Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd

Supreme Court of NSW|2019-10-23|Before: Ward CJ

Application by Mr Uy

When the matter came before me on 23 October 2019 there had been listed for hearing both Mr Uy's motion and an application by the judgment creditors for security for costs (and other relief) against the judgment debtors pending the hearing of the judgment debtors' (separate) motion to set aside the Consent Orders. Senior Counsel for the judgment creditors submitted (and I accepted) that Mr Uy's motion should be heard first, placing emphasis on the fact that, if Mr Uy were to succeed, this would render the hearing of the security motion otiose (because the security motion sought security for a motion brought by Mr Liu, in which he seeks only the same relief as is sought by Mr Uy's motion).
Accordingly, I proceeded to hear Mr Uy's motion, which occupied the balance of the day. The motion for security was stood over and heard on 28 October 2019 and is the subject of a separate judgment to be published at the same time as this judgment - see Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1546.

Mr Uy's submissions

As adverted to above, Mr Uy's application is based on his claim that he was a necessary party to these proceedings, and ought to have been joined as a party because he has an equitable interest in the Hurstville Property. That interest is identified as an equitable mortgage over the land said to have arisen from an agreement dated 27 January 2016 between Mr Uy and GR Capital (the 2016 Document). It is said that this interest is prior in time to the unregistered mortgage held by Xinfeng. In Mr Uy's notice of motion filed 19 August 2019 he seeks leave to be joined as a party to the proceedings and also to be heard in relation to the setting aside of the Consent Orders under rr 36.15(1) or 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
Mr Uy's evidence is that: he entered a Syndicate Agreement with GR Capital on 1 July 2014 (the 2014 Syndicate Agreement) and advanced $8 million in respect of the Hurstville Property; on 27 January 2016 he entered a further agreement with GR Capital which allowed him to lodge a caveat and take a mortgage over certain Lots forming part of the Hurstville Property (the 2016 Document); and on 15 August 2019 he caused his solicitors to lodge a caveat on the Hurstville Property.
It is submitted that Mr Uy's prior interest in land "was seriously affected, if not defeated, by the declaration [made in 2018] that the subsequent mortgage was valid" and that he should have had, at least, the opportunity to present argument and evidence that the mortgage to Xinfeng was not valid, or that Xinfeng was on notice of his interest. Mr Uy points to the well recognised principle that, before an order is made that will seriously affect a person with respect to that person's property, the person is to be given a reasonable opportunity to appear and present its case; and that persons likely to be adversely affected by orders in a proceeding generally have a right to be heard even where (as is here the case) those persons had notice of the proceedings before judgment was entered.
Mr Uy thus submits that, in the present case, the proceedings were irregular and the judgment was irregularly obtained within the meaning of r 36.15 of the UCPR (and hence the Consent Orders can and should be set aside) because the judgment creditors did not properly constitute their suit by joining all of the necessary parties.
As to the priority dispute, Mr Uy submits that he has priority in time over Xinfeng in respect of their respective interests in the Hurstville Property. It is acknowledged that Mr Uy did not lodge a caveat in support of his equitable interest in the Hurstville Property prior to Xinfeng taking its mortgage over the Hurstville Property; and that this leads to an inquiry as to whether there has been postponing conduct on the part of Mr Uy such that he ought to lose the priority that precedence in time would otherwise give him. However, it is said that the failure to lodge a caveat is only part of that enquiry; the enquiry being upon all of the circumstances of the case, including the circumstances in which the respective equitable interests were acquired (see LTDC Pty Ltd v Cashflow Finance Australia Pty Ltd [2010] NSWSC 150). Mr Uy says that he will argue that there was no postponing conduct on his part and that in all the circumstances he ought not to lose the priority afforded to him by his precedence in time. As stated above, by his notice of motion he seeks leave to be joined as fourth defendant to the proceedings and to be heard as to the setting aside of the Consent Orders. He says that he seeks the benefit of procedures such as discovery and subpoenas to test any assertion as to whether Xinfeng relied on a clear register; and otherwise to be permitted to be heard in due course as to his interest in the Hurstville Property.

