Credit Solutions Group Pty Ltd v Obelisk Ventures Pty Ltd

The proposed pleadings

1. The significant difference between the proposed pleadings and those that I had dealt with in my earlier judgment is that the representations relied upon by the defendants are now all contained within the proposed cross-claim. The defence simply responds to paragraphs in the amended statement of claim by admitting, not admitting or denying allegations in that statement of claim, and by denying that the various agreements (the deed of loan, the variation deed and the mortgage) were enforceable. An accounting issue is also raised.
2. In relation to the cross-claim, the significant change is that the representations alleged against the plaintiff are now confined to an email sent by the director of the plaintiff, Mr Cacciola, on 3 March 2014. The remaining representations, alleged to have been made by Mr Lazar and Mr Rod, are not to be brought home to the plaintiff. Rather, they are pleaded as the basis of causes of action against those individuals and, in Mr Rod's case, his law firm also.
3. The only other claim made against the plaintiff arises from what is alleged to be the giving of independent legal advice by Mr Rod at the time the deed of loan was entered into on 19 September 2013. In that respect, Mr Rod is alleged to have acted as the plaintiff's solicitor.
4. Neither the defence nor the cross-claim puts in issue the repayment of the principal sum. The defendants accept that the balance of the principal sum must be paid.
5. The loan was made on 19 September 2013 with an expiry date of 19 December 2013. That was extended on two occasions so that loan became repayable on 18 June 2014. Although half of the principal sum, $150,000.00, was paid on 29 July 2014, other amounts paid both before and after that time were payments of interest. The result is that the defendants have been in default for almost five years and with no defence to that aspect of the claim raised.

Waiver of the payment condition

1. When counsel for the plaintiff, not unreasonably, at the hearing of the earlier notice of motion, submitted that it ought to be made a condition of the right to file amended pleadings, that the principal sum be paid or secured, counsel for the defendant said that he could not be heard to argue against that proposition. The hearing of that motion took place on 8 November 2018.
2. In his affidavit in support of the application to waive payment of the principal sum, the third defendant said that since he was informed on 8 February 2019 of the orders I had made, he had been endeavouring to raise finance to comply with the condition. He said that he had not been able to secure finance to make the payment. He said that the presence of two caveats over the only asset owned by the defendants in respect of which security could be provided, the property at 12 Lola Road, Dover Heights, was preventing the defendants from raising finance. He wrongly asserted that both caveats lodged in respect of the property were caveats lodged by the plaintiff. In fact, only one caveat was lodged by the plaintiff, and that was done pursuant to the deed of loan to give notice of the unregistered second mortgage.
3. The third defendant annexes to his affidavit three letters from financiers being the Byrnes Corporation Holdings Pty Ltd, Australian Equity Finance and Financewerx. The latter two organisations say that they cannot assist because of the existence of the two caveats on the property. The Byrnes Corporation said that if the defendants were unable to arrange for the removal of the caveats, it would be unable to assist.
4. Those responses led to the defendants' solicitors forwarding an email on 18 March 2019 to the plaintiff's solicitors saying, inter alia: We are instructed to file an application seeking to vacate the requirement for payment of the $150,000.00, or alternatively, an extension of time of 3 months to pay the $150,000 to the plaintiff.
5. The third defendant also annexed to his affidavit various financial documents of the first defendant including a balance sheet and statements of profit and loss over a number of years. He also annexed a copy of a financial statement showing his income and assets. That statement estimates the value of the Dover Heights property at $11 million with a mortgage to Westpac, the fourth defendant, of $5.5 million. The third defendant's average weekly income after tax is said to be $10,027.00.
6. Although the first defendant does not appear to have made a profit for the last two financial years, it has substantial revenue. In 2018 that revenue was $1.6 million. Amongst its assets were trade and other receivables amounting to $715,579.00. Its retained earnings at 30 June 2018 were $928,379.00.
7. The position for the six months to 31 December 2018 disclosed total income of $2,960,368.31 against expenditure of $2,805,659.51. That was a profit of $154,708.80, presumably before tax.
8. There are strong arguments to suggest that an inability to pay is not a relevant consideration when deciding whether the requirement to make a payment should be a pre-requisite to leave being given to take further procedural steps within proceedings. An ability to pay is not a relevant consideration when deciding whether a judgment should be given, if it is otherwise appropriate. Here, there is no defence to the claim for the principal sum. If judgment was sought for that sum, the inability of the defendants to pay it would not preclude it being given.
9. In any event, a number of matters suggest that no basis is shown for any alteration to the condition imposed in the judgment of 8 February 2019. First, the enquiries made and the responses put forward seem to me to be entirely inadequate. The request for payment of the balance of the principal sum and the statement by the defendants' counsel that he could not be heard to argue against such a condition, occurred on 8 November 2018. However, it does not appear that anything was done to try to raise the funds until after 8 February 2019. It was reasonable to expect that, at least, preliminary enquiries would have been made when it was the defendants who were seeking leave to file amended pleadings.
10. Secondly, no approach was made to Westpac, the first registered mortgagee, in circumstances where there is equity in the property of more than $5 million and a substantial income shown by the third defendant.
11. Thirdly, the assets and income of the first defendant point fairly clearly to the availability of money to meet the condition.
12. Finally, what is now sought in the alternative is that the principal sum only be paid in full by November 2019. In the email of 18 March 2019 it was said that an extension of three months would be sought from March 2019 to pay the balance. There is no explanation for the change that is now sought, nor on what basis the money was able to be paid within three months of March 2019, if there is now no ability to pay the money at all except by small instalments.
13. No basis has been shown for varying the condition imposed in the judgment of 8 February 2019 for the repayment of the balance of the principal sum.

