Emmanuel Paneras & Anor v Eastern Suburbs Property Developments Pty Ltd & 3 Ors

Background 2 It is necessary to set out some history. The substantive proceedings were commenced by statement of claim filed on 12 February 2007. That statement of claim named Emmanuel Paneras and Lea Pailas as plaintiffs; Eastern Suburbs Property Development Pty Ltd ("ESPD"), Socrates Scott Kitas, John Katerinis and Anthony Burns as first, second, third and fourth defendants respectively. The statement of claim pleaded, in relatively simple terms, a money count arising out of an alleged Deed of Loan and Deed of Guarantee and Indemnity. 3 So far as the present proceedings are concerned, there is little, if any, dispute about the facts pleaded in the statement of claim. I will state those facts that are uncontroversial briefly. To give a complete picture it will be necessary to go outside the pleadings and mention some (uncontroversial) matters disclosed in the evidence. 4 ESPD was a company of which the three individual defendants were directors. In 2003 it entered into a contract for the purchase of land in William Street, Sydney. The purchase price was $5.1 million. ESPD proposed to develop the site by building residential units. The company needed to borrow money to put itself in a position to embark upon the development. 5 The plaintiffs, who are husband and wife, were friends of the third defendant, Mr Katerinis. They were interested in becoming involved in the development. Whether on their own initiative, or that of somebody else, is not clear, but they agreed to lend ESPD the sum of $440,000. The term of the agreed loan was 2 years and 6 months. The interest rate was 30% per annum. 6 Contractual documents were prepared by Messrs Comino Prassas, solicitors who acted for Mr Kitas (and probably ESPD). The contractual documents were a Deed of Loan, a Deed of Guarantee and Indemnity, and a General Power of Attorney. They were presented by Mr Katerinis' wife to Mr Paneras and Ms Pailas, who signed them. (The General Powers of Attorney in evidence are unsigned, but they have little, if any, relevance to the present proceedings.) The copies of the deeds that are in evidence are undated. They were also signed by Messrs Kitas, Katerinis, and Burns. A question has been raised about the date on which they were signed by the defendants, but, although this was hinted at in the hearing, it was not pursued as an issue. 7 Although it is clear that the loan was intended to be to ESPD, Mr Paneras and Ms Pailas in fact advanced the money by depositing it in a bank account in the name of Mr Katerinis. This was done on 6 May 2003. At this time they did not have in their possession either the Deed of Loan, or the Guarantee and Indemnity documents signed by the defendants. 8 For reasons that are undisclosed in the evidence, ESPD did not proceed with the contract for purchase of the land, and forfeited its deposit. ESPD failed to repay the loan or make interest payments to Mr Paneras and Ms Pailas. 9 On 12 February 2007, Mr Paneras and Ms Pailas issued the statement of claim. Although it named ESPD as first defendant, it was common ground that the company was unable to repay the loan or interest. (It has, according to the evidence, been deregistered.) Accordingly, Mr Paneras and Ms Pailas sued Messrs Kitas, Katerinis and Burns on their Deeds of Guarantee. Mr Kitas filed a defence to the statement of claim. No other defendant did so. 10 On 24 August 2007 Mr Paneras and Ms Pailas filed, and subsequently served, a notice of motion (later amended). In reliance on three different parts of the Uniform Civil Procedure Rules 2005 ("UCPR") they sought an order that the defence of Mr Kitas be struck out. As against Mr Katerinis they sought an order that: "4. Judgment be entered in favour of the plaintiffs … in the sum of $440,000 plus interest calculated in accordance with clause 8.4 and Item 8 of the Schedule to the Deed of Loan dated May 2003 in respect to the period from 7 November 2005 to date." 11 The notice of motion came on for hearing before Malpass AsJ on 19 February 2008. Mr Kitas was represented by counsel. Neither Mr Katerinis nor Mr Burns appeared or was represented. For reasons which will appear below, it is pertinent here to note that, in respect of Mr Katerinis (and Mr Burns), Malpass AsJ assumed (as was confirmed) that the application with which he was dealing was for default judgment. His Honour expressly made reference on two occasions to "default judgment". 12 Counsel who appeared for Mr Paneras and Ms Pailas produced a Schedule (exhibit D) of relief sought. This contained a calculation of interest claimed which, together with the principal owing, amounted to $1,297,819. Malpass AsJ gave judgment against Mr Katerinis and Mr Burns in that amount. 13 The formal record of judgment is in the following terms: "1. Judgment to be entered for the plaintiffs against [Mr Katerinis and Mr Burns] in the sum $1,297,819.00. 2. [Mr Katerinis and Mr Kitas] to pay the costs of the claim brought by the plaintiffs against them, including the costs of the notice of motion." 14 Judgment was entered on 20 March 2008. 