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Singh v Rao [2010] FJHC 511; HBC20.2010 (16 November 2010)

IN THE HIGH COURT OF FIJI AT LAUTOKA
CIVIL JURISDICTION

Civil Case No. HBC 20 of 2010

BETWEEN

UDAY SINGH son of Bahadur Singh of Drasa Vitogo, Lautoka, Businessman.
Plaintiff

AND

DINESHWAR RAO son of Gyaneshwar Rao of Tomuka, Lautoka, Businessman.
Defendant

Before: Master Anare Tuilevuka

Counsel: H.A. Shah for the Plaintiff
Messrs Faiz Khan for the Defendant

Date of Hearing: 18th August, 2010
Date of Ruling: 16th November 2010

RULING

[1]. Before me is a summons to set aside default judgment filed by the defendant on 04 June 2010 pursuant to Order 13 Rule 10 and Order 19 Rule 9 of the High Court Rules and pursuant to the inherent jurisdiction of the Court.

[2]. The application is supported by the affidavit of Dineshwar Rao sworn on 3rd of June 2010.

[3]. The plaintiff opposes the application and has filed an affidavit in opposition which he swore on 13 July 2010. to which the Defendant has filed a Reply sworn on 26th July 2010.

[4]. The background to this might be summarized in chronological order as follows:

(i) 9th February 2010, Writ of Summon and Statement of Claim filed.

(ii) 9th February 2010, Ex-parte Notice of Motion filed seeking an Order that the defendant be restrained from leaving the jurisdiction.

(iii) 17th February 2010, Affidavit of Service of Writ of Summons filed

(iv) 17th of April 2010 – Judgment in Default was entered in the sum of $153,000-00 and costs.

(v) 06th June 2010, Notice of change of Solicitors by Faiz Khan Lawyers for the Plaintiff.

(vi) 6th June 2010, Summon to Set Aside Default Judgment filed to the Faiz Khan Layers for the Defendant.

(vii) 14th June 2010, Affidavit of Uday Singh filed in opposition

(viii) 27th June 2010, Affidavit of Dineshwar Rao.

[5]. The defendant claims the sum of $153,000.00 which he allegedly advanced for a joint venture partnership business with the plaintiff.

[6]. For his part, it is alleged that the plaintiff was to have given the sum of $200,000 as part of the partnership agreement. However, the plaintiff failed to keep his end of the bargain and only forked up $150,000.00.

[7]. It is alleged that the shortfall in the plaintiff’s payment caused difficulties in bringing in equipment for the joint venture partnership and/or for obtaining finance for the same. This in turn led to the defendant losing a contract with the Fiji Sugar Corporation which formed the basis of the joint venture partnership. The defendant alleges that he suffered huge losses and had to forego potential profits of around$500,000.00.

[8]. The defendant further pleads that despite the losses suffered, he and the plaintiff reached a compromise on 4th of November 2009 whereby he agreed to repay the plaintiff $153,000.00 in his own time in consideration of the plaintiff undertaking that he would have no right to take legal proceedings to recover the sum at any time. The defendant annexes to his affidavit an agreement marked “DR1” which – according to him –records the same. According to the defendant, the plaintiff has breached this agreement by instituting this claim against the defendant.

[9]. For his failure to file and serve a defence, the defendant says this has been due to the inadvertence of his former solicitors who were busy with other matters. He further explains that immediately after default judgement was entered on 21st April 2010 and served on him, he went to New Zealand and only returned to Fiji some four weeks later on 18th of May 2010. Immediately thereafter – he instructed his lawyers to retrieve the file from his former solicitors and to file an application to set aside the application.

[10]. As to the merits of his defence, the defendant deposes as follows in paragraphs 15 and 16 of his affidavit.

15. For the reasons above I have been advised by my current solicitors, Messrs Faiz Khan Lawyers and verily believe that I have a good defence on merits. Annexed and marked “DR2” is a copy of my Proposed Statement of defence.