Further procedural history

1. In my earlier judgment I set out the unfortunate procedural history concerning the defences and proposed cross-claim. I noted that no satisfactory reason had been given for any of the breaches of directions which I had made. Rule 9.1(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW) requires that any cross-claim should be filed at the time a defence is filed. Despite this requirement, the first time the defendants were in a position to put forward a cross-claim was on 16 October 2018 when the original defence was filed on 8 May 2018. As I held in my earlier judgment, the proposed form of the cross-claim was completely unsatisfactory in terms of the way it was pleaded.
2. The failures to comply with directions and the Rules have continued since my judgment of 8 February 2019.
3. On 8 February 2019, in addition to directing that the defendants serve amended pleadings by 8 March 2019, I directed that if the plaintiff did not consent to the amended pleadings being filed, the defendants were to file a notice of motion and supporting affidavits by 20 March 2019 with such motion to be made returnable before me on 29 March 2019. I gave liberty to the parties apply on two days' notice.
4. By 26 March 2019 no motion by the defendants had been filed. On 26 March 2019 at 7:12am my Associate, at my direction, sent an email to the parties asking to be notified whether there was a motion to be heard on 29 March 2019. The email asked that, if there was a motion to be heard, the motion and supporting affidavits were to be emailed to her forthwith. The email was addressed to three solicitors at the office of the defendants' solicitors being Farshad Amirbeaggi, the person whose name appears as the legal representative and contact name on various documents filed by the defendants, Danielle Gleeson, the solicitor who apparently had the carriage of the matter, and Atanaan Ilango, a solicitor who had sworn an affidavit in November 2018 saying that he assisted Mr Amirbeaggi in the proceedings. None of those persons responded to my Associate's email, nor did any of them respond to two follow up phone messages left by my Associate on that day.
5. As mentioned earlier, the defendants sought leave to file a notice of motion in Court on 29 March which sought relief from the condition for the payment of the balance of the principal sum and sought directions only in relation to the service of amended pleadings and any motion required for leave to file such pleadings. No application was made to file amended pleadings out of time.
6. I directed that the parties were to serve and email to my Associate written submissions by 10 April 2019. Counsel for the plaintiff complied, counsel for the defendants emailed the submissions on 11 April 2019. The submissions made reference to proposed amended pleadings which had not been forwarded. My Associate emailed counsel for the defendants, noting that the proposed pleadings had not been forwarded with the submissions and asking for them to be forwarded immediately. That email was copied to the solicitors for the defendants as well as counsel and solicitors for the plaintiff. The proposed pleadings were thereafter forwarded not by the solicitors or counsel for the defendants but by counsel for the plaintiff.
7. All of this demonstrates a cavalier disregard, not only for the orders and directions of the Court, but also for the defendants' obligations under s 56(3) of the Civil Procedure Act 2005 (NSW).