15 On 29 October 2008 Mr Katerinis was served with a Bankruptcy Notice issued at the instance of Mr Paneras and Ms Pailas. On 12 November 2008 he filed a notice of motion seeking orders in the following terms: "1. That default judgment entered on 20 March 2008 in favour of the plaintiffs in this matter against [Mr Katerinis] be set aside. 2. That the orders made by this honourable Court as relating to [Mr Katerinis] on 19 February 2008 be vacated. 3. That leave be granted to [Mr Katerinis] to file and serve a defence in this matter within 7 days of the date of the hearing of this motion …" 16 On the date fixed for hearing of the notice of motion an amended notice of motion (23 February 2009) was filed on his behalf. This continued to refer to "default judgment" and otherwise made cosmetic changes to the orders sought, identifying UCPR Pt 36.16(2) and UCPR Pt 36.15(1) as the source of the power invoked in the application to set aside the judgment and the orders. 17 In support of the notice of motion Mr Katerinis has filed two affidavits, one sworn by himself on 13 November 2008, and one sworn by his solicitor, Mr Francis Farmakidis, on 10 February 2009. 18 Affidavits were filed on behalf of Mr Paneras and Ms Pailas, sworn by Mr Paneras, and his solicitor, Mr Michael Battersby. It will be necessary in due course to refer more extensively to the contents of the affidavits. The defence upon which Mr Katerinis proposes to rely is exhibit B in the proceedings. 19 There are a number of components to the proposed defence. The first component consists of responses to the allegations of fact contained in the statement of claim. These are largely denials, although, in the light of the evidence, it is difficult to see on what basis some, at least, of these assertions of fact can properly be denied. The second component consists of a pleading that certain paragraphs of the statement of claim are embarrassing, for specified reasons. The assertions of fact in these paragraphs are otherwise not admitted or denied. 20 The third and fourth components contain the substantive defences proposed to be advanced. 21 In paragraph 10 of the proposed defence Mr Katerinis pleads that, at the time of the advance of money by Mr Paneras and Ms Pailas to ESPD (which, in an earlier paragraph of the pleading, he had denied) he had not agreed to give Mr Paneras and Ms Pailas any guarantee or indemnity; that no consideration was provided by Mr Paneras and Ms Pailas to him for the provision of any guarantee or indemnity by him; (it may here be observed that the guarantee and indemnity pleaded by Mr Paneras and Ms Pailas is said to be by way of deed, not requiring consideration); and that any document purporting to impose upon him an obligation to provide Mr Paneras and Ms Pailas with a guarantee or indemnity in respect of monies advanced to ESPD by them "has no legal effect and is unenforceable" as against him. 22 Finally, and most substantially, Mr Katerinis pleads that, in about November or December 2006, he and Mr Paneras and Ms Pailas entered into an oral agreement to the effect that, in consideration for his assisting them in their action against Mr Kitas and undertaking to pay them the sum of $146,666.66 (one third of the sum advanced to ESPD by Mr Paneras and Ms Pailas) when he had developed property of which he was a co-owner or when in a reasonable financial position to do so (whichever first occurred), Mr Paneras and Ms Pailas would not seek to obtain any judgment as against him. He further pleads that, in accordance with that agreement, he did in fact provide assistance to Mr Paneras and Ms Pailas in their action against ESPD, Mr Kitas and Mr Burns. He particularised that assistance as: · co-operating with Mr Paneras' and Ms Pailas' legal representatives; · providing information to Mr Paneras and Ms Pailas that was not otherwise available to them; · providing evidence to Mr Paneras and Ms Pailas. 23 Finally, in this respect, he pleads that the "default judgment" obtained against him was obtained in breach of that agreement. 24 Finally, Mr Katerinis pleads estoppel. He pleads that Mr Paneras and Ms Pailas, by themselves and/or their servants or agents made certain representations to him, upon which he acted, rendering it unconscionable for Mr Paneras and Ms Pailas to assert that they were entitled to obtain judgment against him and to enforce any judgment so obtained, and that they are accordingly estopped from doing so. 25 Mr Katerinis particularises nine separate representations he alleges were made by or on behalf of Mr Paneras and Ms Pailas upon which he acted. These may be summarised as follows: · that Mr Paneras and Ms Pailas would seek to bankrupt Mr Kitas but not Mr Katerinis; · that if Mr Katerinis assisted Mr Paneras and Ms Pailas in their action against Mr Kitas, they would not seek to obtain any judgment against Mr Katerinis in respect of monies advanced to ESPD; · that Mr Paneras and Ms Pailas would not commence legal proceedings against Mr Katerinis in respect of monies advanced to ESPD; · that Mr Paneras and Ms Pailas were willing to wait for Mr Katerinis to pay them one third of the monies advanced by them to ESPD without taking action against him because they