16. The brief particulars of the merits of my defence are as follows:

(i) The Plaintiff is stopped from instituting legal proceedings to recover sums lost by both the plaintiff and I in the failed joint venture partnership business.

(ii) The losses of the failed joint venture lie where they fall

(iii) Further in the alternative I am entitled to counterclaim my losses suffered due to the plaintiff’s breach of the Partnership Agreement in failing to furnish the full $200,000.00 of his share that led to the failure of the partnership and losses.

[11]. Uday Singh’s Affidavit in Opposition was filed on 14th July 2010. According to Singh, the sum of $150,000.00 that he forked out was in fact a loan to the defendant of which $3,000.00 was for parts sold to the defendant on credit.

[12]. According to Singh, the defendant has promised on many occasions to repay but has continually not honored these. He says that when he learnt that the defendant was leaving for New Zealand he tried to get the defendant to sign an acknowledgment of debt but the Defendant refused to sign the document.

[13]. However, according to Singh, some days later, the defendant asked him to sign a document which the defendant had prepared and which is exhibited as “DR1” in the defendant’s affidavit.

[14]. Singh deposes in paragraph 6 that:

6. That the only reason I signed “DR1” was to have some form of acknowledgment from the defendant as I had given him a large sum of money without any written acknowledgment and this was because of our earlier friendship.

[15]. Singh says that his undertaking not to sue the defendant is worthless as there has been no consideration from the defendant.

[16]. As to the merits of the defence, Singh responds as follows in paragraphs 9 to 12 of his affidavit.

9. That in answer to paragraph 16 of the said affidavit, I say that the proposed grounds of defence is unmeritorious particularly in view of the fact that there is no joint venture between the parties.

10. That the Defendant is presently insolvent and unable to pay his debts and I recite the following creditors.

(a) Merchant Finance – have recently exercised their powers of seizure under certain bills of sale.

(b) Credit Corporation – name recently exercised their powers of seizure under certain bills of sale.

(c) Jai Prakash trading as Jaisons Motors – copy of Writ Action in the Lautoka Magistrates Court annexed herein and marked as annexure “US 2”

11. That I verily believe that the Defendant is dishonest and unwilling to pay his debts as he has cheated on me and in Jai Prakash’s case the Defendant is now stripping truck No. FJ 424 without paying for it. All his cheques have bounced n the said case.

12. That the proposed defence by the Defendant is a sham and is merely designed to delay a recovery action.

[17]. In his Affidavit in Reply filed on 27th July 2010, the defendant confirms that Singh had tried to get him to sign an Acknowledgement of Debt. He had refused to sign it because:

3. ..........I had not borrowed monies from him, instead it was part of the business venture that collapsed. Therefore document “US1” was not signed. The contract agreement between parties contained as annexure “DR1” in my affidavit sworn on 3rd June 2010 was signed by both Uday and I, as admitted by Uday.

[18]. In reply to the allegation that he is insolvent, the defendant deposes as follows:

6. ..........I ask that even if I was insolvent what does that have to do with the merits of my defence or the lack of good claim of the plaintiff. Does a man without money have no right to defend himself? I crave leave to refer to a copy of the defence filed in Jai Prakash’s claim, annexed and marked “DR3”.

[19]. I note that in his submissions in Court, Mr. Khan had vehemently objected to Ms Khan’s references to his client as “insolvent”.

[20]. There are certainly some triable issues emerging from the affidavits filed, principal amongst which is the issue whether the sum of money that the plaintiff claims from the defendant was in fact advanced as a loan or whether it was the plaintiff’s contribution to a joint venture that did not happen.

[21]. A default judgement entered irregularly must be set aside as of right.

[22]. However, where the default judgement had been entered regularly, the defendant must show an affidavit of merits in order to succeed in setting aside the default judgement (see Fiji Sugar Corporation Limited v Ismail [1988] FJCA 1; [1988] 34 FLR 75 (8 July 1988)).

[23]. This does not mean that the defendant must establish its defence. He only need to establish a prima facie defence (Evans v Bartlam).