Judgment creditors' submissions

The judgment creditors raise four arguments against Mr Uy's motion: first, they say there is doubt as to the authenticity of the 2016 Document "belatedly" propounded by Mr Uy; second, that, even if authentic, the 2016 Document gave My Uy no interest in the land (and "certainly not a prior ranking interest"); third, that Mr Uy's submissions misconceive the nature and effect of the Consent Orders (it being submitted that his putative interest is relevantly unaffected by the Consent Orders and thus that he was not a necessary party); and, fourth, that Mr Uy knowingly stood by "and allowed his battle to be fought" by Mr Liu, and as such he is not now entitled to seek to set aside the Consent Orders.
First, as to the authenticity of the 2016 Document, the judgment creditors point out that (according to his 2018 affidavits), Mr Uy had no concerns as to the security of "his" investment at least until mid-2017, suggesting that he had no reason in January 2016 to seek security (or a right to lodge a caveat) and that there is no mention in the two 2018 affidavits (in which Mr Uy detailed his involvement in the development of the Hurstville Property and its finance) of the 2016 Document.
Second, as to the submission that, even if authentic, on its proper construction the 2016 Document did not even arguably give Mr Uy a proprietary interest in the Hurstville Property, reference is made to the statement in the 2016 Document (noting that it is apparently a recital) that: Mr. Wensheng LIU to amend the syndicate agreement for syndicate member, Mr. Ching Wah UY for the money invested in the land to be secured by way of right to lodge the caveat and mortgage.
It is submitted that, even if read as if this were a part of the operative provisions of the 2014 Syndicate Agreement, the "putative agreement" gives no interest in any land of itself.
In that regard, emphasis is placed on the text of the 2016 Document. It is said that the language "Mr. Wensheng LIU to amend the syndicate agreement" (which it is assumed is contended to be the 2014 Syndicate Agreement annexed as Annexure A to Mr Uy's 15 August 2019 affidavit) in its terms indicates that the 2016 Document was one between Mr Liu and Mr Uy (pursuant to which Mr Liu was in the future to procure the amendment of the 2014 Syndicate Agreement which was between GR Capital and Mr Uy), that the prospective amendment by GR Capital was to give Mr Uy a "right to lodge the [sic] caveat and mortgage".
It is said that, on the evidence before the court, Mr Liu did not procure any such amendment of the 2014 Syndicate Agreement, so therefore no interest could have been granted by GR Capital. (The judgment creditors describe the 2014 Syndicate Agreement as a form of unitized unsecured loan agreement with profit share, noting that it is not contended by Mr Uy that the 2014 Syndicate Agreement gave him any interest in any land.) Further, they say that there was (and is) no mortgage to be lodged nor was any mortgage in fact lodged (also noting that no caveat was lodged until August 2019, some ten months after the Consent Orders were entered).
It is said that the 2019 caveat is invalid because there is no interest in the land sought to be protected by it (the interest claimed by the caveat that was lodged in 2019 being an "[e]quitable Charge in the form of a right to lodge a caveat and an equitable mortgage") and that, even if valid, the 2019 caveat at best arguably created an interest when it was lodged (ten months after the Consent Orders). Thus, it is contended that Mr Uy had no arguable interest at the time of the making of the Consent Orders.
Third, as to the character and effect of the Consent Orders, the judgment creditors argue that these are not orders in rem, and say that they would not affect Mr Uy's putative interest in the land (even if it existed).
It is noted that Order 1 is a monetary judgment in personam between GR Capital, One Capital and Mr Liu, as judgment debtors, in favour of Xinfeng, as judgment creditor (and does not purport to operate on the putative interest of Mr Uy); that Order 3 dismissed, by consent, the cross-claim brought by the judgment debtors, which they had sought to support by Mr Uy's evidence (and does not purport to operate on the putative interest of Mr Uy); and that Order 4 is an order for indemnity costs against GR Capital, One Capital and Mr Liu (and does not purport to operate on the putative interest of Mr Uy). The judgment creditors submit that on no view could Orders 1, 3 and 4 be set aside.
As to Order 5(a), it is submitted that this is a declaration (in personam, not in rem) between the contracting parties to the mortgage and the deed, as to its effect. It is submitted that this is obvious not only from the fact that it was made by consent but also from the form of the declaration. It is noted that there was no order made for possession nor any declaration of entitlement to possession; and no declaration or order as to priority between interests in the Hurstville Property, nor establishing the supremacy of the interest created by the mortgage and deed, rather, the declaration between the contracting parties is merely that the judgment debt is secured by the contractual instruments (i.e., the mortgage and the deed).
The judgment creditors point to the distinction between orders in rem and orders in personam, referring to PE Bakers Pty Ltd v Yehuda (1988) 15 NSWLR 437 (PE Bakers) at 442, where Hope JA (with whom Samuels and McHugh JJ agreed) said: In Spencer-Bower and Turner, Res Judicata, 2nd ed (1969) at 213, the following statement is made as to the nature of a judgment in rem: "A judicial decision in rem is one which declares, defines, or otherwise determines the status of a person, or of a thing, that is to say, the jural relation of the person, or thing, to the world generally, and therefore is conclusive for, or against, everybody, as distinct from those decisions which purport to determine the jural relation of the parties only to one another, and their personal rights and equities inter se, and which, therefore, are commonly termed decisions in personam." and Lazarus-Barlow v Regent Estated Co Ltd [1949] 2 KB 465 (Lazarus-Barlow) at 475 where Evershed LJ stated that a judgment in rem is "a judgment of a court of competent jurisdiction determining the status or the disposition of a thing (as distinct from a particular interest in it of a party to the litigation)".
By analogy with the rule in Tasker v Small (1837) 3 My & Cr 63; 40 ER 848 (which is to the effect that the only proper parties to suit for specific performance of a contract for the sale of land, are the parties to the contract; and that other persons with an interest in the land are not proper parties) it is submitted that the putative interest of Mr Uy is not extinguished or diminished by the making of the declarations in this case (including the declarations made by Orders 5(b) and (c), which are declarations by consent that the conduct of GR Capital, One Capital and Mr Liu constituted a default under the contractual instruments, giving rise to a contractual entitlement to exercise powers on the part of Xinfeng).
Further, it is said that, even if Mr Uy was a necessary party to the proceedings, Mr Uy had witnessed Mr Liu's execution of the mortgage and deed and made two affidavits in the proceedings; he was also the "builder for the development" and "heavily involved" in the financing; and he knew what was passing and did not intervene. As adverted to above, it is said that he was "content to stand by and let his battle be fought by somebody else in the same interest"; and that he is therefore bound by the result and is not able to reopen it (the judgment creditors citing Osborne v Smith (1960) 105 CLR 153 at 158-159; [1960] HCA 89 (Osborne v Smith) per Kitto J; John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 (John Alexander's Club) at [142]-[143]).

