GI 322 Pty Limited v Micevska

The nature of the proceedings

1. The plaintiffs' claim against Ms Micevska relates to her liability on guarantees she provided in respect of the indebtedness of a company controlled by a Mr Hammoud, with whom she was associated, Premium Services Australia Pty Ltd ("PSA"). There were in fact two loans emanating from the first and second plaintiffs, who are related companies, respectively, each supported by a mortgage over property owned by Ms Micevska to secure her personal guarantee. The first property, referred to in the proceedings as the "Moss Vale property", is the subject of a registered first mortgage; and the second property, the "Ambarvale property" is subject to a "general charge" and unregistered second mortgage.
2. While a number of issues are raised by Ms Micevska in answer to the plaintiffs' claim for possession of the properties, substantially she claims against the first and second plaintiffs relief from unconscionability under the provisions of s 12CB Australian Securities and Investments Commission Act 2001 (Cth) or, alternatively, under s 7(1)(b) Contracts Review Act 1980 (NSW).
3. Yazbeck Law is the legal practice who witnessed Ms Micevska's execution of the various security documents and provided a required certificate of independent legal advice to the first mortgagee on or about 17 December 2021. Ms Micevska's claim against Yazbeck Law is based upon two familiar categories in this area of legal professional liability, the first being a breach of fiduciary duty by acting for her when they were under a conflict of interest; and the second is in negligence for breach of the duty of care owed by a legal practitioner to the client. Most of the argument before me today, so far as category 1 is concerned, has centred around the alleged breach of fiduciary duty aspect of the case. Category 1 consists of files maintained by Yazbeck Law when acting for Mr Hammoud and related proprietary companies he controlled during 2021.

Applicable principles

1. I have been greatly assisted by written submissions prepared for Ms Micevska and signed by Mr Fernon SC and Ms Cooper-Hackman of counsel, who appears with him, and by the oral submissions of Ms Cooper-Hackman today; and by the written and oral submissions of Ms Avery-Williams of counsel, who appears for the fifth cross-defendant.
2. There is no real argument about the principles to be applied when exercising the discretion to order discovery of a class or classes specified in an order under r 21.21 of the Uniform Civil Procedure Rules 2005 (NSW). It is important to bear in mind that discovery is a means by which the Court requires the compulsory disclosure of documents in the possession of a party under penalty. I accept the applicability of the statement by Brereton J (as his Honour then was) in In the matter of Metal Storm Ltd (subject to a deed of company arrangement) ACN 064 270 006 [2016] NSWSC 306 referred to by counsel for Ms Micevska. His Honour said (at [17]): "… The purposes of discovery include not only obtaining relevant evidence, but also reducing surprise and promoting fairness by putting parties in an equal position at trial so that the parties are 'playing with all the cards face up on the table'."
3. It is the case, as the parties agree, that by force of r 21.2(4) UCPR discovery may only be ordered in relation to documents that are relevant to a fact in issue. That concept is defined by r 21.9 UCPR: "… a document or thing is to be taken to be 'relevant to a fact in issue' if it could, or contains material that could, rationally affect the assessment of the probability of the existence of that fact (otherwise than by relating solely to the credibility of a witness), regardless of whether the document or thing would be admissible in evidence." As it is not necessary that the document would be admissible in evidence then, to that extent, while the test is similar to the test of relevance for the purpose of admissibility under s 55 Evidence Act 1995 (NSW), it is not identical. The test of relevance for discovery is somewhat broader than under the Evidence Act.
4. The parties agree that primarily the determination of whether a fact is in issue depends upon the pleadings. In their written submissions, Mr Fernon and Ms Cooper-Hackman have gone further and said that one can look to the evidence exchanged to determine relevance for the purpose of discovery. In that regard, as much reference has been made in argument on behalf of Ms Micevska to the affidavit evidence that has been exchanged in anticipation of the hearing as to the pleadings themselves. Ms Avery-Williams has taken a different point of view, with respect, and has argued that relevance must be determined according to the pleadings and not by reference to affidavits, which may not even be read at the eventual trial.