[24]. In the case of Fiji Sugar Corporation Limited v Ismail, the Fiji Court Appeal said that:

“.....a draft defence is not necessary, what is required is the affidavit disclosing of prima facie defence.

[25]. The Court also said that although there is no rule that the defendant must satisfy the court that there is a reasonable explanation why judgment was allowed to go by default, it is something which the Court can consider in the exercise of its discretion whether or not to set aside the default judgement.

“The principle obviously is that, unless and until the court has pronounced a judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has been obtained only by a failure to follow any of the rules of procedure."

[26]. Ten years later in 1998, the Fiji Court of Appeal in Wearsmart Textiles Ltd v General Machinery Hire Ltd [1998] FJCA 26; Abu0030u.97s (29 May 1998) reiterated the above principles as follows:

Principles on which Courts act

The general principles upon which a Court should act on an application to set aside a judgment that has been regularly entered, are set out in the White Book, i.e. The Supreme Court Practice 1997 (Volume 1) at p.143. They are as follows:-

"Regular judgment -If the judgment is regular, then it is an (almost) 13/9/5 inflexible rule that there must be an affidavit of merits, i.e. an affidavit stating facts showing a defence on the merits (Farden v. Richter [1889] UKLawRpKQB 79; (1889) 23 Q.B.D. 124. "At any rate where such an application is not thus supported, it ought not to be granted except for some very sufficient reason," per Huddleston, B., ibid. p.129, approving Hopton v. Robertson [1884] W.N. 77, reprinted 23 Q.B.D. p. 126 n.; and see Richardson v. Howell (1883) 8 T.L.R. 445; and Watt v. Barnett [1878] UKLawRpKQB 21; (1878) 3 Q.B.D. 183, p.363).

For the purpose of setting aside a default judgment, the defendant must show that he has a meritorious defence. For the meaning of this expression see Alpine Bulk Transport Co. Inc. v. Saudi Eagle Shipping Co. Inc., The Saudi Eagle [1986] 2 Lloyd's Rep. 221, C.A., and note 13/9/14, "Discretionary powers of the court," below.

On the application to set aside a default judgment the major consideration is whether the defendant has disclosed a defence on the merits, and this transcends any reasons given by him for the delay in making the application even if the explanation given by him is false (Vann v. Awford (1986) 83 L.S.Gaz. 1725; The Times, April 23, 1986, C.A.) The fact that he has told lies in seeking to explain the delay, however, may affect his credibility, and may therefore be relevant to the credibility of his defence and the way in which the court should exercise its discretion (see para. 13/9/14, below)."

(my emphasis)

[27]. As to what is meant by "affidavit of merits" – the Fiji Court of Appeal in Wearsmart held that what is required is "an affidavit stating facts showing defence on the merits". The court then went on to state as follows:

Dealing with the discretionary powers of the C under English Order 13 r.93 r.9 sub-rule 14 the Supreme Court Practice 1997 (the White Book) (Vol. 1 p.145) cites the Court of Appeal's judgment in Alpine Bulk Transport Co. Inc. v Saudi Eagle Shipping Co. Inc., The Saudi Eagle [1986] 2 Lloyd's Rep. 221 as authority for following prepositions:

"(a) It is not sufficient to show a merely "arguable" defence that would justify leave to defend under Order 14; it must both have "a real prospect of success" and "carry some degree of conviction". Thus the court must form a provisional view of the probable outcome of the action.

(b) If proceedings are deliberately ignored this conduct, although not amounting to an estoppel at law, must be considered "in justice" before exercising the court's discretion to set aside."

Notwithstanding the Court of Appeal's later decision in Allen v Taylor [1992] P.I.Q.R. 255 which purports to dilute the principles emerging from Saudi Eagle, we subscribe to the White Book's preferred view that 'unless potentially credible affidavit evidence demonstrates a real likelihood that a defendant will succeed on fact no "real prospect of success" is shown and relief should be refused'.