believed that he could be trusted to do so; · that Mr Paneras and Ms Pailas would seek to recover from Mr Kitas the full amount owed by ESPD but that they only wanted Mr Katerinis to pay them one third of the sum advanced; · that Mr Paneras and Ms Pailas would commence proceedings against Mr Katerinis so that they might appear to be acting even-handedly against all defendants, but that they would not pursue the claim as against him; · that Mr Paneras and Ms Pailas would seek default judgment against Mr Kitas and, if necessary serve a Bankruptcy Notice upon him, but would not take action against Mr Katerinis; · that Mr Paneras and Ms Pailas would not seek a judgment against Mr Katerinis; · that Mr Paneras and Ms Pailas hoped to obtain money from Mr Kitas through negotiation after serving a Bankruptcy Notice upon him. 26 Mr Katerinis pleads that, acting in reliance upon these assumptions, and induced thereby, he: · assisted Mr Paneras and Ms Pailas in their claim against the other defendants; · refrained from obtaining independent legal representation in the matter; · refrained from defending himself in the matter. 27 In so acting, he pleads, he has suffered loss and detriment in that he has suffered prejudice in relation to his defence of the proceedings. 28 It is to these last pleaded matters - that is, the assertion of an agreement, and the assertion of estoppel - that the evidence predominantly was relevant. 29 At the outset, an issue arose as to whether the judgment made and entered is properly characterised as a default judgment, or as summary judgment. It may well be that the distinction is of little importance. I can, however, deal briefly with the issue as it arose. 30 At no time during the hearing before Malpass AsJ was the notice of motion for determination identified. As I have mentioned, Malpass AsJ proceeded on the basis that what was sought on behalf of Mr Paneras and Ms Pailas was default judgment. 31 However, at the commencement of the proceedings counsel who appeared for Mr Kitas asserted that she was present "on an amended notice of motion of the plaintiff". Counsel for Mr Paneras and Ms Pailas did not dissent from that assertion. The only amended notice of motion on the file is the amended notice of motion to which I have already referred, seeking "judgment" against Mr Kitas and Mr Katerinis in the stated sum. 32 There is, in fact, in the file, an earlier notice of motion, filed on 12 April 2007, which purports to be a notice of motion seeking "Default Judgment for Liquidated Claim". However, this was never mentioned during the course of the proceedings (either those before Malpass AsJ, or those before me) and it appears to be common ground between the parties that the notice of motion before Malpass AsJ was the amended notice of motion filed on 14 November 2007 (amending the notice of motion filed on 24 August 2007). 33 The point that was taken on behalf of Mr Katerinis was that the procedures prescribed for giving default judgment were not followed; but neither were the procedures prescribed for granting summary judgment. Whichever form of judgment was given failed to comply with procedures prescribed by UCPR, and constituted an irregularity. That is why identification of the kind of judgment given is, in my opinion, of little importance. Whichever it was, it was irregular. It may be that the dimensions of the irregularity vary according to whether the judgment was a default judgment or summary judgment. 34 Provision is made for making default judgment by UCPR Pt 16. R 16.3(2) requires that an application be supported by an affidavit. Where (as here) the claim is for a debt or liquidated claim, r 16.6 requires that the affidavit in support: "(a) must state the amount due to the plaintiff … as at the time the originating process was filed, and (b) … (c) must state the source of the deponent's knowledge of the matters stated in the affidavit concerning the debt … and (d) must state the amount claimed by way of interest, and (e) must state whether costs are claimed and, if so, how much is claimed for costs, indicating: (i) how much is claimed on account of professional costs … and (ii) how much is claimed on account of filing fees, and (iii) how much is claimed on account of the costs of serving the originating process, and (f) must state when and how the originating process was served on the defendant." 35 No such affidavit was before Malpass AsJ. 36 Provision is made for summary judgment in UCPR Pt 13. R 13.1 provides: "(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief … : (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff …" 37 There was before Malpass AsJ no evidence in compliance with sub-para (b) of r 13.1(1). 38 Accordingly, it was submitted on behalf of Mr Katerinis, whichever form of judgment was given was given irregularly. 39 The powers to set aside judgment upon which Mr Katerinis relies are conferred by UCPR Pt 36 r 15 and r 16. 