Resolution of the relevance issue

1. I am of the view that the issues have to be identified by reference to the pleadings. This is fundamental in adversarial common law civil litigation. Although in a slightly different context, the purpose of pleadings was authoritatively stated by the High Court of Australia in Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70. The unanimous Court stated the principle as follows (at 664): "Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings." (Citations omitted; my emphasis.)
2. From the formulation of the categories sought, by reference to the passages in Ms Micevska's affidavit affirmed on 6 March 2024, to which Ms Cooper-Hackman took me, and by reference to the passages in the affidavit of Patrick Yazbeck, the principal of Yazbeck Law, sworn on 11 July 2024, I could conceive of a case whereby an argument could be pleaded that Mr Yazbeck's knowledge of the business interests of Mr Hammoud and his related entities, including the level of indebtedness of those entities, and the extent to which he had guaranteed that indebtedness, could be taken as suggesting to an experienced solicitor that he at least may have been very thinly spread, if not overstretched, in regard to the financial commitments of his various enterprises; even if the experienced solicitor was not directly aware of any defaults in respect of any part of his indebtedness. I note that there is some evidence in respect of two of the transactions where Mr Yazbeck may have been on at least constructive notice, if I can put it that way, that there may have been a problem. This arises from his evidence at paras [21]-[23] of his affidavit. It might be the case where a conflict of interest could be established on the basis of those matters vis à vis the interests of Ms Micevska in assuming her obligations as guarantor of the borrowings of PSA, one of Mr Hammoud's entities, from the plaintiffs. But no such case is pleaded. I accept the argument of Ms Avery-Williams in that regard in respect of each of the transactions involving Mr Hammoud and his companies making up the various parts of category 1.
3. To make things clear, I am of the view that although not each transaction referred to in category 1 is exactly contemporaneous with 17 December 2021, when the certificate of advice was given and the security documents executed, they are sufficiently proximate in time as they seem to run from the early part of 2021 to the early part of 2022 to be capable of giving rise to concern. Nor am I of the view that the consideration Mr Hammoud was employing proprietary companies other than PSA for various of the transactions is determinative. On Mr Yazbeck's evidence (at [10]), he is clear that his retainer emanated from Mr Hammoud in respect of each of the transactions and Mr Hammoud was the ongoing point of contact from whom instructions emanated in respect of each matter. It seems to me, taking a broad view of that evidence, those transactions would not be irrelevant for lack of precise contemporaneity.
4. The difficulty is the state of the pleadings. I should say that from the evidence of Ms Micevska I was taken to, it is clear that when Mr Hammoud met Ms Micevska on a social occasion on 23 November 2021, he had a lot to say about all of these various transactions identifiable as the transactions referred to in Mr Yazbeck's affidavit. However, to state the obvious, Mr Yazbeck was not a party to that conversation and, to state the obvious, is not said to have been a party to that conversation.
5. The involvement of Ms Micevska with Mr Hammoud's business and financial affairs seems to have come up in conversation between them on 5 December 2021. The circumstances are dealt with (at [102] ff) of her affidavit. She noticed at that stage he was visibly stressed. He asked her, "Can you help me out with some money?". When she explained she did not have, in effect, a large sum of money on hand, he suggested she could use her equity in her real property as collateral for further loans for him. Mr Hammoud, while a cross-defendant, has not been an active participant in the proceedings because he is an undischarged bankrupt.
6. However, the case as pleaded, as I discussed with Ms Cooper-Hackman, is quite different. The claim against the plaintiffs which are the first and second cross-defendants, are averred on the premise that the lenders had at least constructive knowledge of the significant disadvantage of Ms Micevska in entering into the impugned transactions as a secured guarantor. The claims against Yazbeck Law are somewhat different. They formally commence at [46] of the further amended cross claim, filed on 12 April 2024. There is an averment of retainer; the usual averment of the term implied by law that Yazbeck Law would exercise reasonable skilled care and consideration; and an averment of a fiduciary duty in recognisable terms (at [48]) where it said Yazbeck Law owed a duty of care and fidelity to Mrs Micevska. At para [49] there is the following averment: "In acting for each of Ms Micevska, Mr Hammoud and PSA, Yazbeck acted in a position of conflict in relation to the interests of Ms Micevska."