Mr Uy's reply submissions

As to the above, Mr Uy submits as follows.
First, as to the authenticity of the 2016 Document, that neither of the two parties (Mr Liu or Mr Uy) is here saying that the agreement is a "sham"; and that it is only necessary to demonstrate that the point is arguable. By analogy with Dai v Zhu [2013] NSWCA 412 (at [92]), that it is sufficient to establish there was a bona fide defence on the merits (not to embark on a hearing of the merits).
Second, as to the construction of the 2016 Document, that the agreement was one that was clearly on behalf of GR Capital not Mr Liu personally, on the basis that: it amends the 2014 Syndicate Agreement (though the judgment creditors cavil with this and submit that it is an agreement "to amend" not one that in terms effects the amendment itself); that Mr Liu signed as a director; and that the document mentions the three properties owned by GR Capital. It is submitted that the commercial background and facts that might bear upon the construction question include: whether legal advice was obtained and (which it is conceded is unusual) the party propounding the agreement can call both Mr Liu and Mr Uy as to the commercial background (noting that in the case of ambiguity such evidence might affect construction). Again, it is submitted that this need only be arguable.
It is submitted that a document giving a right to lodge a caveat is construed to be an equitable charge (citing Troncone v Aliperti (1994) 6 BPR 97,455 (Troncone v Aliperti)), and hence it is said that the interest in question was created before the time at which the caveat was lodged. (In that regard, it is submitted that Ta Lee Investment v Antonios [2019] NSWCA 24 and Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 are distinguishable.)
As to the submissions made by the judgment creditors in respect of the character and effect of the Consent Orders, Mr Uy reiterates his submission that the consent judgment is irregular (under r 36.15 of the UCPR) and hence it is said that he is entitled ex debitato justiciae for it to be set aside (citing Starrs v Retrovision (WA) Ltd [2012] WASCA 67 (Starrs v Retrovision) at [36]; Chitty v Mason (1926) 32 ALR 328 at 329-330).
Mr Uy says that he seeks to attack the judgment creditors' security in two ways.
First, on the basis that it is a breach of fiduciary duty for the directors of a company to give a guarantee in favour of another company if it achieves no corporate benefit (citing Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1982] 1 Ch 478 (Rolled Steel)) such that the recipient of the security may not be able to take the benefit of the breach (if the recipient knew about it). It is noted that complexities arising where both companies are members of the same corporate group were considered in Reid Murray Holdings Ltd (In Liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386, Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50, Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) (1992) 29 NSWLR 260, and Qintex Australia Finance Ltd v Schroders Australia Ltd (1990) 3 ACSR 267, and it is submitted that these are matters that can be explored at the hearing. In essence, the argument now put for Mr Uy is that: GR Capital did not benefit from the Xinfeng loan to One Capital for the Landmark Square Property project, and Xineng knew the security arrangement was a breach of duty. Second, in the alternative, Mr Uy seeks to join in the argument as to illegality that is now sought to be put by the judgment debtors.
As to the distinction between in personam and in rem orders, Mr Uy accepts the correctness of PE Bakers at 442 and Lazarus-Barlow at 475 but says that the question whether his interest is affected by the declaration does not turn on whether the declaration is in rem or in personam (though pointing out that in personam orders may affect third parties, referring by way of example to Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119 at 133-4; [1958] HCA 51 (Australasian Oil Exploration v Lachberg)).
As to the judgment creditors' reliance on Osborne v Smith, it is submitted that: GR Capital and Mr Uy are not "in the same interest"; the rule is limited to probate (procedure for notices to persons affected); any extension of the principle was not decided by the High Court in John Alexander's Clubs (at [144]); and that the risk that Mr Uy may arguably be bound is a further reason to set the Consent Orders aside.
It is said that a non-party has no duty to seek to be joined and does not need to explain why it is that the non-party did not seek to be joined to proceedings to which it is a necessary party; rather, it is for the plaintiff to constitute its suit (citing Chickabo Pty Ltd V Zephere Pty Ltd (No 2) [2019] VSC 580 (Chickabo (No 2)) at [47]-[53]).

Judgment creditors' supplementary submissions

As to the Rolled Steel submission, the judgment creditors say that this fails for a number of reasons, including that: Mr Uy is not the proper plaintiff for such an action, and there is no articulation or proof of a statutory or common law exception to the rule in Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189; even if there was an applicable exception, Mr Uy would need to establish that he was a necessary party (which would require him to establish not merely that he had standing to bring the putative claim, but that he was the only person with such standing; which it is said cannot be correct as the company, which was a party, had that standing); that even if Mr Uy was the only person who had standing, to establish that he was a necessary party, he must establish in fact the rights putatively derived from Rolled Steel (i.e., by admissible evidence, the breach of director's duty alleged, the judgment creditors' knowledge and the entitlement to a relevant remedy); and it is said that even if that were proved, it would remain highly doubtful that it established a legal right which existed at the time the Consent Orders were made. The judgment creditors say that, at best, the transaction could be voidable at the suit of the company; and that, not only was there no such order at the time, but the hypothetical action confers no legal or equitable right on Mr Uy and does not affect any legal or equitable right which he asserts. It is noted that GR Capital was not at the time of the Consent Orders, and is not now, in external administration.
Further, it is submitted that the delay (characterised as inordinate and unexplained), coupled with Mr Uy's intimate knowledge of the company's business, the loan and security the subject of the proceedings, and the significance of lodging a caveat (which in cross-examination he said he did not lodge because it would affect the company's ability to borrow - see at T 28.4), would militate against the exercise of the discretion (referring to Australia and New Zealand Banking Group Ltd v James (No 3) [2019] NSWSC 832 at [68]); as would the tactical nature of Mr Uy's decision not to lodge a caveat (referring to Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463 at [111]); and the "hypothetical approach" which he now takes in canvassing the possibility that there may have been defences (which the judgment creditors say is irrelevant to the power he seeks here to invoke).
In that context, reference is made to Dimitrovski v Australian Executor Trustees Limited [2013] NSWSC 337 at [3] where it was said that: The language of Rule 36.15 focuses on the steps pursuant to which the judgment or order was 'given' or 'entered' or 'made'. It does not direct attention to the underlying merits of the position of the party against whom the decision was made. The rule is concerned with irregularity in the process by which the judgment was obtained, not with the correctness of the decision. It is certainly not concerned with whether there was an available defence that might have been relied upon at the time the judgment was given or the order was made. See Perpetual Trustees Australia Ltd v Heperu Pty Ltd [No 2] [2009] NSWCA 387 at [16]; Avery v Saree Holdings Ltd [2012] NSWSC 463 at [100] and [103].