40 R 15 provides: "(1) A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith." 41 Although senior counsel for Mr Katerinis contended, as set out above, that the judgment was entered irregularly, he effectively conceded that the irregularities alone would hardly be sufficient to warrant the exercise of the court's discretion under this rule. 42 R 16 relevantly provides: "(1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) it is a default judgment, or (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order, or (c) …" 43 It is also necessary to note two other sub-rules. Sub-rules (3A), and (3B) provide: "(3A) If notice of motion for the setting aside or variation of a judgment or order is filed within 14 days after the judgment or order is entered, the court may determine the matter, and (if appropriate) set aside or vary the judgment or order under subrule (1), as if the judgment or order had not been entered. (3B) within 14 days after a judgment or order is entered, the court may of its own motion set aside or vary the judgment or order as if the judgment or order had not been entered." 44 On behalf of Mr Paneras and Ms Pailas it was submitted that sub-r (3A) imposes a time limit of 14 days on the making of an application under r 36.16. If that were correct, Mr Katerinis' notice of motion is well out of time. It is of some note that, while r 36.16 has been in the UCPR since their commencement (15 August 2005), sub-rr (3A) and (3B) were inserted with effect from 7 September 2007. I am satisfied that sub-r (3A) was not intended to impose a time limit on any application to set aside judgment; rather, it was intended to extend the operation of sub-r (1), which gives the court a general power to set aside or vary a judgment or order before, but not after, entry of the judgment or order. That is, sub-r (3A) treats a judgment or order as not having been entered for a period of 14 days after entry. Mr Katerinis is not debarred, by any time limit imposed by sub-r (3A), from pursuing the notice of motion. 45 The power conferred by sub-r (2) is limited to default judgments and judgments or orders made ex parte. Sub-r (1) (and sub-r (3A)) is not so limited. 46 The principles upon which the discretion to set aside a judgment is to be exercised are well known and not in doubt. Although, in respect of default judgments and judgments given summarily, the test is stated in slightly different terms, there is little, if any, difference in substance. Whichever form of judgment is sought to be set aside, the applicant must satisfactorily explain the failure to defend the proceedings, and establish the existence of an arguable (and bona fide) defence on the merits. The explanation for the failure to defend must be one accepted as substantially truthful; the facts supporting the existence of an arguable defence on the merits must be such as to be worthy of acceptance by a (different) tribunal of fact. In respect of default judgment, the principles are dealt with extensively in Ritchie's Uniform Civil Procedure NSW in the notes to Pt 36 r 16 and do not need repeating except in the briefest fashion. The court must balance the interests of the plaintiff against those of the defendant. The test is what is required by the interests of justice: see Reinehr Industrial Lease and Finance Pty Ltd v Jordan (NSW Court of Appeal, 4 June 1974, unreported); Stollznow v Calvert [1980] 2 NSWLR 749; Adams v Kennick Trading (Int) Limited (1986) 4 NSWLR 503. 47 Relevant factors include the regularity of the judgment, the reasons for the default, any delay in taking steps in having the judgment set aside; any prejudice to the plaintiff caused thereby; and, so far as it may be judged, the defendant's prospects of success in the proceedings if re-opened. 48 The position in relation to setting aside summary judgment is not substantially different. An explanation for the failure to appear must be provided; and that the defendant has a bona fide defence on the merits must also be established. 49 In either case, the defendant must identify a proposed defence, and produce evidence to support it. But the court does not embark upon the determination of the proposed defence, or an evaluation of the evidence adduced in its support: Simpson v Alexander (1926) 26 SR (NSW) 296; 43 WN (NSW) 76; Adams v Kennick Trading. 50 What a defendant must do is adduce evidence of facts which, if established at the trial, will afford a defence; and, of course, must establish that the defence is to be advanced bona fide. 51 That is subject to the qualification that, if the judge hearing the application is persuaded that the proposed defence, either by reason of the sufficiency of the advanced evidence to establish the defence, or by reason of his or her assessment of the lack of credibility of the witness or witnesses to the evidence supporting the defence, would be entitled to refuse the relief sought. The former is merely another way of examining whether the defendant is able to produce evidence of a bona fide defence on the merits. The assessment of credibility of witnesses goes further. As I hope I have made clear, it would be a rare case in which relief would be refused because a judge hearing such an application concluded that the evidence was incapable of belief. But such cases are conceivable, and, in those circumstances, refusal to exercise the discretion would be an appropriate course to take.