Delay

1. The only affidavit sworn in support of the defendants' motion was that of the third defendant who detailed the difficulties he had in obtaining finance to pay the balance of the principal sum. No evidence was provided by the solicitors for the defendants to explain why the proposed pleadings had not been served by 8 March 2019 in accordance with my directions, and why they were not served on the solicitors for the plaintiff for another three weeks.
2. In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 the plurality said at [102]-[103]: [102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. [103] The fact that an explanation had been offered for the delay in raising the defence was regarded as a relevant consideration in J L Holdings. Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.
3. During the course of submissions I made reference to the fact that there was no affidavit evidence explaining the failure to comply with the orders I made on 8 February 2019 or indeed even the orders I made on 29 March 2019. Counsel for the defendants accepted that there was no such explanation and went on to say this: The only explanation I can provide are on two bases. The first is Mr Markson was busy trying to expend efforts to secure the $150,000. In fairness, Mr Markson, whilst putting the cart before the horse, efforts were made to ascertain whether or not those funds could be provided before expense was incurred preparing further pleadings. That is the only explanation I can provide to your Honour.
4. Even if such an explanation could, in other circumstances, be thought to be acceptable when coming from the bar table (and I very much doubt that it could), a consideration of s 58 of the Civil Procedure Act compels a different conclusion in this matter. Section 58(1) requires the Court to act in accordance with the dictates of justice when any order for an amendment of a document is being sought. Sub-section (2) requires that the court have regard to ss 56 and 57 of the Act when determining what are the dictates of justice, as well as the matters listed in sub-s (2)(b) which relevantly include the following: (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iv) the degree to which the respective parties have fulfilled their duties under section 56(3), and (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction.
5. The effect of the failures on the part of the defendants, set out at [10]-[14] in my earlier judgment and the further failures recorded herein, mean that granting leave to the defendants to file the proposed amended defence and cross-claim would mean that the proceedings would be in the same position at the date of this judgment as they were in at 8 May 2018. That is because a cross-claim properly pleaded ought to have been filed at that time. I note in that regard that the amendment to the statement of claim made on 24 May 2018 was entirely inconsequential to any cross-claim.
6. Although, as I have said, the proposed cross-claim raises only two matters for which it is said the plaintiff must bear responsibility, if the cross-claim in its present form is allowed to be filed it will effectively involve the joinder of three new parties, being Mr Lazar, Rod and his legal firm. It can be assumed that Mr Rod's defence of the cross-claim will be conducted by Law Cover with the inevitable delays that result from the involvement of any type of insurer. It may be that Mr Lazar's defence will also be conducted by an insurer, but even if it is not, there will be inevitable lengthy delays before the proceedings are able to be given a date for hearing. That would create a considerable injustice for the plaintiff who loaned money some five and a half years ago where such money should have been repaid nearly five years ago. I accept that there were some delays on the part of the plaintiff in commencing proceedings, but where the balance of the principal amount remains outstanding, that delay should have little weight accorded to it.

