This is an application by Peter Zhu (the second defendant), of which notice was given in a Notice of Motion filed on 3 July 2024, for leave to file a cross-claim against the respondent, to whom I will refer to as Mr Epstein. Mr Epstein is not presently a party to the proceedings. The application for leave is opposed by Mr Epstein, who is represented today by the same solicitors as the solicitors who represent Gemi 184 Pty Ltd (the first defendant) in the proceedings.
The background to the application is that the first defendant is a commercial lender which, in 2020, lent money to a property developer.
The plaintiff gave a third party guarantee for repayment of the money by the borrower, which was secured by a mortgage over a property in Queensland. Default occurred as a result of which the first defendant has taken possession of the property.
The plaintiff commenced proceedings in 2021 against a number of defendants, including the lender, although the lender's role in the proceedings is of limited relevance to the current application. More pertinently, the second defendant is the father of the plaintiff; the third defendant is a principal of the borrower; the fourth defendant is a solicitor who acted for the borrower and the fifth defendant, more recently added, is another solicitor who, to use neutral language, was involved in giving legal advice to the plaintiff and who is not relevant to the current application. The second, third and fourth defendants are alleged to have had some association in dealing with each other in relation to property development.
In the Statement of Claim filed on 1 September 2021 the plaintiff alleges that she went to a meeting on 5 May 2020, which was attended by the second, third and fourth defendants, at which some representations were made to her. Relevantly, the representations are pleaded in paragraphs 9 and 10 of the Amended Statement of Claim filed on 27 April 2023, in the following terms:
"9 At the 5 May Meeting, the second, third, and fourth defendants represented to the plaintiff that:
a. the third defendant was involved in a property development project at Gosford, NSW (Gosford Project);
b. the third defendant was refinancing certain loans for the Gosford Project;
c. the loan was for the third defendant;
d. the third defendant needed the plaintiff's assistance in order to get the refinance;
e. the assistance to be provided by the plaintiff would also be of assistance to the second defendant who had some involvement in the Gosford Project with the third defendant and Macarthur Projects; and
f. the assistance required was for the plaintiff to sign certain documents and provide the Property as security,
(together, the Refinance Representations).
Particulars
i. The Refinance Representations were made orally by the second third and fourth defendants to the plaintiff at the 5 May Meeting.
10 At the 5 May Meeting, the second, third and fourth defendants represented to the plaintiff that:
a. there was no risk to the plaintiff in signing the documents or providing the Property as security to the loan was a short-term loan which would be repaid quickly;
b. the plaintiff would not have to pay any monies to the first defendant;
c. there was no risk that the plaintiff would lose possession of the Property;
d. the third and fourth defendants could be trusted;
e. the fourth defendant was a solicitor; and
f. the third and fourth defendants would not lie to the plaintiff or trick her into signing any agreements.
(together, the Risk Representations).
Particulars
i. The Risk Representations were only made orally by the third and fourth defendants to the plaintiff at the 5 May Meeting.
ii. The Risk Representations were made by the second defendant by adopting by confirmation the content of the Risk Representations."
In paragraph 48 of the Amended Statement of Claim it is alleged that the representations were "in part" in relation to future matters. The plaintiff alleges that the representations were misleading and deceptive for reasons that she gives, and she says that she relied upon them for the purposes of agreeing to guarantee the loan and to provide a mortgage over her property in Queensland.
The second defendant filed a Defence on 19 November 2021. It was amended on 3 July 2024. He responds to the allegations about the representations made on 5 May 2020 in paragraphs 7, 8 and 8A. Those paragraphs are set out below in a way which reveals the amendments made on 3 July 2024.
"7 In respect of the maters set out in answer to paragraph 9 of the FASOC, the second defendant admits that the Refinance Representations were made to the plaintiff by the second, third and fourth defendants in his presence and says further, to the extent that any of the Refinance Representations were made by him, he was repeating representations that had previously been made to him by the third and fourth defendants and Justin Epstein, which he understood at all relevant times, to be true and correct and was thereby passing information on and not making any representations in his own right.
8 In respect of the matters set out in answer to paragraph 10 of the FASOC, the second defendant denies making any of the Risk Representations to the plaintiff, save to note say that he admits introducing the fourth defendant to the plaintiff as a solicitor and admits confirming to the plaintiff that he had been informed by the third defendant that refinance was arranged which had been confirmed by Justin Epstein. The Second Defendant says further that the Risk Representations were to do with facts and matters unknown to him.