(my emphasis)

[28]. Some six years after Wearsmart, the Fiji Court of Appeal was again asked in Suva City Council v Tabu [2004] FJCA 42; ABU0055.2003S (16 July 2004) to revisit Allen v Taylor:

By way of explanation, in Allen v. Taylor Dillon LJ. having the referred to the Saudi Eagle case said at page 259:

"It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issue will turn entirely on the assessment of the facts at trial; each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed"

Before us Mr Nagin cited Day v. RAC Motoring Services Ltd [1999] 1 All ER 1007 (CA) in which Butler Sloss and Ward LJJ, sitting in the English Court of Appeal, held that the court need not be satisfied that there was a real likelihood that the defendant would succeed but merely that the defendant had an arguable case which carried some degree of conviction.

Mr Nagin invited us to prefer the diluted test set out in Allen v. Taylor and Day v. RAC Motoring Services Limited. Mr Singh on the other hand invited us to adhere to the test set out in Wearsmart.

We can state our conclusion on this point quite shortly. Notwithstanding Allen v. Taylor, which we note was considered in Wearsmart and the later case of Day v. RAC Motoring Services Limited we are not persuaded on this appeal to depart from the test which was laid down by this Court in Wearsmart in 1998 and which has stood since then. We therefore reject Mr Nagin's submission on this point.

(my emphasis)

[29]. In Covec (Fiji) Ltd v Singh [2008] FJCA 81; ABU0083.2007S (7 November 2008), the "harshness of the application of the law to the moral strength of [the plaintiff's] case" was allowed in favour of setting aside a default judgement entered regularly – where the merit of the defence lay in the argument that the contract for sale of land in question to the defendant- non-resident company could not stand in law in the absence of the requisite Ministerial consent under section 6(1) of the Land Sales Act.

[30]. Applying the principles, I am of the view that the defendants affidavit discloses a defence on the merits which carries some degree of conviction.

[31]. Accordingly, I order that the default judgement be set aside.

[32]. Ms Khan asks the court to impose a condition on the setting aside. She highlights that the defendant is a flight risk and is also insolvent. For these reasons, she seeks that the condition for setting aside default judgement be that the defendant be required to deposit in court the sum of $153,000 – 00 (one hundred and fifty three thousand dollars) as security.

[33]. Mr. Khan submits that the trend these days is that the courts have shied away from imposing conditions if they would unduly stifle the pursuit of a defence on the merits. Although Mr. Khan does not say so directly, his submissions hint at the suggestion that an insolvent defendant who has a meritorious defence should not be deterred from pursuing his case by a condition that effectively suffocates him.

[34]. On this point, it is worth reiterating that Order 13 Rule 10 and Order 19 Rule 9 both confer upon this Court a wide discretion to set aside or vary any judgement entered on account of default of service of notice of intention to defend or statement of defence "on such terms as [the Court] thinks fit". There is accumulated case law authority that this wide discretionary power includes the setting up of conditions for setting aside.

[35]. In MV Yorke Motors v Edwards [1982] 1 WLR 444 HL – the House of Lords unanimously adopted the view of Lord Diplock which is summarized as follows in the headnote:

"It would be a wrongful exercise of discretion as a condition of granting leave to defend an application for summary judgement under RSC Ord 14, the payment of a sum which the defendant would never be able to pay, since that would be tantamount to giving judgement for the plaintiff notwithstanding the court's opinion that there is an issue or dispute which ought to be tried and that is so even though the court might consider the defence "shadowy" or doubt the defendant's bona fides. The defendant cannot complain because a financial condition is imposed which it is impossible for him to fulfill and that impossibility was known or should have been known to the court by reason of the evidence placed before it. Where the defendant seeks to avoid or limit a financial condition by reason of his own impecuniosity, the onus is on him to put sufficient and proper evidence before the court, and in so doing he should make full and frank disclosure".

[36]. Although the above case was concerned with conditions on leave to defend in a summary judgement application, the same principles have been applied to conditions imposed on setting aside default judgement (see further below).

