Zhong v Shield Resources Pty Ltd & Ors

Nature of the Proceedings

1. The parties have already filed pleadings for their cases.
2. Under the Amended Statement of Claim filed 26 October 2021, the plaintiff claimed recovery from the first defendant for a loan made on 18 September 2018, pursuant to a Deed in which the plaintiff agreed to advance $2 million to the first defendant for the purposes of a business investment. The Deed contained an acknowledgement of the receipt of the sum and an agreement that the sum be repaid on 17 September 2019. The Deed warranted that the borrower will pay the sum loaned, which was secured by a property owned by the second defendant, who is a beneficiary of the Family Trust owning most of the first defendant's shares.
3. It was common ground that only approximately $1.15 million was actually lent. There is evidence to confirm that transfer was through a third party consistent with requirements in the People's Republic of China. In its defence, the defendants admitted receipt of the money but denied it came from the plaintiff. It asserted that the money was payment by a third party for the sale of timber.
4. Under the Further Amended Defence and Further Amended Cross-Claim filed 1 February 2022, the defendants also asserted a number of defences, including that the Deed is unenforceable or otherwise unjust under s 7 of the Contracts Review Act 1980 (NSW). The defendants also raised issues of estoppel, non est factum, misleading or deceptive conduct, unconscionable conduct, penalty and the doctrine of ex turpi causa non oritur actio. These defences and matters are denied by the plaintiff in the Defence to the Further Amended Cross-Claim filed 2 March 2022.
5. These proceedings have a lengthy history, having been heard at an interlocutory stage before N Adams J in Zhong v Shield Resources Pty Ltd [2021] NSWSC 617 and Zhong v Shield Resources Pty Ltd (No 2) [2021] NSWSC 643, Dhanji J in Zhong v Shield Resources Pty Ltd (unreported, 23 February 2022) and Harrison AsJ in Zhong v Shield Resources Pty Ltd [2022] NSWSC 391. I respectfully adopt the background facts and definitions used in the earlier judgments.

Relevant Principles

1. The Court has power under s 66 of the Civil Procedure Act 2005 (NSW) ("the Act") to adjourn the hearing of any matter. In exercising its discretion, the Court must seek to give effect to the overriding purpose in s 56(1) of the Act to "facilitate the just, quick and cheap resolution of the real issues in the proceedings", including by reference to the "objects of case management" (s 57) and the "dictates of justice" (s 58).
2. The relevant principles for the exercise of the Court's discretion to adjourn hearings, and case management more broadly, are laid out in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27. Chief Justice French stated (at [5] and [30], Gummow, Hayne, Crennan, Kiefel and Bell JJ agreeing at [116]): 5. [T]here is an irreparable element of unfair prejudice in unnecessarily delaying proceedings. Moreover, the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system. … 30. Also to be considered is the potential for loss of public confidence in the legal system which arises where a court is seen to accede to applications made without adequate explanation or justification, whether they be for adjournment, for amendments giving rise to adjournment, or for vacation of fixed trial dates resulting in the resetting of interlocutory processes.
3. In Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198; [2015] NSWCA 130, Bathurst CJ, Beazley P (as Her Excellency then was) and McColl JA explained the operation of the requirements in ss 56-58 of the Act as follows (at [29]-[30]): 29. Section 56 provides relevantly that the overriding purpose of the Act and the rules is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Those provisions impose an obligation on the court. Section 58 provides that, in deciding whether to make an order for the management of proceedings, "the court must seek to act in accordance with the dictates of justice". One of the matters to which the court is required to have regard in determining what are the dictates of justice in a particular case is "the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction": s 58(2)(vi). 30. Sections 56-58 make plain and more prescriptive what was always the case, namely that the processes of the court are to be utilised for proper purposes and in a way that is efficient, cost effective and in accordance with the dictates of justice. Section 58(2)(vi) makes it explicit that the dictates of justice require consideration of the position of both parties. By their terms, ss 56-58 apply to the rules, including UCPR, r 1.12. As Wilson J stated in FAI General Insurance [v Southern Cross Exploration NL (1988) 165 CLR 268] and Dixon CJ explained in Klein [v Domus Pty Ltd (1963) 109 CLR 467], where a discretion is conferred on the court in general terms, the court is required to exercise that discretion so as to "prevent injustice" or in accordance with the judge's view of the justness of the case. These are the same concepts found in ss 56-58. These provisions have not altered the manner by which a general discretion is exercised by the court or altered the scope or purpose of provisions that confer general discretion on the judicial decision-maker.
4. In UBS AG v Tyne (as trustee of the Argot Trust) (2018) 265 CLR 77; [2018] HCA 45, Kiefel CJ, Bell and Keane JJ said (at [38]): 38. The timely, cost effective and efficient conduct of modern civil litigation takes into account wider public interests than those of the parties to the dispute. These wider interests are reflected in s 37M(2) of the [Federal Court Act] [corresponding to s 56 of the Civil Procedure Act]. As the joint reasons in Aon Risk Services Australia Ltd v Australian National University explain, the "just resolution" of a dispute is to be understood in light of the purposes and objectives of provisions such as s 37M of the [Federal Court Act]. Integral to a "just resolution" is the minimisation of delay and expense. These considerations inform the rejection in Aon of the claimed "right" of a party to amend its pleading at a late stage in the litigation in order to raise an arguable claim. The point is made that a party has a right to bring proceedings but that choices are made respecting what claims are made and how they are framed. Their Honours speak of the just resolution of the dispute in terms of the parties having a sufficient opportunity to identify the issues that they seek to agitate."
5. In exercising its discretion, the Court is required to consider the dictates of justice in light of the obligations for appropriate and efficient case management, avoiding delay and minimising the costs of proceedings, at the same time as ensuring, that "justice" is served. The Court should have regard to all the circumstances giving rise to the application, including the nature and stage of the proceeding, the reasons advanced by the parties and whether there would be substantial prejudice to the parties (either to the applicant if the adjournment is refused or to the respondent if the adjournment is granted). These issues can be illuminated through the lens of the submissions made by Counsel for the parties.