Determination

It is convenient to start with the decision of the High Court in John Alexander's Clubs. There, an unregistered mortgagee (Walker Corporation, a finance company), that had sought unsuccessfully to be joined as a party at the appellate level of proceedings in which, at first instance, a constructive trust had been declared in respect of the land over which the mortgage was held, was found to have been entitled, as of right, to have the declaration of constructive trust set aside. The High Court said (at [133]): The relief claimed and granted - a constructive trust and a transfer of the land subject to the trust to the Club so as to make the interest transferred indefeasible on registration - directly affects the interests of any other person, like Walker Corporation, claiming an interest in the land, because orders in the Club's favour would, to a corresponding extent, be detrimental to those other persons.
At [116], the High Court said: …the field for contention was not subsequent litigation of what is described as disputed priority between the Club and Walker Corporation; rather, the issue should have been whether that dispute was to be created in the first place by the decision, in the absence of Walker Corporation, to declare Poplar a constructive trustee for the Club.
A significant counter-consideration to the argument that the respondent had raised based on the principle in Osborne v Smith (which the High Court noted was a well-established principle of practice in probate suits but not expressed in terms of estoppel by conduct as understood in modern authorities) to which the High Court referred (at [144]) in that case was that "the Club knew of Walker Corporation's claim to hold an unregistered mortgage over the Option Land, which the Club was seeking to overreach by the imposition of a constructive trust".
In Starrs v Retravision, the Court of Appeal in Western Australia considered the question whether judgment was regularly or irregularly entered (at [36]ff) and said: … Under O 13 r 10 of the Rules of the Supreme Court 1971 (WA) the court may set aside or vary a judgment entered in default of appearance, on such terms as it thinks just. That discretion is not qualified: Evans v Bartlam [1937] AC 473; and see Hall v Hall [2007] WASC 198. But as a general rule, a judgment regularly entered will not be set aside unless the court is satisfied that there is a defence on the merits. That rule may be departed from in 'rare but appropriate cases': Palmer v Prince [1980] WAR 61, 63; Evans v Bartlam (480). A judgment irregularly entered, however, 'ought not be on the records of the court and therefore if a judgment in default of appearance or pleading has been entered irregularly, it will be set aside ex debito justitiae': Collie v Merlaw Nominees Pty Ltd [2003] VSC 424 [37]; RT Co Pty Ltd v Minister of State for the Interior [1957] HCA 39; (1957) 98 CLR 168, 170. Not every irregularity in the means by which a judgment in default is obtained will necessarily entitle the defendants to have the judgment set aside as of right: ACN 076 676 438 Pty Ltd (In Liq) v A-Comms Teledata Pty Ltd[2000] WASC 214 [17] - [19]. In an appropriate case, the court may amend an irregularly entered judgment rather than set it aside. [my emphasis]
In that case, the appellants had contended that entry of default judgment was irregular because it was unreasonable to enter judgment without warning them, when Retravision and its solicitors were aware that they were not represented and that they intended to defend the action (see at [37]). Reliance was placed by the appellants on Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd [2009] WASC 10 (Templeman J there referring to Perpetual Trustees Victoria Ltd v Pilcher [2005] VSC 244 at [15]-[16] per Cummins J) where it was held that it was inappropriate or unreasonable in all the circumstances of that case for the plaintiff to enter judgment in default of a defence, and that the judgment entered was irregularly obtained. Consideration was given in this context to the decisions in St George Bank Ltd v O'Reilly [1999] ACTSC 21 and The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd (2008) 35 WAR 412; [2007] WASCA 257, both cases where default judgment had been entered (and other relevant authorities dealing with the entry of default judgments).
It was concluded that the failure to warn the appellants before entering judgment in default of appearance did not make the entry of judgment irregular; nor did the fact that the appellants were unrepresented make it irregular (although the circumstances in which judgment was entered, including the administrative error which led to the rejection of the appellants' appearance, were relevant to the exercise of the discretion) (at [43]). The judgment in question was held to be irregular on a different ground (it being conceded that judgment overstated the amount due).
Relevantly, this was in the context of a default judgment (where it is ordinarily the case that to set aside the default judgment it must be shown, amongst other things, that there is an arguable defence on the merits - since otherwise the setting aside of the default judgment would be of little utility). The present is not such as case - there was no entry of default judgment; rather, the entry of a consent judgment without a hearing on the merits. There is a relevant difference because, here, the basis on which it is sought to be set aside is that it was irregularly entered because Mr Uy had an equitable interest in the land at the time and his interests were said to be directly affected by the judgment.
In Chickabo (No 2), the Victorian Supreme Court, having considered the High Court's decision in John Alexander's Clubs, said (at [47]-[49]): A non-party has no duty to seek to be joined, and they do not need to explain why it is that they have not sought this. In this regard, the non-party's knowledge or notice of the proceeding is entirely irrelevant. The plaintiff must properly constitute their suit, and it is at their peril to not do so. This was the case in JACS, where the affected non-party knew of the proceeding, but simply thought that it would fail. A person who is directly affected by such orders in a proceeding, to which that person was not a party is entitled to have it set aside and to a new trial. While the order is not a nullity, that person is entitled to have the order set aside, as of right, rather than needing to seek the favourable exercise of a discretion from the court. This position does not depend either on the person being a party or on the rules of court, 'it depends on matters of right affecting non-parties which rest on general law principles of natural justice.' Where that non-party is a necessary party because they are directly affected, they are not restricted to disputing the particular claims against them. The non-party is entitled to claim, if it wished, that the plaintiff's substantive case is insufficiently strong to succeed at all. The non-party is entitled to call evidence against that substantive case, and even if it did not wish to do that, it is entitled to be heard on the weaknesses in the substantive case. … [footnotes omitted]