8A In further answer to paragraph 10 of the FASOC, in the event that the Risk Representations are found to have been made by the second defendant by adoption of the content of them as pleaded and particularised, which is denied, such representations made by him were reasonable if found to be a representation as to future matter within the meaning of section 4 of the Australian Consumer Law as:
a. in a meeting shortly before May 2020 and antecedent to the Risk Representations, the third defendant and fourth defendant together represented to the second defendant that:
i. The Gosford required a loan of about $2 million to pay arrears in interest to the first defendant;
ii. Refinance of the Gosford loan was guaranteed for the principal loan with the first defendant once the arrears were paid;
iii. The refinance would repay the loan of about $2 million;
iv. There was no risk for the plaintiff if a loan was advanced because the first defendant would refinance the loan and the mortgage of the plaintiff's property would then be removed.
v. The first defendant was preparing the documents."
Particulars
a. The meeting took place in the fourth defendant's office.
b. Both the third and fourth defendant were present.
c. The third defendant orally made the representation referred to in 8A (a) above.
d. The fourth defendant orally repeated the representation referred to the in 8A (a) (iv) above; and
e. The fourth defendant, by his silence adopted and confirmed the content of the other representations pleaded in paragraph 8A above.
b. In the course of the meeting referred to in 8A(a) above Justin Epstein was joined into it by telephone and was informed of the consideration being given by the second defendant to approach the plaintiff and seek to have her out her property up for security for approximately a $2million loan from the first defendant to pay for the interest arrears. Justin Epstein by himself and as director of the first defendant represented to the second defendant that:
i. he (Epstein) was organising the refinance of the second defendant's projects including the loans advanced by the first defendant to The Gosford;
ii. there was no risk to the plaintiff in providing her property as security;
iii. the refinance would take approximately 1 month and it provided for the loan to be advanced to pay interest arrears and that the release of the security of the property was included in the refinance."
It will be observed that by the amendments to the Defence in July 2024 the allegation in paragraph 7 was expanded to include a repetition
of representations previously made to the second defendant, not just by the third and fourth defendants, but also by Mr Epstein. The allegation in paragraph 8 was also expanded to add an allegation of a confirmation provided by Mr Epstein about the represented refinance.
For current purposes, the defence of the third defendant generally denies what is in paragraphs 9 and 10 of the Amended Statement of Claim to the extent that it relates to him and the defence of the fourth defendant generally denies what is in paragraphs 9 and 10 to the extent it relates to him.
On 19 November 2021, shortly after the original Statement of Claim was filed, the second defendant filed a cross-claim against Mr Epstein. That document was not identical to the document the second defendant now seeks leave to file, but the burden of it was materially the same.
At the time that the original cross-claim was filed on 19 November 2021, the second defendant was an undischarged bankrupt by reason of a sequestration order that had been made against him on 11 November 2011. Mr Epstein made an application to have the original cross-claim dismissed and, on 25 March 2022, that application was acceded to with the result that the original cross-claim was dismissed and the second defendant was ordered to pay Mr Epstein's costs. The original cross-claim was not decided on its merits but dismissed because it had been filed by an undischarged bankrupt.
On 5 October 2022, the sequestration order previously made against the second defendant was annulled and, in two stages in July 2024, the second defendant paid the costs he had been ordered to pay to Mr Epstein when the original cross-claim was dismissed.
As a matter of substance, the burden of the cross-claim, which the second defendant now seeks leave to file, addresses two key matters, namely: conversations which the second defendant alleges he had with Mr Epstein prior to the meeting with the plaintiff, his daughter, and the third and fourth defendants on 5 May 2020, in which the second defendant alleges that Mr Epstein said certain things about the finance to be provided to the borrower and; secondly, the second defendant's reliance upon those conversations.
