Todaytech Distribution Pty Ltd v Yu [2004] VSC 246

6. The Applicant was engaged as the Respondent's Victorian State Manager between 1993 and 2002. It is alleged by the Respondent that in breach of his duties the Applicant embezzled monies over a period of time and wrongfully dealt with the Respondent's stock. According to the Respondent, Mr Yu subsequently admitted his wrongful conduct and his liability to the Respondent for the loss and damage which it had sustained. In default of appearance, judgment was entered against the Applicant in April 2003. In July 2003 an order was made by the Master assessing damages. By summons dated 26 February 2004, the Applicant sought to set aside the judgment by default and the order assessing damages. He also sought leave to file and serve a defence and counter-claim. On 29 March 2004 the Master dismissed the Applicant's application and he now appeals against that order.

9. The Respondent alleges that Mr Yu executed a charge in its favour over his interest in land at Kenny Street, North Balwyn. The Respondent contends that the charge was intended to secure the repayment to it of the money which the Applicant had misappropriated. The Respondent lodged a caveat to protect the interest created by the charge, the caveat being registered in February 2003. It appears that by late 2003 the Applicant had defaulted in payment of his first mortgage to Westpac Banking Corporation over the Kenny Street property. Westpac then effected a mortgagee's sale, settlement occurring in January 2004. As there was disagreement between the Respondent as caveator and the Applicant as mortgagor as to how the surplus funds should be distributed, Westpac paid the surplus funds into court.

13. By Originating Motion dated 19 January 2004 the Respondent sought an order that the monies paid into court by Westpac be paid to it. On 29 March 2004 the Master ordered that the money paid into court be paid out to the Respondent. That order is also the subject of an appeal.

17. At the time the two Applications came before the Master in March 2004, Mr Yu had filed two Affidavits. Although service by the Respondent upon him of all relevant documents during 2003 was not disputed, the Applicant alleged that he first sought legal advice in February 2004 in relation to these proceedings. The Applicant deposed that he did not appreciate that a default judgment had been entered against him or that the Respondent would seek to enforce the charge.

20. In his Affidavits Mr Yu deposed that he had worked for the Respondent for 12 years between 1992 and 2003 and that the Respondent had appointed him as Victorian State Manager and offered him 15 per cent of its profits in the Victorian operation in addition to his salary. He deposed that during his employment he had never been paid accumulated sick leave, annual holiday pay, long service leave or the 15 per cent commission on the Respondent's profits. He further deposed:

"5. In or about February 2003 I spoke to the Managing Director of the plaintiff, Mr Jack Zhong, requesting that my employment entitlements be paid. Mr Jack Zhong told me that I could get paid from the proceeds of the takings of the business. 6. In or about February 2003 Mr Jack Zhong threatened to report me to the police over the proceeds taken from the business unless I signed a charge in favour of the plaintiff over my interest in the land described in Certificate of Title Volume 09193 Folio 872. I was further informed by Mr Jack Zhong and verily believe that the plaintiff would not take any further steps on the charge and hold the charge as security until such time as the plaintiff and I sorted out the accounts between us. If I was told by Mr Jack Zhong that the plaintiff would take action against me, I would not have signed the charge as referred. 7. On or about 24 February 2004 the plaintiff lodged a caveat over my land created by the charge Dealing Number AB898835D. 8 I had never been involved in any court proceedings and did not appreciate the steps to be taken after receiving the first court documents because I was promised by Mr Jack Zhong in February 2003 that the matter would be on hold until the parties were able to sort out their accounts as referred to in paragraph 6. 9. I did not know that there was a default judgment against me in this proceeding until I went to see my solicitors, Mr Cheung on 12 February 2004." (affidavit 26/2/04).

24. In the affidavit material filed before the Master, Mr Yu also disputed the amount that he was alleged to have taken from the Respondent claiming it was some $9,000 less than the Respondent claimed.

27. Both appeals from the Master came before me by way of re-hearing de novo pursuant to order 77.05 of the Rules of the Supreme Court. The Applicant sought special leave to file and rely upon further Affidavit material which had not been before the Master. Rule 77.05A(7)(b). The Respondent opposed the granting of special leave submitting that the Applicant should not be entitled to raise new matters in an attempt to bolster his case following the Master's reasons for decision. One must be mindful that by filing fresh Affidavits a party may unreasonably take advantage of the fact that an appeal is by way of re-hearing de novo. Brownport Management Ltd v Aqua-Tech 21 Pty Ltd.[1] Where there are evidentiary defects of a formal nature before the Master, new Affidavits may be permitted to address such defects. National Australia Bank Ltd (NAB) v Macrae, Alasdair Murray & Ors;[2] Black Creek Deer Farm Pty Ltd v Australia and New Zealand Banking Group Ltd.[3]

