admission in the August 2019 Defence was accidental.
Moreover, an interlocutory motion such as this is an inapt forum to determine on a final basis Mr Sheh's credibility on that single issue. Mr Sheh's credibility would be far better assessed on this issue as part of a matrix of other credibility issues that will be dealt with at trial. The Court accepts Mr Sheh's explanation is sufficient for the purposes of the motion. It does not need to go any further.
Second, withdrawal of the admission would involve little prejudice to the administration of justice, or to Mr Chiu. As to potential prejudice to the administration of justice, this case is still some way from trial. The bulk of the affidavit evidence has not been filed. The withdrawal of the admission will simply add a few paragraphs to the parties' affidavits to be filed and is unlikely to result in any delay to the holding of the trial.
As to potential prejudice to Mr Chiu, he says that he had acted on the admission by entering a deed poll reversing CMS's assignment to him of the partnership's cause of action against Mr Sheh. Mr Chiu submitted that if the Court were to grant leave to withdraw the admission, he would not be able to reverse the deed poll, and to retake the assignment of CMS's cause of action without CMS's consent which had not been forthcoming up to the time of the hearing of the motion.
Mr Sheh neutralised this problem. During the hearing of the motion he organised for a letter from CMS, which indicated that were the admission to be withdrawn, CMS would if required cooperate in reassigning its partnership cause of action against Mr Sheh to Mr Chiu.
But this may have been a false issue in any event. Once Mr Chiu joined CMS as second defendant, he probably did not need the assignment. One of two partners can sue a third-party in the name of the partnership and on behalf of the partners to recover a partnership debt: LexisNexis Australia, Halsbury's Laws of Australia (2015) at [120-1435], 'Procedure in Partnership Actions'. But here the position is stronger because CMS has been joined and will be bound by the outcome of the proceedings, so Mr Sheh cannot complain about being vexed by multiple proceedings being brought by different partners for the same debt.
And Mr Chiu does not lose all forensic advantages if the leave to withdraw the admission is granted. He can still field at trial his criticism of Mr Sheh's withdrawal of the admission and seek to show at trial that the admission was in fact correctly made despite the granted leave to withdraw.
Third, the public interest in deciding this case on the true facts is a strong factor here. Mr Sheh contests the version of the facts represented by his admission of paragraph 4 of the Statement of Claim. He says that he did not make any agreement with the partnership to repay the loan upon the sale of his Lindfield property. It can readily be inferred that at trial he will advance a narrative of evidence, which includes this fact and other facts consistent with it. It will be natural for him to recall and to recount his evidentiary narrative in a manner that is consistent with what he claims is his actual recollection.
If the admission is not permitted to be withdrawn, respect for the administration of justice as a process in which judges act on the evidence to infer true facts, will be put at risk. If the Court refuses leave to withdraw the admission, part of these proceedings will have to be conducted on a highly artificial basis. Either Mr Sheh will be gagged from saying he did not agree to repay the loan upon selling the Lindfield property, or his counsel will be barred from relying upon his evidence to that effect. Either way, the Court is put in the invidious position of appearing to suppress, or ignore, what Mr Sheh claims is his true recollection of a prominent term of the loan and forcing him to accept what he regards as a false narrative. Although UCPR, r 12.6 potentially authorises such a Court-sanctioned denial of procedural fairness at a later trial, in each case the Court should analyse the likely consequences of refusing leave for that later trial.
Here those consequences are serious at several levels. In this case if leave were refused the Court would be presented with some needle-threading analytical tasks. One such task is satisfactorily reconciling (1) Mr Sheh's acceptance of a counterfactual about the triggers for loan repayment which he rejects, with (2) other true (and probably uncontested) facts both within and surrounding the conversation about the loan. Moreover, judging Mr Sheh's overall credit whilst forcing him to accept as true a false narrative is quite likely to lead to injustice. When as much is financially at stake for the parties, as it is in this case, such an artificial procedure is likely to produce a result that satisfies neither the Court nor the parties.
Fourth, the broader context weighs in favour of granting leave. Mr Sheh is not responsible for any serious delay in the progress of these proceedings. His defences both to the Statement of Claim and to the Amended Statement of Claim were each filed within a month of the pleading they were answering. It took Mr Chiu almost a further five months (on 1 May 2020) to notify Mr Sheh that the withdrawal of the admission in the Defence to the Amended Statement of Claim was being contested and inviting a reversal. Within 14 days, Mr Sheh rejected that invitation and in response Mr Chiu filed the present application on 20 May 2020. With various interlocutory skirmishes, it then took some seven months for the application to be listed and heard, a period of delay for which Mr Sheh was not responsible.
Fifth, Mr Chiu says that the admission is material, because the admission of the loan terms determines as to liability the entire proceedings brought by the partnership against Mr Sheh. It is not in contest that Mr Sheh's Lindfield property has indeed been sold, which was the trigger for the obligation to repay. So, the Court accepts that the admission has this effect. The admission would have moved the proceedings directly to calculations of the amount due on the loan, subject to the matters raised on the cross-claim.
The law looks with little favour upon applications to withdraw admissions that were deliberately and formally made by a party, especially admissions made in order to gain some forensic advantage. But here although the admission made was put formally in a pleading Mr Sheh disowns its deliberateness and the Court accepts that he was under some misapprehension about the meaning of the pleaded paragraph 4 of the statement of claim.
But looking at the matter objectively, it is difficult to see what forensic advantage Mr Sheh might have derived or sought to gain by deliberately making the admission in question. None springs to mind, and none was suggested.
For these reasons, the Court will grant leave to Mr Sheh to withdraw the admission in his Defence to paragraph 4 of the Statement of Claim.
[3]
Conclusions and Orders
The first defendant has been successful. But whether the admission or its withdrawal were closer to the true facts may only be able to be determined after a factual contest at a final hearing. The Court is therefore inclined to the view that each party's costs of the motion should be that party's costs in the proceedings. The Court has not yet decided that question. But the Court will make a costs order to that effect, if no party seeks a different costs order within 14 days.
If any party wishes to contend for a different costs outcome, a mechanism is provided for in the orders below. But any party seeking to avail himself of that mechanism, if unsuccessful risks suffering an adverse costs order on arguing the issue of costs.
In the result therefore the Court makes the following orders and directions:
1. Grant leave to the first defendant to withdraw his admission of paragraph 4 of the Amended Statement of Claim, which withdrawal has been effected by means of paragraph 4 of the Defence to the Amended Statement of Claim;
2. Otherwise dismiss the first defendant's motion dated 20 May 2020 ("the motion");
3. If no party activates the mechanism referred to in order (4) below within 14 days, order that each party's costs of the motion will be that party's costs in the proceedings;
4. If any party seeks a costs order different from that provided for in order (3) then that party must by Friday, 5 February 2021 provide to the Associate to Slattery J a submission of no more than two pages supporting the different costs order, and if so, the other party shall by Friday 12 February 2021 provide a submission in reply to the Associate to Slattery J; and
5. Grant liberty to apply in relation to the implementation of these orders.
[4]
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: 21 January 2021