The allegations of the conversation said to be had with Mr Epstein are in paragraph 4 and 5 in the following terms:
"4 In or about April 2020, in the course of a telephone conference call between the cross-claimant, the third defendant, the cross-defendant and in the presence of the fourth defendant, the cross-defendant made representations to the cross-claimant in trade and commerce that:
a. As to the property development project that the third defendant was undertaking through his company, The Gosford Pty Ltd ('The Gosford') at Gosford, NSW (The Gosford Project);
b. the cross-defendant was arranging for the refinance of certain loans taken out by the third defendant and the third defendant's company, The Gosford, in respect of The Gosford Project, (Gosford's Refinance);
c. for the cross-defendant to finalise The Gosford's Refinance, the third defendant and The Gosford had to borrow funds (the Proposed Loan) to repay interest owed by the third defendant and/or the Gosford to another Gemi company which the cross-defendant was associated with through Gemi Investments, and
d. the third defendant needed the plaintiff to be a guarantor on the Proposed Loan and to provide a mortgage over the Property for the Proposed Loan,
(together, the Gosford Refinance Representations).
Particulars
i. The Gosford Refinance Representations were made orally by the cross-defendant over speaker phone, in the company of the cross-claimant/second defendant, third defendant and the fourth defendant. The third defendant summarised the requirement of The Gosford's need to borrow funds to pay for outstanding interest owed by The Gosford and that the cross-claimant/second defendant was considering asking the plaintiff to provide her property as security in circumstances where it had been explained to him that there was no risk to the plaintiff in making her property available as security.
ii. The cross-defendant adopted the representations by stating his confirmation that the statements made to the cross-claimant by the third defendant were true and correct, by his own representations as to the re-finance arrangements which he, the cross-defendant l1ad put in place and his silence as to any other state of affairs.
5 Further, in the course of the telephone conference call referred to in paragraph 4 above, the cross-defendant represented to the cross-claimant that:
a. he (Epstein) was organising the refinance of the third defendant's projects and loans to The Gosford including the loans advanced by the first defendant and or its related entities within Gemi Investments in relation to The Gosford Project;
b. there was no risk to the plaintiff in providing the Property as security;
c. the refinance would take approximately 1 month and the loan was to provide funds to pay interest arrears on the Gosford's existing loan and that the release of the security on the property was included in the refinance;
d. the Property would be released straightaway after refinance. (together, the Gosford Risk Representations)
Particulars
i. The Gosford Risk Representations were made orally by the cross-defendant over speaker phone to the cross-claimant, in the company of the third defendant and the fourth defendant."
The allegations of reliance are set out in paragraphs 12 and 13 of the proposed cross-claim and are in the following terms:
"12. The cross-claimant relied on the Gosford Refinance Representations and the Gosford Risk Representations as pleaded herein when he agreed to introduce the plaintiff to the third and fourth defendants on 5 May 2020 to execute the Proposed Loan, guarantee and mortgage documents which are the subject of these proceedings.
13. The cross-claimant would not have agreed to introduce the plaintiff to the first, third and fourth defendants nor to seek her assistance in The Gosford's Refinance were it not for the cross-defendant's Refinance Representations and Risk Representations."
There is no suggestion that there is any limitation issue in relation to these claims which the second defendant wishes to bring against Mr Epstein.
The proceeding is set down for hearing in February 2025. There is no suggestion that, if the second defendant is granted leave to file the cross-claim, there will be any prejudice to Mr Epstein being able to prepare to participate in that hearing. Counsel who appears for Mr Epstein quite properly accepted that that is not the case in circumstances where Mr Epstein's solicitors are already acting in the matter on behalf of the first defendant.
As should be apparent from the foregoing, the second defendant's Defence was amended on 3 July 2024 with the result that, as of today, it already raises allegations in the proceedings which are very similar to those which are now sought to be introduced by the cross-claim. In particular, the second defendant contends that, to the extent that the representations he is alleged to have made relate to future matters, he had a reasonable basis for making those representations by virtue of what he was told by Mr Epstein amongst others: paragraph 3A(3).
In relation to the question of delay, the respondent's counsel submits that there has been an extensive delay for making this application for leave to file the cross-claim. In my opinion, that is correct. The sequestration order, which was a barrier to the second defendant filing the cross-claim earlier, was annulled in October 2022, which is not quite two years ago. There is affidavit material which has been put on by the second defendant about why this application was not made earlier, but the explanation given is fairly described by the respondent's counsel as vague and it is given in circumstances where it could have been provided with much more precision and clarity if it were to be accepted as not only an explanation for the delay, but also an excuse.
However, the question of delay in this case has to be considered in the context of whether any prejudice will be caused to Mr Epstein if leave is now given. Having accepted that there will be no prejudice from Mr Epstein now being required to participate in the trial in February 2025, the only prejudice identified by Mr Epstein is the fact that the cross-claim is sought to be filed after Mr Epstein has already put on an affidavit in the proceedings.