30. The principle reasons underlying the requirement of special leave were succinctly set out by Hansen J in Brownport Management[4] and by Vincent J in Farrow Mortgage Services Pty Ltd v Moguls Investments Pty Ltd.[5] The decisions to which I have referred demonstrate that "special leave" is not to be freely given as it will otherwise undermine the importance of proceedings before the Master and encourage an abuse of this Court's processes. As Vincent J observed in Farrow:

"The range of situations in which a grant of special leave may be made is such that it is not possible to identify with precision when it should occur. A judge in dealing with such an application would have to, as is so often the case, exercise discretion on the basis of the particular circumstances of the matter under consideration and by reference to the letter and spirit of the Rules. A party who desires to rely upon such material would need to demonstrate that circumstances exist which would justify the judge permitting something which would not ordinarily be allowed; in other words there must be a good reason shown for the adoption of this course. While the Rules must not be construed or applied in a fashion which would render them arbitrary impediments to the attainment of fair outcomes, parties must understand that if they fail to comply with them they do so at their peril. This is particularly so in a situation where non-compliance can only be cured by a grant of special leave. One important question would always be why was not the material sought to be relied upon adduced before the Master? These views are in my opinion, consistent with those expressed by the Full Court in Kostokanellis v Cullen (1974) VR 596 which were not concerned with the questions arising upon an application for a grant of special leave but nevertheless emphasized the seriousness of a decision to deny to a defendant, the opportunity to have his or her case litigated."[6]

34. Although much of the further affidavit material of the Applicant was an amplification of the matters that had previously been raised in the affidavit material placed before the Master, some of the further material upon which the Applicant seeks to rely would be of critical importance to the Applicant's position.

37. Firstly, the Applicant in his latest Affidavit sworn on 14 April 2004 deposed that it was only at a meeting with representatives of the Respondent in December 1998 that it was agreed that the Applicant's remuneration would include 15 per cent of the net operation profits of the Respondent's Victorian business. On one reading of the Applicant's previous Affidavits this was alleged to be a term of the Applicant's employment from the time he commenced to work with the Respondent.

40. Secondly, the Applicant deposed to the effect that he requested financial statements of the Respondent's Victorian branch business in 2000 and 2001 for the purpose of establishing his 15 per cent net profit entitlement for each of the preceding financial years. Mr Yu deposed:

"I was informed by Mr Zhong on each of those occasions that the financial statements were not ready and I was promised to be given a copy of those financial statements when they were ready. I distinctly recall that in or about April 2002 I again requested Mr Zhong to pay me all my work entitlements. I was informed by Mr Zhong that I could get paid from the cash out of cash sales when the plaintiff did not require it for its cash flow. 14. I refer to paragraph 5 of my earlier affidavit sworn on 26 February 2004 that I had a conversation with Mr Zhong regarding payment of my work entitlements in or about February 2003. I say I made a mistake on the time and it is not in February 2003; it should be in April 2002 as I refer to in paragraph 13 of this affidavit. ... 26. I am informed by my solicitor, Mr David Cheung and verily believe that I had a right to set off funds I took, with the consent of Mr Zhong, on the plaintiff against my work entitlements from the plaintiff."

44. Based upon all the Affidavit material, the Applicant contends that he was entitled, by virtue of his agreement with Mr Zhong, to withdraw or retain the monies which he took from the Respondent in payment of his employment entitlements. This is what the Applicant had intended to convey by the content of paragraph 5 of his earlier Affidavit of 26 February 2004 which I have set out. The Applicant's error as to the time at which this conversation occurred and the manner in which the Applicant expressed himself in his earlier Affidavit resulted in both his counsel and the Master misunderstanding the Applicant's contention. It was evident from both the Master's reasons and the submissions made before me by the Applicant's counsel that it had not been understood that the applicant was claiming that his conduct had been authorised by the Respondent in April 2002.

47. Thirdly, the Respondent in his further Affidavit alleges that his admission of indebtedness in his meeting with Mr Zhong in February 2003 and his agreement to provide a charge over his property were made under duress. The Applicant alleges that Mr Zhong threatened to refer the matter to the Victoria police unless the Applicant agreed to repay the Respondent the money which the Applicant had taken. These circumstances had been referred to in the Applicant's earlier Affidavit material but the Applicant had not previously deposed that he had no choice but to agree with the course Mr Zhong was proposing.

50. I have misgivings about various aspects of the Applicant's original and further affidavit material but it is not my task to make any assessment about the Applicant's bona fides. The further material upon which the Applicant seeks to rely more clearly sets out facts which are said to support an arguable defence. I thus concluded that the Applicant should have special leave to enable the Applicant to have his position clearly placed before the Court. Although the Respondent objected to leave being granted it was not suggested that the Respondent would suffer any prejudice on the hearing of the appeal, as a consequence of the Applicant being permitted to adopt such a course. Such material enables the Applicant to have his case considered on its merits. Having so ruled the Respondent resiled from a foreshadowed application for an adjournment, content to rely upon the Affidavit material now before the Court.