7. There follows (at [50]) a series of averments. Subparagraphs (a)-(s) set out the various ways in which the discharge of the duty to Ms Micevska fell short of what was required of a fiduciary. Effectively, the sum total of the allegation is that they should not have acted for her at all, and that is best encapsulated in para [50(b)] where it is said Yazbeck Law should have advised Ms Micevska to obtain legal and financial advice independently of their firm and Mr Hammoud and PSA.
8. The only identifiable potentially relevant, I will say, particular or "sub-averment" relevant to this wider case is para [50(s)] where it is said Yazbeck Law failed to advise Ms Micevska of Mr Hammoud's default in respect of transactions described by Mr Yazbeck in his affidavit at [32]-[34]. The potential significance of that matter is that the creditors were companies associated or related to the plaintiffs. However, I observe that Mr Yazbeck states he was not aware of any defaults in respect of that transaction as at 17 December 2021.
9. Further and better particulars were sought of the allegation of conflict of interest by Yazbeck Law's solicitors instructing Ms Avery-Williams. By letter dated 28 July 2023, Ms Micevska's solicitors provided the following response: "Yazbeck acted for Ms Micevska, Mr Hammoud and PSA in respect of the proposed advances from [the plaintiffs]. There is no relevant distinction for the security documents, as it was all the same transaction. Ms Micevska does not make such a distinction in the cross claim. As such this is not a proper request for particulars." And that stance is maintained in subsequent requests about the same paragraph.
10. In its defence to the further amended statement of claim filed on 3 May 2024 (at [49] by incorporation of paras [35]-[37]), Yazbeck Law denies it was in a position of conflict because it did not act for each of Mr Hammoud, PSA and Ms Micevska in respect of the loans that Ms Micevska guaranteed. This now seems to be accepted by Ms Micevska's lawyers. It also pleads that having sought particulars of the alleged conflict of interest, it relies upon the refusal of Ms Micevska to provide those particulars. For this reason, the averment is said to be embarrassing, in the technical sense, and liable to be struck out. But I observe it has not taken any steps since May 2024 to move to strike out the cross-claim or the impugned parts of it.
11. Ms Cooper-Hackman also took me to para [103] concerning the asserted shortcomings, as I will put it, in the manner in which advice was given to Ms Micevska and in the short space of time allowed or allocated (at [107]). In particular, there are specific particulars of the shortcomings or disadvantage in the circumstances where the legal obligations were taken on by Ms Micevska. But there is nothing in those particulars which relies on the knowledge derived by Yazbeck Law from acting for Mr Hammoud (or his related entities) in relation to any of the other transactions in 2021; nothing is articulated as an averment incorporating a case based upon those other matters.
12. It is a fundamental rule of pleading that a party is required to plead all the material facts relied upon to make good the case propounded in her statement of claim or cross-claim: e.g. r 14.7 UCPR; and this is no mere technicality. This is a requirement which must be observed for the reasons fully rehearsed by the High Court in Dare v Pulham.
13. This is not an application for summary dismissal where the consideration that the evidence discloses a pleadable, or maintainable, case may be sufficient to ward off and defeat what would otherwise be a compelling application for that relief. This is the moving party's application for discovery from the responding party and it seems to me that in the absence of a clearly articulated case in compliance with the Rules which makes the categories of documents sought relevant in the sense I have already discussed, my discretion should not be exercised to order discovery.
14. At best, in the absence of that clearly articulated case, the relevance of the documents might go to questions of the credibility of those who have sworn affidavits on behalf of Yazbeck Law in the sense of challenging the recollection to which they have ascribed in their affidavits. But, with respect, Ms Cooper-Hackman has not relied upon that which would not be a permissible use of discovery anyway.
15. It is also premature to consider whether, having regard to the evidence to which I have been taken and which I have summarised in this judgment, the evidence will be permitted to run beyond the existing pleadings at the trial. That would be pure speculation. Given the pleading in response to the further amended statement of cross-claim and the particulars given, or not given, in answer to the request for further and better particulars of [49], the only safe assumption is that, were the case to be opened on the broader basis which I have adverted to as a possibility, objection would be taken and likely upheld so that the evidence would not be allowed to run beyond the pleadings.
16. In the circumstances, I refuse to direct that the fifth cross-defendant provide discovery in accordance with category 1.