It is submitted that that sequence, being first Mr Epstein's affidavit, then the cross-claim, exposes Mr Epstein to a forensic prejudice. Mr Epstein has filed two Affidavits, the first of which was filed on 15 September 2021, which was adduced into evidence on the application as Exhibit 1. A review of that Affidavit makes clear that there is no prejudice to Mr Epstein from him having put on that evidence prior to the cross-claim being filed, so long as Mr Epstein remains able to put on further evidence after the cross-claim is filed.
The second affidavit from Mr Epstein was filed on 12 August 2024, which was after the application for leave to file the cross-claim was filed and after the Defence of the second defendant was amended on 3 July 2024.
In those circumstances, I am not persuaded that the sequence has exposed Mr Epstein to any forensic prejudice which ought to preclude the second defendant from filing the cross-claim if it is otherwise appropriate.
The other matter to which I would refer is that, if leave to file the cross-claim is not granted, there would be nothing to preclude the second defendant from commencing fresh proceedings against Mr Epstein in which the same allegations are made, and the same relief sought. That is, in my view, a relevant matter because the discretion that I have whether to grant leave needs to have regard to the matters set out in ss 56, 57, 58 and 59 of the Civil Procedure Act 2005 (NSW), which include a concern to avoid multiplicity of proceedings. Indeed, if the second defendant were to take that course and file fresh proceedings, it is difficult to imagine circumstances in which those proceedings would not properly be consolidated with these proceedings and heard in February 2025.
Apart from delay, there are two matters identified by Mr Epstein as reasons why leave ought not be granted, which are, first, some defects in the pleading that is proposed to be filed and, secondly, the contention that the cross-claim contains allegations which are inconsistent, contrary to r 14.18 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
Taking the first matter first, I accept the submission that if the pleading is deficient then that is a reason why leave to file it ought not be granted. The degree of deficiency, which might properly lead to that result, in my view, would be the kind of deficiency which would render the pleading liable to be struck out if it were not a cross-claim in these proceedings, but a Statement of Claim in fresh proceedings: Horton v Jones (1939) 39 SR (NSW) 305 at 305 (Jordan CJ); Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWSC 1073 at [10-11] (Barrett J).
The specific criticisms made of the pleading are set out in the following paragraphs, and I will address them one by one.
First, paragraph 6(a) of the proposed cross-claim alleges:
"6 At all material times, the cross-claimant relied upon the Gosford Refinance Representations and the Gosford Risk Representations and acted in the belief that the representations were true by reason of:
a. The cross-defendant was a director of the first defendant and through it and Gemi Investments carried on a business of lending money to persons and entities involved in property development and he relied on the cross-defendant as a director of the lender to disclose all relevant matters to a person such as the cross-claimant who could influence a third party such as the plaintiff to provide her Property as security for a loan;"
The submission is made that the reference to a person "such as the cross-claimant who could influence a third party such as the plaintiff to provide her Property as security for a loan", is ambiguous and impermissibly vague. I do not accept that submission. The allegation is a statement of a reason why the second defendant says he relied upon Mr Epstein. Although possibly over-engineered, it is no more than a reference to an expectation of disclosure by Mr Epstein, to a prospective provider of a security, or someone who is known to have influence over a prospective provider of a security, such as her father.
Secondly, it is submitted that paragraph 8 is deficient because that paragraph begins with the words "For the purposes only of this cross-claim and without admission unless expressly stated". The second defendant then repeats enumerated paragraphs from the Further Amended Statement of Claim. There is no substance in this complaint. UCPR 9.3 contemplates this form of pleading by cross-reference to other pleadings in the case which, presumably, is why UCPR 9.7 requires a cross-claimant against a third party to provide that person not only with the cross-claim but also a copy of all the preceding pleadings.
The criticism of paragraph 8 was more specifically narrowed to the fact that the cross-reference is made "without admission", but this formulation does not make the allegation in paragraph 8 deficient. It is a customary formulation in circumstances where the cross-claim is brought on a contingent basis, namely, should the cross-claimant be found liable to the plaintiff.
Criticism is also made of paragraph 9, but the position in relation to paragraph 9 is no different in substance to paragraph 8.