54. In setting aside judgment pursuant to Order 21.07 Supreme Court Rules the Applicant need only show an arguable defence or that some useful purpose would be served by setting aside the judgment. Lau v Citic Australia Commodity Trading Pty Ltd;[7] Day v RAC Motoring Services Ltd;[8] Gamble v Killingsworth & McLean Publishing Co Pty Ltd.[9]

57. The default judgment was obtained in April 2003 and the damages assessed in July 2003. No action was taken by the Applicant until he received notice that the Respondent was seeking to obtain the residue of the purchase monies from the sale of the Kenny Street property. The Applicant has provided an explanation for his default[10] and though the explanation for the Applicant's inaction and the delay in seeking to set aside the judgment may be dubious, the weight of authority would suggest that where a Defendant has an arguably good defence, delay alone will not normally bar the setting aside of a judgment provided no irreparable prejudice is done to the plaintiff by setting the judgment aside. Williams Civil Procedure Victoria at paragraph 21.07.50.

60. The Respondent opposed the Application to have the judgment in default and the damages as assessed set aside. Mr Cameron, who appeared for the Respondent submitted that the Applicant's claim that he had authority to withdraw or deal with the Respondent's money in the manner alleged was unbelievable and without any merit. He reminded me of the sequence of events since the Applicant left his employ with the Respondent in November 2002 and submitted that at no time prior to his Application to set aside the judgment had the Applicant ever denied that he had improperly dealt with the Respondent's money and property. Mr Cameron properly acknowledged that these were all matters which might bear upon the Applicant's credibility but accepted that it would be open to a trial judge to conclude that the Applicant's claim should be preferred notwithstanding that the Applicant had only recently claimed that he had authority to act as he did. In my view the Applicant has an arguable defence on the merits and he should be permitted to defend the Respondent's claim. The judgment in default of appearance and the consequential assessment of damages should be set aside.

63. It is therefore unnecessary for me to consider the further argument advanced by the Applicant seeking an order for unconditional leave to defend on the ground that the Applicant has a counter-claim in debt or damages which exceeds the value of the Respondent's claim. Williams Civil Procedure Victoria at paragraph 22.06.65.

67. Pursuant to order 22.06(i)(c), the court may give leave to defend subject to terms. Mr Corrigan submitted that the Applicant would not object to an order that the monies that had been paid into court by Westpac should remain in court pending the determination of the two actions. Order 22.06(i)(c) permits the court to grant leave to defend on such terms. Having regard to the history of this matter I consider that the justice of the case warrants an order that the monies paid into court on 15 January 2004 by Westpac Banking Corporation Limited remain in court until the determination of the two actions or until further order.

70. In relation to the second appeal in which the Applicant opposes an order that the money paid into court be released to the Respondent, it was submitted by the Respondent that the execution of a charge conferred upon the respondent an interest in land sufficient to support the separate proceeding commenced by originating motion. By virtue of s 77(3)(c) and (d) Transfer of Land Act 1958 the Respondent submits that it is entitled to the residue of the purchase monies that were received by the mortgagee and which were paid into court. Mr Cameron properly acknowledged that the Respondent's entitlement to the residue of the proceeds of sale rested upon the validity of the charge which had now been put in issue. I do not find it necessary to consider the arguments advanced by the Applicant as to why the charge is not enforceable nor do I need to consider whether the decision of Gillard J in Avco Financial Services Ltd v White[11] would overcome such difficulties. Having indicated my intention to set aside judgment on the first appeal Mr Cameron did not press the argument that the order of the Master releasing the funds in court to the Respondent should stand. Mr Cameron rightly acknowledged that the Applicant should be afforded the opportunity of advancing such defences as have been foreshadowed in the Applicant's material, which may bear upon the validity of the charge.

73. I therefore allow both appeals. I will hear further from counsel as to the form of orders that I should make.

[1] [2002] VSCA 396.

[2] Unreported Supreme Court Victoria, per Batt J, Action No. 6149/1993, Date of Judgment 14 June 1994.

[3] Unreported Supreme Court Victoria, per Beach J, Action No. 7701/1994, Date of Judgment 31 July 1994.

[5] Unreported, Supreme Court of Victoria, Action No. 13085/1991, Date of Judgment 22 October 1992.

[7] [1999] VSCA 34.

[8] [1999] 1 All ER 1007.

[9] [1970] VicRp 22; [1970] VR 161 at 168.

[10] Rosing v Ben Shemesh [1960] VicRp 28; [1960] VR 173.

[11] [1977] VicRp 62; [1977] VR 561.