Recent closing of pleadings

1. The first reason for the adjournment submitted by the defendants was the recent closing of pleadings.
2. The background to this submission was that this matter was first set down for hearing for three days commencing 5 August 2021. On that occasion, the plaintiff sought to amend the claim and join the third defendant as a party.
3. On 16 August 2021, Registrar Jones made orders that the plaintiff serve a proposed Amended Statement of Claim by 25 August 2021. However, the plaintiff defaulted. A proposed Amended Statement of Claim was served on 13 September 2021. An Amended Statement of Claim was filed in the Court on 26 October 2021.
4. The defendants acknowledged that they were then to serve their Further Amended Defence and Further Amended Statement of Cross-Claim by 22 December 2021 and did not do so. A Further Amended Defence and Further Amended Statement of Cross-Claim was filed in the Court on 1 February 2022.
5. The Defence to the Further Amended Cross-Claim was filed in the Court on 2 March 2022.
6. The defendants submitted that the delay in the finalisation of these documents, which was partly attributable to reasons beyond their control, including a COVID-19 related issue and lack of funding, and also partly attributable to themselves, meant that the pleadings were only ultimately "closed" approximately two months prior to the hearing and are thus unjust for it to proceed.

Constraints caused by the lack of funds

1. The defendants submitted that the delay had been caused, or contributed to, by their lack of access to funds.
2. The affidavit of the plaintiff's solicitor, William Michael Elliot Finch, which was sworn and filed on 26 April 2022 ("Mr Finch affidavit"), stated that the defendants began to have issues with funding legal fees around October or November 2021 and this was the purpose of the second defendant filing a notice of motion on 15 December 2021 for the urgent release of funds (Exhibit 2 at [15]-[16]).
3. Mr Finch's affidavit stated that his firm, Rostron Carlyle Rojas Lawyers, was constrained from taking further steps to prepare the defendants' evidence until funds were released pursuant to an order of Harrison AsJ, which was made on 5 April 2022 (Ex 2 at [19]).
4. The defendants submitted that this delay in the funds being released impeded their preparation of their case in the intervening period.

Collection of further expert evidence

1. The defendants submitted that, since the release of funds from the Court by Harrison AsJ, they have been seeking to retain an expert in Chinese foreign exchange laws and customs.
2. The defendants tendered an email chain between the plaintiff's solicitor and Ms Xia Ran (Ex 3). The defendants submitted that Ms Ran is an expert in Chinese law. Exhibit 3 showed that employees of the plaintiff's solicitor had been contacted as early as 7 April 2022 and that there had been ongoing communication between the plaintiff's solicitor and Ms Ran in respect of providing a "Chinese law legal opinion".
3. The defendants submitted that a further four weeks was required for Ms Ran's evidence, and other lay and expert evidence, to be finalised.

Submissions of the Plaintiff

1. The plaintiff opposed the submissions made by the defendant.
2. The principal submission advanced by the plaintiff is that the adjournment is only necessary because of the delay created by the conduct and lack of preparation of the defendants. The plaintiff submitted that the sheer number of motions by the defendants in relation to security for costs, its review, pleading amendments, production of documents, summary dismissal, asset preservation and freezing orders and, delay in obtaining evidence for the hearing has all had the object of deliberately delaying and prolonging these proceedings. In oral submissions, the plaintiff also attacked the merits of the defendants' defences.
3. In relation to the recent closing of pleadings, the plaintiff submitted that any delay in the close of proceedings was due to the defendants. Furthermore, it was contended that no preparation sought to be now undertaken is dependent on the amendment to the pleadings since August 2021 and that, if further evidence was required, it could have been obtained long ago.
4. In relation to the constraints caused by the lack of funds, the plaintiff submitted that these funding issues arose six months ago and no urgency was taken by the defendants to obtain a hearing of its motion. The plaintiff noted that there were no suggestions of issues that the defendants were constrained in the preparation of their case or had been unable to do anything at the hearing before Harrison AsJ.
5. In relation to the collection of further evidence, the plaintiff submitted that, had the defendant wished to obtain expert evidence, they ought to have instructed an expert before 7 April 2022. The need for a further four weeks to collect lay and expert evidence demonstrates that the defendants can be blamed for the delay.