Whether a person is directly affected by a judgment in proceedings to which that person is not a party (so as to give rise to the conclusion that the person is a necessary party to be joined or otherwise given an opportunity to be heard) has been considered in a number of cases (see Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 (Pegang Mining Co); Moser v Marsden [1892] 1 Ch 487; In re IG Farbenindustrie AG Agreement (No 2) [1944] Ch 41; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; [1996] FCA 870 (News Ltd)). The test has been expressed as whether that person's rights against or liabilities to any party to the action in respect of the subject matter of the action is directly affected by any order which may be made in the action, that test involving "matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected" (see News Ltd, where it was said that "[t]he requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non-parties can be characterised as only indirect or consequential" and that where the question of joinder arises before trial, attention should be directed to the orders sought in the proceedings and the effect of those orders upon the third party: … The test is not whether the conduct of the third party is raised in the pleadings between the existing parties, or whether the third party is a party to a contract, the meaning or effect of which is pleaded as a matter relevant to the ascertainment of the rights between those parties. Where the question arises after final orders have been made in the proceedings, the inquiry must be directed to the orders actually made, or which, on appeal it is contended should be made: cf Associated Grocers Co-operative Limited v Hubbard Properties Pty Ltd (1986) 42 SASR 321 at 341. [my emphasis]
In Associated Grocers Co-operative Limited v Hubbard Properties Pty Ltd (1986) 42 SASR 321, to which reference was made in News Ltd, where the relief sought was said would, if granted, quite plainly affect the third party to its detriment, it was held to be necessary for the due administration of justice, and to avoid a multiplicity of suits, that the third party be heard as a party, and be bound by the judgment in the action.
At [78] of State of Victoria v Sutton (1998) 195 CLR 291; [1998] HCA 56 (as cited in Chickabo (No 2) at [55]), it was said that the same principle must apply for determining whether a person is a necessary party whether in the context of a person seeking to join proceedings or a failure to join a relevant person. That said, where the issue arises before trial, it would be appropriate to take into account the desirability of determining all issues in the one proceeding and avoiding the potential for inconsistency of reasoning and inconsistent judgments (see Buss JA in this regard in Tiao v Lai (No 2) [2010] WASCA 189 at [126]).
In Martin Bruce Jones v Miami Waterfront Developments Pty Ltd [2012] WASC 483, Edelman J, sitting in the Supreme Court of Western Australia as his Honour then was, said (at [30]-[31]): In Pegang Mining Co Ltd, Lord Diplock said of the rule concerning joinder of an additional party: [O]ne of the principal objects of the rule is to enable the Court to prevent injustice being done to a person whose rights will be affected by its judgment by proceeding to adjudicate upon the matter in dispute in the action without his being given the opportunity to be heard. Another rationale is case management. It has been held that the meaning of the words 'necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined' encompasses 'modern notions of case management and the desire of the justice system to minimise time and costs in litigation'. This also reflects the remarks concerning the direct effect test that '[t]he test involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected'.
It is also here relevant to note that in Ross v Lane Cove Council [2014] NSWCA 50, where orders for the demolition and reinstatement of residential building works were set aside because the current registered proprietor (Ms Chami) had not been joined (the only parties to the litigation being the Council, the former owner and the builder), Leeming JA noted that the current proprietor was directly affected by the orders sought by Council (first because the order required entry onto her land and the performance of work there), but in the course of his Honour's judgment, his Honour said (at [61]) (Meagher JA and Tobias AJA agreeing): All of that said, because the underlying concern is (as McHugh J said in Victoria v Sutton) natural justice, joinder is not always necessary. That reflects a very old approach. Although the common law knew nothing of the joinder of a party merely for the purpose of having that party bound by the judgment, equity was not so strict. Where no prejudice would be suffered by a party not being joined, his or her presence could be dispensed with: see for example Smith v Brooksbank (1834) 7 Sim 18; 58 ER 743, where the non-joinder of the executors who were alleged to have assented to the bequest was held not to be fatal. The direct ancestor of the rules in the UCPR governing joinder of parties is the rule of procedure contained in O XVI r 13 in the First Schedule to the Supreme Court of Judicature Act 1875 (UK). That in turn reflected chancery practice. In particular, and relevantly for present purposes, UCPR r 6.23 "Proceedings are not defeated merely because of the misjoinder or non-joinder of any person as a party to the proceedings" is merely a modern formulation of the chancery practice.
In Seller v Jones [2014] NSWCA 19, McColl JA (with whom I agreed) said (at [49]-[50]): A person or entity should be joined as a party to litigation where orders might be made directly affecting that person or entity's rights and liabilities: State of Victoria v Sutton [1998] HCA 56; (1998) 195 CLR 291 (at [76] - [81]) per McHugh J; John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 (at [131]); Australian Securities and Investments Commission (ASIC) v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) [2011] HCA 18; (2011) 244 CLR 1 (at [49]). The threshold as to whether orders may have the effect referred to in [49] is not high. In State of Victoria v Sutton (at [77]) McHugh J said it was "the invariable practice of the courts to require a person [whose rights or interests may be affected by an order a court was asked to make] to be joined as a party if there is an arguable possibility that he or she may be affected". The reason for that "practice" is, at minimum, observance of the rules of natural justice and the desirability of avoiding a multiplicity of suits (cf s 63 Supreme Court Act 1970 (NSW), s 56 Civil Procedure Act) and inconsistent decisions: State of Victoria v Sutton (at [77]); Associated Grocers Co-operative Ltd v Hubbard Properties Pty Ltd (1986) 42 SASR 321 (at 341). [my emphasis]
Two examples of cases where a consequential (or "knock on") effect was a direct effect, for the purposes of the principle were given in Parker v BHP Billiton Ore Pty Ltd [2015] WASC 95 by Edelman J (again when sitting in the Supreme Court of Western Australia): first, in Pegang Mining Co, which concerned a tripartite agreement between a lessee of a mining lease, a sub-lessee, and a sub-sub-lessee (each of which was a party to the litigation) and it was held that a contractor who had entered into a separate agreement with the sub-sub-lessee was directly affected by an order made in the action because, although not a party to the tripartite agreement, the success or failure of the appeal would affect whether the contractor could exercise separate rights under his licence from the sub-sub-lessee to enter the land and to win the minerals for the sub-sub-lessee in exchange for a share of the proceeds of sale; and second, in News Ltd, where it was held that players and coaches (though not parties to the relevant contracts) should have been joined to the proceedings because the orders sought would directly affect their rights to choose the employer for whom they would work.
In China First Pty Ltd v Mount Isa Mines Limited [2018] QCA 350, Gotterson JA (with whom McMurdo and Fraser JJA agreed) said (at [60]) of the "direct effect" test: These cases reveal a systematic approach taken by courts to the determination of whether orders made or sought have had, or if made, will have, a direct effect on a legal right or liability. That approach has involved an identification of the specific legal right or liability said to have been affected or liable to be affected, and an assessment of its legal characteristics. Next, the court has inquired into whether the right or liability itself has been affected, or is liable to be affected. Typically, the inquiry has sought to establish whether there is an effect on the existence of the right or liability or on its legal characteristics; or whether there is an effect on the legal environment in which the right might be exercised or the liability discharged, such as would impact upon its exercise or discharge from a legal perspective. An effect of either kind has been regarded by courts as a direct effect on the right or liability for the purposes of the test.