In relation to paragraph 11, this is a paragraph which provides as follows:
"Further the Gosford Refinance Representations and Gosford Risk Representations were made in relation to future matters within the meaning of s 4 of the Australian Consumer Law for which there was no reasonable grounds for making and were misleading."
By reference to the detail of the Gosford Refinance Representations and Gosford Risk Representations set out earlier in the cross-claim, Mr Epstein submits that the representations are not generally in relation to future matters, although it is accepted that some of the Gosford Risk Representations are. In those circumstances the generality of paragraph 11 is criticised.
I have some sympathy for this submission because it is common to see allegations that representations are "in relation to future matters" without any specificity being provided by the pleader so as to enable the other side to see how the argument is put. Nonetheless, paragraph 11 goes no further than it says, and if the Gosford Refinance Representations and the Gosford Risk Representations are not in truth in relation to future matters, as that term is understood in the authorities, then paragraph 11 will have no work to do. It is not, for the reason of generality, impermissibly deficient.
Reference is also made to paragraphs 12 and 13, which are set out above. The heart of the criticism of these paragraphs is that the key allegation of the second defendant's reliance on the representations said to be made by Mr Epstein are vague. In particular, it is said that the allegations presuppose an agreement between the second defendant and some unspecified person to introduce the plaintiff to the third and fourth defendants. That reading of the paragraphs overcomplicates what is clear from the text read as a whole.
The reference to an agreement is not intended as any kind of formal contract, the performance of which required the second defendant to introduce the plaintiff to the third and fourth defendants. It is merely a statement of the events which happened as alleged elsewhere, namely, that the second defendant decided to introduce his daughter to the third and fourth defendants.
Further criticism is made in relation to paragraph 13 where the reliance is said to be not only introducing the plaintiff to the first, third and fourth defendants but also "seek her assistance". I agree that this is vague and would benefit from some particularisation, perhaps provided in response to a request. However, in circumstances where the cross-claim seeks an indemnity for any liability which the second defendant has to the plaintiff in the circumstances which are pleaded in the Statement of Claim and the second defendant's Defence, in my view, it is tolerably clear what is intended by paragraph 13. It will be a matter for the parties, but Mr Epstein might consider it to his advantage to try and seek to have that limited by a request for particulars. In any event, the terms of paragraph 13 do not warrant a refusal of leave to file the cross-claim.
The final pleading point that is made is that there are things missing from the pleading, in particular the detail of what exactly the second defendant did in reliance on the representations alleged to have been made by Mr Epstein. I do not think this takes it any further than what is in paragraph 13. Overall, the cross-claim is sufficient to reveal to Mr Epstein the claim that he will be required to meet at trial from a pleading point of view.
The final point that is made relates to an inconsistency which in fact does not appear in the cross-claim but it is said to arise from paragraph 7 of the second defendant's Defence which is set out above. It is submitted on behalf of Mr Epstein that paragraph 7 admits that the representations were made in his presence, but then goes on to plead that, to the extent any of the representations were made by him, he relies on certain matters. I agree that there is a tension in this pleading, but I do not think it is an inconsistency as contemplated by UCPR 14.18. It is not ideally expressed, but it is clear that the certain matters which are relied upon by the second defendant to the extent that any of the representations were made by him, is pleaded in the alternative to the second defendant's primary position, namely the denial that he made the representation which is implicit in the admission that the representations were made by others in his presence.
In characterising paragraph 7 in that way, I have had regard to paragraph 9 of the Amended Statement of Claim to which it responds. Paragraph 9 contains an allegation about representations being made and gives particulars of the conduct said to have constituted those representations. As a totality, paragraph 9 deals both with the conduct and also the characterisation of that conduct. In those circumstances, the pleading in paragraph 7 of the Defence about whether the representations were made ought not to be confused with the specific pleading about the conduct which occurred.
For those reasons, I do not think paragraph 7 offends the law in UCPR 14.18.
The same submission is made in relation to paragraph 8 but that paragraph in my view is perfectly clear and free of inconsistent allegations.
[3]
Orders
I made the following orders on 21 August 2024:
1. Grant the Second Defendant leave to file and serve a cross-claim in the form annexed to the Notice of Motion dated 3 July 2024 by 23 August 2024.
2. Direct the Respondent to file a Defence to the cross-claim by 20 September 2024.
3. Order the Respondent to pay the costs of the application.
[4]
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Decision last updated: 23 August 2024