(This conversation was not denied by Mr Battersby.) 61 Mr Katerinis asserted that Mr Battersby told him that Mr Paneras and Ms Pailas were not going to "chase you" for summary judgment. (This was denied by Mr Battersby.) 62 Mr Battersby contacted him again in late September or early October 2007, telling him that Mr Kitas had served a defence and a cross-claim and asking Mr Katerinis to meet with him and the barrister briefed in order to prepare an affidavit in reply to the cross-claim against Mr Paneras and Ms Pailas. Mr Katerinis did in fact do this; Mr Battersby sent him a draft affidavit which, after some corrections, he swore and returned. He then gave oral evidence in the proceedings against Mr Kitas before Malpass AsJ. 63 Mr Katerinis' case is that, on this evidence, assuming it were accepted by the tribunal of fact, he could establish an agreement (for value) with Mr Paneras that he and Ms Pailas would not take action, or enforce judgment, against him; alternatively, that, having regard to the steps he had taken in co-operating with them in their pursuit of Mr Kitas, they are estopped from enforcing the judgment. 64 The response on behalf of Mr Paneras and Ms Pailas took two routes. Firstly, an attack was made on Mr Katerinis' credit. Presumably, this was to show that the defence he seeks to assert is not bona fide and/or that his evidence is so suspect that it falls within the qualification to the general rule that, in considering setting aside judgment, the court does not embark upon an assessment of the veracity of the facts said to go to make up the defence. 65 It is true that there are issues about Mr Katerinis' reliability as a witness. For example, in his affidavit he said that until he was served with the Bankruptcy Notice he was unaware of the judgment. In cross-examination he conceded that this was not true. That it is not true is thoroughly established by the voluminous and undisputed correspondence that has been put before the court on behalf of Mr Paneras and Ms Pailas. 66 There is some substance to the attack upon his credibility. However, there is also much in the evidence, that of Mr Battersby in particular, that tends to corroborate what Mr Katerinis said as to the substance of the conversations, and the agreement he asserts. Certainly, there is no doubt that he gave a level of co-operation to Mr Paneras and Ms Pailas, and Mr Battersby, surprising in circumstances in which a statement of claim had been served upon him, and even after the notice of motion had been served upon him. As mentioned, he went to the length of attending the process servers in order to collect each document; he provided information and an affidavit in support of the claim by Mr Paneras and Ms Pailas against Mr Kitas, and he gave oral evidence. 67 What the tribunal of fact would make of this is not for me to evaluate. Although the entire transaction and arrangements have unusual features (Mr Paneras and Ms Pailas appear to have behaved in matters concerning their own financial arrangements, with an astonishing level either of casualness or naivety - for example, while not in possession of contractual documents signed by either ESPD or any of its directors, they provided a large sum of money which they paid, not to ESPD, but into Mr Katerinis' personal account). 68 I am not prepared, and not able, to conclude that Mr Katerinis' evidence would be wholly rejected, and certainly not that it would be rejected in relation to its essential features. 69 The second response made on behalf of Mr Paneras and Ms Pailas was to examine the evidence and contrast it with the pleading in the proposed defence. It is true that there are some divergences between the two. However, in essence the proposed defence pleads a course of conduct on the part of Mr Paneras and Ms Pailas, Mr Battersby and Mr Katerinis which, it is not impossible, could be held to amount to an agreement and/or circumstances justifying estoppel. 70 Accordingly, I have come to the view that Mr Katerinis has established an arguable defence on the merits.

At a glance

Court

Decision date

Before

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Judgment (10 paragraphs)

Parties

Cases Cited (2)

Cited By (4)