As to the inconvenience of not joining as parties to proceedings where declaratory relief is sought, persons who have an interest in the outcome but would not be bound thereby, in Australasian Oil Exploration v Lachberg, where it was beyond doubt that an entity should have been a party to the proceedings before the declaratory order was made (and, also, where there was held to be no proper basis upon which an injunction could have been granted), the High Court said (at 133-134): … The fact is that offers were made by M.K.I. to the A.O.E. shareholders and they became entitled to take up shares in M.K.I. whether the agreement of 17th February 1958 was valid or not. In the result we think that cl. 2 of the order should be set aside entirely and that an opportunity should now be afforded to M.K.I. of being heard before any final declaratory order is made. In the absence of M.K.I. the declaration of invalidity would not of course be binding upon it. But, since it would be most inconvenient if the declaration should subsist with such a limited effect it is advisable that the order should be set aside in its entirety and the suit remitted to the Supreme Court in order that M.K.I. may be joined as a defendant and further consideration given to the matter after an opportunity has been afforded to that company of taking such steps as it may be advised. [my emphasis]
In London Passenger Transport Board v Moscrop [1942] AC 332, it was said, in relation to cases where a declaration is sought, that although it was true that members of the Transport Union (and the union itself) who were not joined as a defendant in the action were not strictly bound by the declaration made in their absence, "the courts have always recognised that persons interested are or may be indirectly prejudiced by a declaration made by the court in their absence, and that, except in very special circumstances, all persons interested should be made parties, whether by representation orders or otherwise, before a declaration by its terms affecting their rights is made".
For Mr Uy to establish that the judgment was entered irregularly, it is necessary for him not simply to establish that there is an arguable case that he had an interest in property that could potentially have been affected by orders made in the proceedings (so as to make him a necessary party to be joined) but that, on the balance of probabilities, he did have such an interest (i.e., that he was a necessary party to be joined). It is no answer to that proposition to point to the fact that this is an interlocutory application. If Mr Uy cannot establish that he has an interest in the Hurstville Property at the relevant time then there could be no suggestion that the consent judgment was irregularly entered.
Moreover, as the judgment creditors in their supplementary submissions contend, to be satisfied on the balance of probabilities of the existence of a fact (here, that Mr Uy had an interest in the Hurstville Property), the Court must feel an actual persuasion of the existence of that fact (see Nguyen v Cosmopolitan Homes [2008] NSWCA 246, McDougall J (with whom McColl and Bell JJA agreed) referring to what was said by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, and approved by the majority (Dixon, Evatt and McTiernan JJ) in Helton v Allen (1940) 63 CLR 691 at 712; [1940] HCA 20). Reference is also made in this context to the observations of Dixon CJ in Jones v Dunkel (1959) 101 CLR 298 at 305; [1959] HCA 8 that "[t]he facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied" (a statement cited with approval by the majority (Stephen, Mason, Aickin and Wilson JJ) in West v Government Insurance Office of New South Wales (1981) 148 CLR 62 at 66; [1981] HCA 38); and to what was said by Stephen J in Girlock (Sales) Pty Ltd v Hurrell (1982) 149 CLR 155 at 161-162; [1982] HCA 15, and by Mason J (with whom Brennan J agreed) in the same case at 168.
The judgment creditors submit, and I accept, that the requirement for actual satisfaction as to the occurrence or existence of a fact is one of general application, and not limited to cases where the fact in question, if found, might reflect adversely on the character of a party or witness.
In the present case, while I accept that the position might be otherwise if the issue were to be determined at the conclusion of a contested hearing on all of the relevant facts, I am not persuaded (in the sense of having an actual satisfaction) on the evidence before me that Mr Uy did have an interest in the Hurstville Property at the date of the Consent Orders. In particular, the difficulty I have is that Mr Uy did not deploy the 2016 Document (on which his claimed interest depends) in circumstances in which one would expect it to have been deployed had it been in existence at the relevant time. He did not lodge a caveat in respect of any such interest nor did he suggest at the time that the administrators were appointed that he had a security interest in the Hurstville Property.
True it is that Mr Uy gave an explanation in the witness box as to why no caveat had been lodged (in effect that this might prejudice future funding) which is not implausible in 2016 but there is no such logical explanation for the failure to raise such an interest once the administrators had been appointed (to the contrary, there would have been every reason so to do).
There were obvious discrepancies between Mr Uy's affidavit evidence in 2018 (prior to the abandoned October 2018 trial) and his evidence in the present application. His evidence in 2018 was (or at least it was implicit in his evidence in 2018) that there was a concern that the lender would not continue to lend funds and in that context there was a threat to the building works (which was the basis for the claim by Mr Liu for expedition in relation to the hearing dates) whereas in the witness box he professed not to have had a concern as to any risk and he seemed to suggest that he did not think GR Capital was in financial difficulties at all (a difficult proposition in light of it having gone into administration at the time).
There were other discrepancies (perhaps attributable to language difficulties but nevertheless not satisfactorily explained): his 10 September 2018 affidavit referred to an agreement to invest up to $13 million - he now says that was the cost of the land and his advance was $8 million; his 2018 affidavit referred only to his personal savings and the savings of his family in Hong Kong (who he deposes he represented in respect to the agreement) - he now says the moneys were advanced from family and an "investor friend"; and he gave a lengthy explanation in the witness box as to why he signed the Internal Confidentiality Agreement whereas there was no mention in earlier affidavits of any such document. In that regard, his denial that the document referred to in the Internal Confidentiality Agreement was the 23 May 2016 document to which he was taken in cross-examination (being, the document headed "Xinfeng The One Treacy Project Investment Agreement") (and that it was a completely different document to which reference was made in the Internal Confidentiality Agreement) is difficult to understand - it defies logic that one would enter into an agreement to keep confidential a document about which one knew nothing.
I accept that allowances must be made for Mr Uy's language difficulties (about which I say more in a moment) but the explanation as to why certain matters were not included in his 2018 affidavits (that he had told the solicitor about them but that the solicitor did not include them, and that any mistake was that of the solicitor) and his evidence that his solicitor had told him that the affidavit was not important is difficult to believe. In that regard, Mr Uy's evidence was contradictory as to whether he had read his 2018 affidavits carefully at the time and as to whether he understood that it was important that they be accurate.