Consideration

1. On the outset, it is difficult, on the material before the Court, to reach a definitive conclusion on the plaintiff's allegations that the defendants have been deliberately delaying the proceedings. In the absence of a firm basis in evidence to avail such a conclusion, I will not do so. It is plain the defendants wished to defend the matter, but has been, to some degree, delinquent in mounting the same.
2. It is significant that the hearing was originally listed for three days commencing 5 August 2021, which was vacated. It is disappointing that some nine months later the parties are in a position that there is another motion to vacate the hearing dates.
3. I conclude the defendants' difficulty in obtaining funding partly explains the delay that has arisen. The evidence appears to show that the funding had the result of temporarily reducing the capacity of the defendants to receive legal services from their solicitor. This had a flow-on effect that partly, but not completely, explains the delay of the defendants in finalising their pleadings and the ability to collect evidence, including from Ms Ran. The delay in contacting Ms Ran from 7 April 2022, does appear to be explained by the release of funds following Harrison AsJ's order made on 5 April 2022.
4. Overall, the delay can be partly attributable to the high level of delinquency of the parties in not preparing more of the evidence for the hearing at an earlier stage of this two-year long proceeding. In this respect, the funding difficulties can only explain a part of the delay. The defendant must bear a significant portion of the blame. For example, the defendant filed a Further Amended Defence and Further Amended Statement of Cross-Claim prior to the release of funds had been determined by Harrison AsJ but took no or little steps in the preparation of evidence.
5. Although some doubts may be cast on the defences, there is at least some prospect, vis-à-vis, security. I am not satisfied that the defence and Cross-Claim, in the latest amended forms, are hopeless.
6. What is clear is that the defendants are not ready to proceed for a hearing to be commenced on 3 May 2022. The defendants appropriately conceded that this is partly attributable to their own conduct. If the motion to vacate and adjourn the hearing is refused, the defendants will be shut out of mounting the viable components of their defence. I am satisfied that the defendants will occasion substantial prejudice.
7. If the motion to vacate and adjourn the hearing is granted, I am satisfied that there would be some prejudice occasioned by the plaintiff. But the prejudice would be moderate insofar as it will still be a three-day case and the defendants have made appropriate concessions in the nature of paying the costs thrown away and pre-judgment interest; any application for security for costs shall not delay the filing of evidence or fixing of further hearing dates; all evidence filed and served by four weeks from today's date; and, a guillotine order disentitling the defendants from relying upon any document not filed and served within that time.
8. Whilst the decision in the adjourned motion is finely balanced, I consider that it is appropriate the hearing dates be vacated upon the bases proffered by the defendant. However, I emphasise that this is the second occasion on which hearing dates have been vacated in the past year. The Court would be extremely reluctant to vacate hearing dates on a third occasion and the grant of leave to overcome the guillotine order would be exceptional. The legal representatives of the parties are reminded of the overriding purpose in s 56(1) of the Act to "facilitate the just, quick and cheap resolution of the real issues in the proceedings". In particular, the legal representatives of the defendant are reminded of their duty owed to the Court and the parties are reminded that they are under a duty to assist the Court to further the overriding purpose. Given that this litigation has been run for approximately two years, pleadings have been finalised, and funds have been released, it is expected that strict compliance will be given to the orders below, which the parties have consented to, and for the matter to be resolved expeditiously.

ORDERS

1. I have made the orders sought in the Short Minutes of Order filed by the plaintiff, with the consent of the defendant, on 2 May 2022. The balance of the Notice of Motion filed 12 April 2022 and the hearing of the substantive claim and cross-claim are adjourned to a date to be fixed by the Registrar.
2. For these reasons, I made the following orders: 1. The hearing dates of 3 May 2022 to 5 May 2022 (inclusive) are vacated. 2. The Defendants/Cross-claimants are to file and serve all evidence, including lay and expert evidence, in defence of the Statement of Claim and in support of the Cross-Claim by 5:00pm on 26 May 2022. 3. The Defendants/Cross-claimants are not to entitled to rely upon any evidence, (lay or expert, affidavit or document) produced, filed or served after 5:00pm on 26 May 2022 without obtaining the consent of the Plaintiff or the leave of the Court. 4. The Plaintiff/Cross-defendant is to file and serve all evidence in reply by 23 June 2022. 5. The Court notes the agreement of the Defendants/Cross-claimants, that any application for security for costs shall not delay their filling of evidence or the fixing of further hearing dates. 6. The Defendants/Cross-claimants are ordered to pay the Plaintiff his costs thrown away and pre-judgment interest in the event of judgment for the Plaintiff or judgment for the Defence of the Cross-Claim. 7. The Defendants are to pay the Plaintiff's costs of the hearing on 28 April 2022 as agreed or assessed. 8. The proceedings are adjourned to dates to be fixed by the Registrar for: 1. disposition of the balance of the orders sought on the Notice of Motion filed 12 April 2022 (pursuant to a timetable to be agreed by the parties or fixed by the Court), and 2. hearing of the substantive claim and Cross-Claim on a three-day estimate.

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: 09 May 2022