Ruling on category 2

1. Category 2 seeks discovery of the metadata from Yazbeck Law's computer system, documenting the creation or amendment of a deed of rescission of a contract to sell one of the properties securing Ms Micevska's personal guarantee. That matter is dealt with at [118]-[122] of the further amended statement of cross-claim. It is also dealt with in Ms Micevska's affidavit of 6 March 2024 at para [272] ff where she says that she does not recall any conversation with Ms Stephanie Efstathiou, a solicitor in the employ of Yazbeck Law, about the deed of rescission, nor does she recall any advice about what it means to rescind a contract.
2. Ms Efstathiou has affirmed an affidavit of 11 July 2024. She deals with the deed of rescission and its creation at [85] ff and at [88]. In particular she says Mr Hammoud, in response to an email she sent him, requested that she prepare a deed of rescission of that contract for sale. In that email, Mr Hammoud said he had been instructed by Ms Micevska to proceed with the refinance on her behalf, which I take to be the second loan agreement the subject of these proceedings.
3. It is evident from that and from what I have marked Exhibit "C" in these proceedings that Ms Efstathiou's evidence is that she prepared that deed of rescission on 4 March 2023. This seems to be corroborated by extant emails to which she refers. Ms Efstathiou says that she telephoned Ms Micevska on 7 March 2023, which appears to be the conversation that Ms Micevska cannot recall. She also says that she received Ms Micevska's Hotmail address from her during that conversation and emailed the deed, which obviously must have been in existence if that occurred.
4. Significantly, (at [91]), Ms Efstathiou says that at 3.49 pm she forwarded the deed to the purchaser's solicitor and apparently it was returned by way of exchange on 11 March 2022 (see [93]). Although this is a separate transaction, as Ms Avery-Williams submits, I am of the view that it is undoubtedly related to the borrowings, when one considers the two transactions to which I have earlier referred. And it seems to me that it is evident from what Ms Efstathiou says that Mr Hammoud was the moving party in relation to the deed of rescission.
5. Now, the evidence before me suggests, and this is not the final hearing, that Ms Etstathiou efficiently prepared the deed on the day she was asked but did not act on it until she spoke to Ms Micevska on the 7th. She says in that conversation her instructions were - my word, not hers - "confirmed". She more or less immediately sent the deed to Ms Micevska and five minutes later to the plaintiff's solicitors.
6. My small understanding of these things suggests to me that while discovery of that metadata would show when the document was created and by whom within the legal firm, it would not show from whom the instructions emanated, self-evidently. It would also show, I accept, that had it been amended at some time, when that amendment took place. I interpolate, there is no suggestion on the evidence that there was an amendment but were it otherwise and were my grasp of the facts in that regard deficient, it still would not show who gave the instructions for the amendment.
7. I am prepared to accept that even having regard to the limitations of the pleaded case, to which I referred in my first ruling about the asserted conflict of interest, that the consideration that Mr Hammoud was the first person to suggest rescission and that Ms Efstathiou acted on that, on her version subject to confirmation, assists Ms Micevska's case about that issue.
8. The production by discovery of the metadata would obviously confirm the dates, but there does not really seem to be any dispute about what Ms Efstathiou says, other than the suggestion that might be implicit in Ms Micevska's affidavit that the conversation of 7 March 2022 did not occur. However, that is not going to be determined one way or another by reference to the metadata.
9. Where there is no suggestion in any of the evidence, let alone a pleading, that there has been any amendment, there is no fact in issue, in respect of which the metadata may provide evidence one way or another. I have to say I am left with the impression, with respect, that seeking this material in particular in relation to that document, rather goes beyond demonstration of a dispute of fact that needs to be resolved; it has about it the flavour of fishing. I am not satisfied that Ms Micevska has demonstrated that the discovery should be granted in that category, notwithstanding the fact, doubtless it would be a very simple thing to provide discovery of. I reject category 2.

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