The difficulties in this regard were exacerbated by the fact that none of his earlier affidavits (nor indeed the current ones) indicated that the contents had been translated to him before they were signed; yet there was an application for Mr Uy to have the assistance of an interpreter in Court (to which objection was made by the judgment creditors), and when I allowed an interpreter to be sworn and available to assist where necessary, Mr Uy, to my observation, made increasing applications for assistance from the interpreter to answer questions that he either then accepted he understood or proved to be perfectly capable of answering without the interpreter's assistance. My impression was that Mr Uy was relying on the interpreter as a form of support in order to present his answers in a more fulsome way.
I do not make any adverse credit findings in this regard. Nevertheless, I do consider that Mr Uy's evidence must be treated with some caution, not least because of the inconsistencies with his earlier affidavit evidence and his evident desire to argue his own case in the witness box.
Even if the 2016 Document is authentic, there are issues as to whether on its proper construction it gave rise to an interest in the land. Mr Liu signed as a "director" but it is not clear that it was objectively intended for the company (GR Capital) thereby to be bound (and Mr Uy's explanation as to why the document was signed - to show it to his "investors" - does not suggest any such contention). The issue as to when a signatory has assented to be personally bound (the converse of which, in the present case, is whether by signing as a "director" this operated to bind the company) was considered in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1988) 21 NSWLR 160. There, Giles J, as his Honour then was, having considered what was said in National Commercial Banking Corporation of Australia Limited v Cheung (1983) 1 ACLC 1326; NEC Information Systems Australia Pty Limited v Linton (1985) NSW ConvR 55-240 and Scottish Amicable Life Assurance Society v Reg Austin Insurance Pty Limited (1995) 9 ACLR 909, concluded (at 174-175), that the proper approach in determining whether a signatory has assented to be personally bound is to ascertain the objective (not subjective) intention as to that issue, having regard to the construction of the document as a whole and the surrounding circumstances (to the extent to which evidence of the latter is permissible); the inquiry not being limited to consideration of the signature and its qualification, if any. (See also the discussion in SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56.)
In the present case, there are factors that might point either way (including the identification of Mr Liu as a director but also the fact that the document is not signed in a way that would be expected if intended to bind the company). Furthermore, the agreement was "to amend" a signed agreement; not in terms purporting to effect an amendment to the agreement there and then. That may well point to Mr Liu signing in his personal capacity (as an agreement to cause the company to do something in the future). It is not necessary here to come to a concluded opinion on that issue.
As to the right to lodge a caveat, although it was submitted for the judgment creditors that any interest in the land that would have arisen in that regard could only have arisen when the caveat was in fact lodged (and they argue that the caveat itself was invalid), had I been otherwise of the view that on the balance of probabilities the 2016 Document represented an authentic agreement (and that it amounted to an agreement by GR Capital to amend the 2014 Syndicate Agreement to grant security over the Hurstville Property) then I would have concluded that such an agreement did give rise to an equitable interest in the land (applying the principle in Troncone v Aliperti that "[w]hoever grants a thing is deemed also to grant that without which the grant itself would be of no effect"; in that case it being accepted that in the absence of evidence of an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable the authority to be exercised) and that the interest did not arise only when the caveat was lodged. Nor would it then be necessary to consider whether the caveat itself properly disclosed an equitable interest.
In any event, assuming that Mr Uy had an equitable interest in the Hurstville Property at the time the Consent Orders were made, that would give rise to a potential priority dispute with the judgment creditors. It became clear in the course of argument that Mr Uy's real is concern is to preserve his ability to challenge the validity of the judgment creditors' mortgage (whether on Rolled Steel grounds - as difficult as that might be since it would require leave to bring a derivative suit - or on the basis of the newly raised illegality argument). I accept the submission for the judgment creditors that the declaration made by consent was not binding on Mr Uy - it gives rise to no issue estoppel or res judicata. It is not a declaration in rem. It remains open to Mr Uy to raise in fresh proceedings the claim that he has an equitable interest in the Hurstville Property that has priority over the interest the subject of the declaratory relief granted at the hearing at which he was not a party.
That then provides the answer to the question whether, if a discretion to set aside the Consent Orders on the basis of irregularity does arise, it should be exercised in the present case. Weight was placed on John Alexander's Clubs in this regard. However, there, the plaintiff knew that there was an interest in a third party and obtained relief that overreached that interest. Here, there was nothing to alert the judgment creditors to the now claimed equitable interest of Mr Uy and it is clear that Mr Uy was aware of the proceedings and stood by without demur when Mr Liu abandoned his defence of the proceedings and consented to judgment against the defendants. Whether or not an analogy can be drawn with the position in probate cases, the fact is that in circumstances where the monetary judgment does not directly affect his interests at all and nor does the declaratory relief that was granted (even though it is implicit in that declaratory relief that there was a valid security interest on the part of the judgment creditors), I do not consider it appropriate to set aside the Consent Orders.
In summary therefore, I do not accept that Mr Uy has established on the balance of probabilities that the judgment was irregularly entered but even if it was, as a matter of discretion (and having carefully considered the reasoning in John Alexander's Clubs in this regard), I do not consider that the Consent Orders should be set aside based on Mr Uy's present application.
I should add that if it were to be the case that the judgment debtors set aside motion (which is not to be heard until some time next year) is successful (such that the hearing of the proceedings is revived) then I would be inclined to think that Mr Uy should at that stage be joined to the proceedings as the fourth defendant, since even though I have concluded that his interests are not directly affected by the relief sought by the judgment debtors (and he would not be bound by the result if he were not a party) it would be in the interests of the just, quick and cheap resolution of the real issues in dispute to have all the substantive disputes (and the now obvious potential for a priorities dispute) dealt with in the same proceedings (not least to minimise the risk of inconsistent judgments and having regard to the observations made in the authorities to which I have earlier referred).
Finally, I see no reason why costs should not follow the event and I will order accordingly.