[37]. It has been suggested that the Court may only order the payment into court of the whole or part of any money claimed (or alternatively a Bank guarantee) - as a condition for setting aside, if the defence raised is shadowy and/or to ensure future compliance with the rules by the defendant who has been in breach of the rules (see O'Hare and Hill: Civil Litigation, 5th edition, 1990, Longmans at page 234).

[38]. Mr. Khan cites the Hong Kong Court of Appeal judgement in L & M Specialist Construction Limited v Wo Hing Construction Company Limited Civil Appeal No. 147 of 2000 and the South Australian District Court case of Rahmani –v- Heng [2010] SADC 81 which also appear to adopt the above approach.

[39]. In L & M Specialist Construction, the following comments of the Hong Kong Court of Appeal provides an excellent overview as to how this issue has been handled in England:

"There is no doubt, as O 13 r 9 itself makes clear, that the Judge had jurisdiction to impose any appropriate terms in the exercise of his discretion. The Supreme Court Practice 1999, at 13/9/18, cites a number of examples of how the power is exercised in practice. Most of these involve terms requiring payment of the other party's costs (Cockle v Joyce [1877] UKLawRpCh 278; (1878) 7 Ch D 56; In re Howell (1891) 2 Ch D 121; Hughes v Justin [1894] UKLawRpKQB 33; (1894) 1 QB 667; Wright v Mills (1889) 60 LT 887).

In Richardson v Howell (1892) 8 TLR 445, money was ordered paid into court as a condition of setting aside judgment where the defendants were debtors who appeared to be playing for time and the court:-

"came to the conclusion that the 'affidavit of merits' failed to show a defence to the two actions now in question, which it was necessary to show in order to entitle him to set aside a judgment regularly entered by default. The defence shadowed forth in the affidavits was met by documents produced, signed by the defendant." (at p 446).

One might remark that given that view of the merits, it is somewhat surprising that the court decided to set the judgment aside at all. (my emphasis).

In City Construction Contracts (London) Ltd v Adam, The Times January 4 1988, the English Court of Appeal confirmed the court's power to impose a condition requiring money to be brought into court even where there was a good arguable defence, "not to punish the defendant but to encourage the proper future conduct of the litigation and to provide a measure of security for the plaintiff". In that case, this was apparently the basis for the order but, since the Judge had given no reason for choosing 50,000(pounds) as the sum to be brought into Court, the Court of Appeal reduced it to 10,000 (pounds).

In my view, it must be rare that a payment into court is made a condition of setting aside a judgment. It may in theory do so, as the court apparently did in the relatively old case of Richardson v Howell, where the defence is considered shadowy and in what one might call "conditional leave to defend territory". However, there is a certain logical tension between a court deciding that the defendant has real prospects of succeeding in his defence and the court considering at the same time that the defence is in shadowy realms. While I do not consider such an outcome impossible, I would expect it to be exceedingly rare. I do not consider the present case to come within that category.

As the Court of Appeal in City Construction Contracts (London) Ltd v Adam pointed out, there may be other reasons for requiring payment into court. There, it was a perceived need "to encourage the proper future conduct of the litigation and to provide a measure of security for the plaintiff." As I have pointed out, the procedural infraction in the present case is very minor and no basis has been out for providing the present plaintiff with security, either for its claim or for its costs.

The abovementioned examples of course are not exhaustive. However, to my mind, what they show is that where the defendant has a reasonably arguable defence which ought to be allowed to go to trial, there must be something specific in the defendant's conduct or in the case which justifies the imposition. There must, in other words, be some material upon which the court can exercise its discretion in that manner: Ratnam v Cumarasamy (1965) 1 WLR 8.

In the present case, I am unable to detect any feature of the case providing a foundation for the stringent term. I am therefore not satisfied that it was correct as a matter of principle to impose such a term and would accordingly allow the appeal, setting aside the condition of payment into court.

[40]. The position - in South Australia at least, appears to be the same as far as the authorities which were reviewed by the South Australian District Court case of Rahmani –v- Heng are concerned:

In Edwards v Wallace[1], the Full Court of the Supreme Court adopted the principles expressed in Grimwade v Beresford as follows:

(a) That if the facts placed before the Court disclose a state of affairs which might reasonably constitute a defence to the action, the defendant should be unconditionally allowed to defend.