Pleading problems

1. In any event, there remain continuing problems with the pleading of the cross-claim. One problem, similar to that which was dealt with in the earlier judgment, concerns the bundling of representations. Paragraph 9 pleads representations that are known as "the Lazar Representations". Paragraph 10 pleads representations known as "the Rod Representations". Together they are described in paragraph 14 "the Representations". Paragraph 20 then alleges what are described as "the Further Lazar Representations". Paragraph 21 refers to what are described as "the Further Rod Representations", and paragraph 22 refers to "the Cacciola Representations". Together these three lots of representations are described as "the Further Representations" in paragraph 25.
2. "The Further Representations" are all concerned with matters that occurred after the entry into the deed of loan in September 2013. Paragraph 29 alleges that because of the conduct of Lazar, Rod, Spectrum Legal, Cacciola and Credit Solutions in making "the Further Representations", the defendants/cross-claimants have suffered loss and damage. The particulars then set out under paragraph 29 identify three matters which cannot have been relevantly caused by Cacciola because they predate the representations he is supposed to have made in March 2014. Those matters are set out in particulars 29.6, 29.9 and 29.10.
3. In any event, a causal link would need to be shown between each of the sets of representations and the loss and damage caused. Where representations were made by different people at different times, a pleading which said that those representations as a whole caused particular loss and damage would be embarrassing. The same problem arises in relation to the assertion in paragraph 30 that, had the Representations and Further Representations not been made, the cross-claimants would not have entered into the variation deed.
4. A further matter that arises from the bundling of the representations is the assertion in paragraph 28.2 that each of the cross-defendants breached s 12DB of the Australian Securities and Investments Commission Act 2001 (Cth). Section 12DB sets out a number of matters that a person must not do in connection with the supply of financial services. There is no identification of which of those matters is relied upon against which of the cross-defendants. The matter is significant because the only matter alleged against Mr Cacciola and the plaintiff are the representations set out in paragraph 22 of the cross-claim.
5. There are two other problems with the pleading against the plaintiff. The first is that the representations said to have been made by Mr Cacciola are identified in their entirety as deriving from an email sent from Mr Cacciola to Mr Markson on 3 May 2014. In an earlier email on that date headed "Extension if required", Mr Cacciola had asked Mr Markson: Can you please supply me with a written response for the extension if required? Mr Markson replied: Yes. I've got Sir Alex Ferguson contracted. I'm chasing in the $318,000 from March 18. I'm concerned I may not have the entire amount by March 18 but may be $100,000 to $150,000 short. What do you advise? Do we request another rollover or do we find another lender David?
6. The email in response to that from Mr Cacciola is the email relied upon as constituting the representations set out in paragraph 22 of the proposed cross-claim. The email says: Please resend the submission with a summary on the Alex Ferguson details, I will place it cheaper else where. I have all your documents so only the summary needs to be amended.
7. Paragraph 22 pleads as follows: 22. On about 3 March 2014 Cacciola made the following express, or alternatively, implied representations: 22.1. He would be able to find short term finance cheaper for Markson elsewhere in lieu of the extension request. 22.2. To return the extension request to enable Cacciola to obtain alternative short-term finance. 22.3. That he would be able to get the short-term loan refinanced straight away on a longer basis at much cheaper interest rates. 22.4. That the refinance would be at a lower interest rate in line with normal bank rates [and] could be done within days or [sic] the advance being made. (the Cacciola Representations) Particulars 22.5. The Cacciola Representations were entirely in writing and wholly comprised in an email from Cacciola to Markson sent on 3 March 2014.
8. It can readily be seen that the representations alleged in paragraphs 22.3 and 22.4 do not appear in the email. Mr Klooster of counsel submitted that this was no basis for striking out those representations on a motion challenging the pleading. He submitted that it was a matter for evidence at the trial to see whether or not those representations were made out. I do not agree. The pleading confines the representations to the email and where it is possible to say that the pleading, taken at its highest, is not supported by the particulars or the evidence relied upon, the pleading may be struck out.
9. In any event, there is the problem already mentioned, that the representations allegedly made by Mr Cacciola are bundled up with the other representations without being directly related to any particular loss suffered as a result only of the Cacciola representations.
10. The other matter concerns the claim of unconscionability. Paragraph 33 defines the "Conduct" as being the matters referred to in paragraph 32 of the proposed cross-claim. Paragraphs 34, 35, 36, 37, 38, 39 and 40 say that that "Conduct" was unconscionable. Paragraph 37 says that the "Conduct" was unconscionable because the cross-claimants did not have the opportunity to obtain independent legal advice prior to signing the loan documents.
11. The loan documents were those signed on 19 September 2013 (paragraph 11 of the proposed cross-claim). The particulars of unconscionability are said to be that Mr Markson signed the certificate of independent legal advice and acknowledgement of legal advice when in fact Mr Rod did not provide any advice. Alternatively, it is said that to the extent that any legal advice was provided, Mr Rod could not provide independent advice to Mr Markson or Obelisk because he was acting for Credit Solutions and/or Lazar as of 19 September 2013.
12. As paragraphs 34-40 make clear, the absence of independent legal advice is only one matter said to result in the Conduct being unconscionable. The failure to provide independent legal advice does not of itself vitiate the agreement. Rather, it is a factor which may be taken into account in coming to a view whether a transaction was unconscionable.

Conclusion

1. By reason of the delays on the defendants' part since May 2018, about which there has been no explanation or adequate explanation, the further delays that will be brought about by the unsatisfactory nature of the pleading of the further proposed cross-claim, and the delays that would necessarily be caused by the joinder of additional parties to the cross-claim, considered together with the failure of the defendants to repay the principal sum, all constitute significant prejudice to the plaintiff. The defendant should not be given leave to file and serve the proposed cross-claim or any cross-claim at all. The defendants should be given leave only to file the proposed further amended defence, omitting paragraphs 86 and 87 and any other reliance on a proposed cross-claim. The proceedings will then be in a position to be given an early date for hearing.
2. Accordingly, I make the following orders. (1) On the plaintiff's notice of motion filed 2 April 2019: (a) I strike out the defence filed by the first, second and third defendants on 2 October 2018. (b) The defendants are to pay the plaintiff's costs of the motion. (2) In respect of the defendants' amended notice of motion filed 16 April 2019: (a) Grant leave to the defendants to file the proposed further amended defence marked as exhibit 1 on the hearing of the motions excluding paragraphs 9(c), 16(c), 19(c), 30(c), 54(c), 86 and 87. (b) Otherwise dismiss the defendants' amended notice of motion. (c) Order that the defendants pay the plaintiff's costs of the notice of motion.

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: 03 May 2019