Orders

For the above reasons, I make the following orders: 1. Subject to Order 2, dismiss Mr Uy's notice of motion filed 19 August 2019 with costs. 2. Give Mr Uy liberty to apply to be joined to the proceedings as fourth defendant in the event that the judgment debtors are successful in seeking orders to set aside the consent orders made on 18 October 2018.

Amendments 08 November 2019 - Amendment to date of orders 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: 08 November 2019

Civil Procedure Rules 2005(NSW)

437 Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 Perpetual Trustees Victoria Ltd v Pilcher [2005] VSC 244 Qintex Australia Finance Ltd v Schroders Australia Ltd (1990) 3 ACSR 267 Reid Murray Holdings Ltd (In Liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386 Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1982] 1 Ch 478 Ross v Lane Cove Council [2014] NSWCA 50 SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56 Scottish Amicable Life Assurance Society v Reg Austin Insurance Pty Limited (1995) 9 ACLR 909 Seller v Jones [2014] NSWCA 19 Starrs v Retrovision (WA) Ltd [2012] WASCA 67 State of Victoria v Sutton (1998) 195 CLR 291; [1998] HCA 56 Tasker v Small (1837) 3 My & Cr 63; 40 ER 848 The Pilbara Infrastructure Pty Ltd v BGC Contracting Pty Ltd (2008) 35 WAR 412; [2007] WASCA 257 Troncone v Aliperti (1994) 6 BPR 97,455 West v Government Insurance Office of New South Wales (1981) 148 CLR 62; [1981] HCA 38 Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1546 Category: Procedural and other rulings Parties: Xinfeng Australia International Investment Pty Ltd (Plaintiff) Yuqing Liu (Second Plaintiff) GR Capital Group Pty Ltd (First Defendant) The One Capital Group Pty Ltd (Second Defendant) Wensheng Liu (Third Defendant) Ching (Phillip) Wah Uy (Applicant on motion) Representation: Counsel: WG Muddle SC with P McDonald (Plaintiffs) DR Pritchard SC with A Macauley (Defendants) CD Wood SC with M Darian-Smith (Applicant on motion)

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