(b) That if the Court takes the view that the circumstances are so suspicious that although it could not be said that they could not constitute a defence, the court thinks, nonetheless that it is unlikely that they would do so, or thinks that the contemplated defence is only a sham, the Court may order a payment in to he made as a condition of defending.

(c) The court should decide what view it takes of the facts placed before it, and if it subscribes to the view set out in paragraph (a) above, then it has a duty to allow the defendant to defend, and it is not within the Court's discretion in that event to order payment to be made as a condition of defending.

In Lau v Citic Australia Commodity Trading Pty Ltd[2], supra, in dealing with a case in which there was "no palpable sham" the court concluded that there was no reason why a condition should be placed upon a defendant as to payment in circumstances where he has an arguable defence on the merits.

In Gao v Zhu[3] Eames J, having reached a level of suspicion about the merits of the assertions of the defendant and concluded that it was appropriate that the judgement be set aside, and that leave be given to the defendant to defend the action but only upon terms as to payment into Court of $35,000.

In Graywinter Pty Ltd v Rodway[4], Warren J in dealing with an application for summary judgement, the test being much stricter than in the case of a default judgement, concluded that where a proposed defence is regarded by the Court as dubious or shadowy the defendant will bear the onus of satisfying the Court that a financial condition ought not me imposed as a condition for leave to defend. Further, in the absence of any material to establish that a defendant could not bear the financial burden of a payment in then the Court ought not conclude that the condition of payment in will render the defence impossible.

In Saunders v Esanda Finance Corporation[5] Lander J considered an appeal in respect of a differently phrased Rule of the Magistrates Court. His Honour affirmed that it is not possible, on an application to set aside a default judgment to resolve disputed questions of fact particularly when those answers will depend upon the credibility of the parties. His Honour concluded that the Learned Magistrate had erred in attempting to test, upon affidavit evidence, the respective risk of injustice to one of the parties. As to the question of payment in, His Honour concluded that while the Court has jurisdiction to so require payment such an order should only be made sparingly:-

This is because the circumstances in which such an order comes to be made only arise in circumstances where the Court has determined that the party seeking to set aside the judgment has an arguable defence. If the Court has determined that a party not only has an arguable case on the merits and that the party has a reasonable excuse for not having complied with that party's obligations, as the Court must have before considering the terms of the order, it would only be, in my opinion, in special circumstances that an order for payment in would be made.

[41]. In the case before me, the defence raised is far from shadowy. However, there is some concern that the defendant is a flight risk. To reiterate, I record here again that in his argument in Court – Mr. Khan was adamant that his client is not impecunious. That – and also taking into account that it is common ground between the parties in this case that a large sum of money was paid by the plaintiff to the defendant, I am of the view that it would be correct in principle for this Court to order that – as a condition for setting aside default judgement, the defendant is to pay into Court within 21 days the sum of $153,000 – 00 (one hundred and fifty three thousand dollars) as security.

ORDERS

(i) the default judgment entered on 19th April 2010 in the sum of $153,000-00 (one hundred and fifty three thousand dollars) be set aside on the condition that the defendant deposits into court within 21 days of the date of this judgement the sum of $153,000-00.

(ii) the defendant to pay the plaintiff's costs within 21 days which I summarily assess at $450-00 (four hundred and fifty dollars).

(iii) the defendant is to file and serve within 21 days a statement of defence.

(iv) this case adjourned to 15th of December 2010 at 9.00 a.m. for mention to check on compliance.

Anare Tuilevuka
Master

At Lautoka
17th November 2010.

^[1] (1986) 42 SASR 308 at 315.
^[2] [1999] VSCA 34 at [6]- [8] cf. Gajic v Poyser (2007) VSCA 175.
^[3] (2001) VSC 500.
^[4] (1998) VSC 117.
^[5] Unreported decision of Lander J (31/5/96) BS 9602273